A Typical Buyer's Negotiation Strategy

[EstatePreneur]

My situation is as follow...

I've done my 'shopping', done some research and narrowed down to 2 properties I like. Both properties are pretty much the same in terms of landsize, both are in neighbouring suburbs (1 suburb adjacent to the other).

Here's my plan and some have been executed...
Place an offer for the 1st and 2nd property, see which one gets accepted first, then I'll buy that one (first accepted).

Now, I've just engaged in negotiation with the vendor of the 1st property.


Property #1
The Vendor
Vendor is very old, reason to sell is moving to a retirement village due to age and retiring.

The Property
Has been on market for 3 - 4 weeks now. REA seems to reveal no one has made any offer so far, she seems to be an honest person and has been very kind and helpful so far.

The Price
Listing price is $425,000.

The Process So Far
Just placed an offer today $391,000, and REA got back to me in the evening saying the vendor has counter offered $420,000.

I told the agent that my budget is around $385k, and the 2nd property seems to be nearing its end of sale (listing price $400k), most likely in 2 weeks time as there's been enourmous offer been made on this 2nd property, and I told her that I don't want to miss out again on a property in that area.

So with that explanation, I'm hoping that she and the vendor will at least don't hold back too long, and would want to accept my offer sooner & at lower price.

Property #2
The listing price is $400k. Has received some offers already including mine. For now, let's put it aside for a while.


Now, dear somersoftians, experts and gurus, if you're in my position...

1. What would be the next thing you do? (i.e. counter offer with $5000 increase as soon as the REA told you the vendor counter offered with $420k)

2. Should I wait a while (say 2 days) before making another offer? So that I don't look desperate to the vendor/agent?

3. Should I make clear to the agent that I'm also very interested with the 2nd property in the other suburb, and if that my offer on that 2nd property is accepted first, then I'll go for that one rather than this 1st property?

4. Now the vendor has gone down a bit (by $5000), how much do you think he's willing to go lower? And how much should I top up my offer?

5. What's the DO's and DONT's when it comes to negotiating with vendor, especially in a case like mine?

 

[sailor]

Hi EP, I'm not the worlds greatest negotiator, but have read a bit, and had a couple of fortuitous deals...so here's my thoughts for what they're worth:

My situation is as follow...

I've done my 'shopping', done some research and narrowed down to 2 properties I like. Both properties are pretty much the same in terms of landsize, both are in neighbouring suburbs (1 suburb adjacent to the other).

Here's my plan and some have been executed...
Place an offer for the 1st and 2nd property, see which one gets accepted first, then I'll buy that one (first accepted).

Now, I've just engaged in negotiation with the vendor of the 1st property.


Property #1
The Vendor
Vendor is very old, reason to sell is moving to a retirement village due to age and retiring.

The Property
Has been on market for 3 - 4 weeks now. REA seems to reveal no one has made any offer so far, she seems to be an honest person and has been very kind and helpful so far.

The Price
Listing price is $425,000.

The Process So Far
Just placed an offer today $391,000, and REA got back to me in the evening saying the vendor has counter offered $420,000.

I told the agent that my budget is around $385k, and the 2nd property seems to be nearing its end of sale (listing price $400k), most likely in 2 weeks time as there's been enourmous offer been made on this 2nd property, and I told her that I don't want to miss out again on a property in that area.

So with that explanation, I'm hoping that she and the vendor will at least don't hold back too long, and would want to accept my offer sooner & at lower price.

Property #2
The listing price is $400k. Has received some offers already including mine. For now, let's put it aside for a while.


Now, dear somersoftians, experts and gurus, if you're in my position...

1. What would be the next thing you do? (i.e. counter offer with $5000 increase as soon as the REA told you the vendor counter offered with $420k)
I would not rush in with a counter offer, unless there is high demand for this property and I was desparate to have it. I would wait at least 24 hours and tell the REA I needed to think it over and go back to my sums.

2. Should I wait a while (say 2 days) before making another offer? So that I don't look desperate to the vendor/agent?
Yes and yes

3. Should I make clear to the agent that I'm also very interested with the 2nd property in the other suburb, and if that my offer on that 2nd property is accepted first, then I'll go for that one rather than this 1st property?
Yes. I'm assuming there are 2 different REA's involved here.

4. Now the vendor has gone down a bit (by $5000), how much do you think he's willing to go lower? And how much should I top up my offer?
Tis hard to guess at what his bottom line is. Do you know how much he paid for the property and when? Has it had any improvements done during the period of ownership? What are the local equivalent sales like?
Having said that, I would think that if you keep upping your offer and he keeps counter offering...you might meet somewhere in the middle.
OR, just plunge in with a $10K increase in your offer, and say it's your final offer, and give a time limit...like 24 or 48 hours, and say that after that time, your offer will be withdrawn.

5. What's the DO's and DONT's when it comes to negotiating with vendor, especially in a case like mine?

DO put your offers in writing...especially if you can do it on the prescribed forms relevant to your State. This means that you are serious.
DON'T tell the REA how high you can go in the long run.
DO try to stay calm and keep a poker face. (If you have to get emotional...go home and do it in isolation by yourself...or just let it out to us here on SS...we will understand!)

You'll get more opinions as the day wears on for sure. Good luck with it...pls let us know how you get on.

 

[CairnsAgent]

I guess it comes down to how much you want the property? Is it a good buy at the new asking price? do you think they would entertain a counter offer at a lower amount? All the questions we have to ask ourselves every time we make an offer. Will you be heart broken if you miss out on this property? if yes, make a good counter offer, put a time limit on it (e.g i offer $xx dollars but need a response by 5pm tuesday..) then you wont be waiting and wondering.
If you wont be heart broken, do the maths, if they dont add up be prepared to walk away.

This is just my opinion and the strategy I use as a buyer.

Cheers

 

[Dis]

I also think you need to factor in the market conditions in your area. If its a buyer's market and you dont care if you miss out on these two, negotiate away. If it is a sellers market, prices are climbing rapidly, and the property meets all your criteria; then the smartest thing to do may be to pay the full asking price and get the vendor's signiture on the contract ASAP.

There is an oft quoted cliche "Make your money when you buy" I used to think that meant buying below market value. More recently I have realised: aquiring an asset that will perform well over time is more important than saving $10K on a lesser asset.

 

[VYBerlinaV8]

I've made the mistake in the past of not putting an end time/date to my offers. I had one that ran for almost 2 weeks before getting rejected!

Work out your top dollar at which the investment still works, knock off a couple thousand, put it in writing and tell the RE agent that this is the final offer, with an expiry of say 48 hours. Thank them for their time.

 

[karina]

These are the questions I like to ask before submitting an offer

1) how long has the property been on the market (the longer its been on the more negotiating power you have)
2) have there been any offers and for how much?
3) has anything sold recently that is comparable
4) why is the vendor selling (answer may tell you how motivated they are)
5) My favourite question - what is the lowest price you think the vendor might take?

I have called up about properties in the past and had a price in mind, I remember seeing a property advertised at 399k duplex pair in mooloolaba about a year ago. (vendor had paid about 475k for it as part of a property exchange or something so was taking a loss) was in financial trouble and had to sell. I thought maybe 375k might buy it (figure in my head) , asked the agent my favourite question - what is the lowest price the vendor might take? his answer was he was offered 350k and it wasn´t quite enough so more than 350k and your in with a chance. I offered 355k and the vendor pondered over it for a day , said the least he could accept was 360k , I said I would get back to him. Somebody else came in that day and snapped it up for 365k I was a bit too slow with this negotiation! but I guess the point is if I hadn´t asked the question I may have offered too much to start with. Its one of those questions that is great to ask and then shut up until you get a response. Good agents those that should be working for the vendor will say well its listed at 399k so they will take 399k , or put in your best offer and we´ll present it. Some agents however . love these agents when I am buying will disclose a figure possibly even lower than what you had in mind. Another way to word this question is "what price do you think the property may sell for"

You could try increasing your offer by another 5k and see what they counter you with, when I really want a property I sometimes offer to split the difference between what the vendor wants and my original offer.

Goodluck with it let us know how you go.

 

[EstatePreneur]

Hi EP, I'm not the worlds greatest negotiator, but have read a bit, and had a couple of fortuitous deals...so here's my thoughts for what they're worth:

DO put your offers in writing...especially if you can do it on the prescribed forms relevant to your State. This means that you are serious.
DON'T tell the REA how high you can go in the long run.
DO try to stay calm and keep a poker face. (If you have to get emotional...go home and do it in isolation by yourself...or just let it out to us here on SS...we will understand!)

You'll get more opinions as the day wears on for sure. Good luck with it...pls let us know how you get on.

Sailor, thank you for your advice.
I did put my offer in writing, however, the next offer might not be on paper, it would be verbal I suppose, as I'm thinking to make my 2nd last offer, and test the vendor's response. If he comes down again by say $5000, I'll then counter offer with my final offer and this will be done when I also have to put my final offer on the other property, which is in about 1,5 weeks time now.

I never tell the REA how high I can go in the long run, but I did reveal to her that my budget was around $385k, I tried to show the REA & the vendor that my first offer is already at the top of my limit by putting $391k as my first offer.

I do stay calm whenever meeting the REA & the vendor (surprisingly for a first timer like me ), but I do admit I get stressed out for the time being thinking what's the best (or at least good) ways to go through this whole process of negotiation. I can feel my brain is melting at this very moment as I do the typing

Errr, yes sailor, there are 2 different REA's involved.

I guess it comes down to how much you want the property? Is it a good buy at the new asking price? do you think they would entertain a counter offer at a lower amount? All the questions we have to ask ourselves every time we make an offer. Will you be heart broken if you miss out on this property? if yes, make a good counter offer, put a time limit on it (e.g i offer $xx dollars but need a response by 5pm tuesday..) then you wont be waiting and wondering.
If you wont be heart broken, do the maths, if they dont add up be prepared to walk away.

This is just my opinion and the strategy I use as a buyer.
Cheers

CairnsAgent, I should've included this info in my first post.
There is another property with approx. 150sqm2 smaller land size in the same street that's listed at $470k, but the building is better. (note: this property is not one of those 2 I mentioned in my first post)

I'm not sure if this property is undervalued or not, since it's listed at $425k and there's a property on the same street that goes for $470k.
A few more info, this property #1 is sitting on a sloping block of land, which is not good for reno price later on?

I won't be heart broken, but at the same time, I think I'll miss out on a good buy (good price).

I also think you need to factor in the market conditions in your area. If its a buyer's market and you dont care if you miss out on these two, negotiate away. If it is a sellers market, prices are climbing rapidly, and the property meets all your criteria; then the smartest thing to do may be to pay the full asking price and get the vendor's signiture on the contract ASAP.

There is an oft quoted cliche "Make your money when you buy" I used to think that meant buying below market value. More recently I have realised: aquiring an asset that will perform well over time is more important than saving $10K on a lesser asset.

Dis, that's right. From what I've observed so far, I think it's a buyer's market.
Your suggested strategy will be my second option, I mean, I'm planning to counter offer (my 2nd offer) with $5000 increase, and see what the vendor's response.

If the vendor lower his price again by $5000, then I assume the vendor is willing to further lower the price, and therefore we might meet somewhere in the middle later if I do decide to keep topping up my offer.

In response to your wisdom, I see huge potential of this property. Lots of things can be improved (ahh, I think I forgot to mention that this isn't a newly built property), the REA said it's about 10 years old. And it's all brick.

I've made the mistake in the past of not putting an end time/date to my offers. I had one that ran for almost 2 weeks before getting rejected!

Work out your top dollar at which the investment still works, knock off a couple thousand, put it in writing and tell the RE agent that this is the final offer, with an expiry of say 48 hours. Thank them for their time.

Hehe VYBerlinaV8, did you already come across somersoft before you made that mistake in the past?
Your suggestion is what I've been thinking of doing. But at this stage, I'm still trying to figure out the trade offs between my first option (slowly go up) or 2nd option (full attack mode )

====================================================
Hmm, well, pls forgive me if I try to get everyone involved, but here's the trade off I can think of so far, my next step:

Option 1
Counter offer with $5,000 increase, from $391k to $396k, see the vendor's reaction. If he comes back with counter offer, I'll wait until next week (which is my last week to decide), and come up with my final offer $400k plus a condition to the vendor to reply within 24 hours, if not, I'll withdraw my offer completely, and go for the 2nd property in the other suburb.

Advantage:

1. Test the vendor, how much lower he's willing to go
2. Your thoughts here??

Disadvantage:

• 1. Cause the vendor to think I can keep topping up my offer
• 2. Your thoughts here??

Option 2
Slam in my final offer $400k, and tell the REA & vendor to get back to me in 24 hours, or else, I'll go for the 2nd property in the other suburb (time frame: 1,5 weeks from today), so I'll do nothing now and wait until the next week (last week to make decision to buy this 1st property or the 2nd property)

Advantage:

• Force the REA to tell and encourage the seller to take my final price, and make them think that they will lose me purchasing his property altogether (note: the agent once revealed no offer has been placed so far despite the property has been in the market for more than 3 weeks now, and that the vendor wants to really sell his property)
  
• I think with this option, in the end, I'll get better price than the 1st option if the vendor surrender at $400k
  
• Your thoughts here??

Disadvantage:

• I may be seen as non serious buyer, because I don't respond to the counter offer from the vendor ($420k), and risk losing it to other buyer (I do hear from the REA this property has been inspected by quite a number of buyers)
  
• Your thoughts here??

=====================================================

p.s. I keep pressuring the REA & Vendor by telling them that I only have 1,5 weeks to decide, either this one or the other one.

Okie dokie, any dis/advantages anyone could think of? Or maybe things I can do to better my strategies (option 1 and option 2)?

 

[CairnsAgent]

How long has it been on the market? if it was a great buy or in anyway undervalue...it would be gone straight away! Nothing that is a "bargain" stays around for more than a few hours these days.
I cant give you an idea on whether the property is a good buy or not as I dont know the area, the land the buildings etc, but if you have done your due dilligence and you think it is a good buy then you should start to seriously think about buying it, there is nothing worse than missing an opportunity that you knew was good because you procrastinated, I have done this myself in my earlier days and STILL regret the missed opportunity today...luckily tho' new opportunities come along every day or two

 

[EstatePreneur]

These are the questions I like to ask before submitting an offer

1) how long has the property been on the market (the longer its been on the more negotiating power you have)
2) have there been any offers and for how much?
3) has anything sold recently that is comparable
4) why is the vendor selling (answer may tell you how motivated they are)
5) My favourite question - what is the lowest price you think the vendor might take?

Another way to word this question is "what price do you think the property may sell for"

You could try increasing your offer by another 5k and see what they counter you with, when I really want a property I sometimes offer to split the difference between what the vendor wants and my original offer.

Goodluck with it let us know how you go.

Hi Karina,
1. It's been on the market for about 4 weeks now.
2. As far as I'm aware there hasn't been any offer, last time I asked the agent was last week.
3. I had a look at the RPA data, median house price is $480k. And there's another house with 200sqm2 smaller block of land in the same street selling for $460k. But this property is definitely not as new, at least 13 - 15 years old judging from its look.
4. The seller is retiring, therefore has to move into a retirement village, I think he's very motivated to sell (at least he just showed that by lowering his offer by $5k)
5. Hmm, I asked the REA the other day, it would be above $400k, I think the vendor might sell it at $400k no more/no less.

Ok Katrina, I'm going to do just that, do my second offer with $5k increase and see what's the vendor reaction.

How long has it been on the market? if it was a great buy or in anyway undervalue...it would be gone straight away! Nothing that is a "bargain" stays around for more than a few hours these days.
I cant give you an idea on whether the property is a good buy or not as I dont know the area, the land the buildings etc, but if you have done your due dilligence and you think it is a good buy then you should start to seriously think about buying it, there is nothing worse than missing an opportunity that you knew was good because you procrastinated, I have done this myself in my earlier days and STILL regret the missed opportunity today...luckily tho' new opportunities come along every day or two

Hi again CairnsAgent, it's been on the market for almost 4 weeks.
One thing I'd like to know. The property is sitting on a sloping block of land, is this good or bad? If bad, how bad? (i.e. it will cost more when redeveloping the entire property later, maybe leveling up the land?)
Or there's no significant difference with a flat land?

 

[CairnsAgent]

How sloping?
A good architect or an earthmover can deal with most slopes.
If it is an extreme slope it may be undevelopable.
What is your strategy in the long term for this property? do you want to buy / hold / redevelop or just get in hold and get out?
If you plan to redevelop then this is paramount....if not dont worry too much unless it may affect the resale later.

cheers

 

[EstatePreneur]

How sloping?
A good architect or an earthmover can deal with most slopes.
If it is an extreme slope it may be undevelopable.
What is your strategy in the long term for this property? do you want to buy / hold / redevelop or just get in hold and get out?
If you plan to redevelop then this is paramount....if not dont worry too much unless it may affect the resale later.

cheers

Errr, not sure how to measure it, but from the top end (the gateway) to the bottom end (the lowest part of the ground in the backyard), it's approximately 1.5m.

My strategy is:

1. Live in it and rent out the other bedrooms for as long as possible, but I think I won't sell it, so I'll hold
2. Wait until I have enough savings (borrowing capacity) and purchase my another property (most likely a house)
3. I will move to that second property as my place of residence, and rent my first property out, the whole lot.
4. I will redevelop the 1st property when the condition is no longer liveable, probably before I rent out the property, so with a newly redeveloped property, I can get high rent return and increase in value as well

I think that's what most investors would do? Or perhaps there's some better plans?

 

[CairnsAgent]

I wouldn't be too worried about that sort of land gradient.
Just check to see waht happens to the rain water run off from other properties...
cheers