You’ve found a home you love. And you’re ready to snap that puppy up before someone else does. But there’s a small problem: you feel like you’re flying blind when it comes to negotiating.
How do you come up with the right offer? Where do you even start?
Sure, you might have an asking price and RV (rateable value) as a starting point, but those figures don’t necessarily reflect a fair price for the property (not to mention the current market).
Then there’s the whole conditions side of things. What conditions should you include in your offer and what should you eliminate, if possible?
Yep…negotiating on a home can feel like a minefield. Especially for first-home buyers.
But don’t let that put you off. If you can clue yourself up on the basics when it comes to negotiating, you’ll be in a much better position to succeed.
Read on to get prepped.
1.Sort your finances first
Yes, you can make your offer ‘conditional on finances’. BUT why not eliminate this condition if you can, as it could be a barrier for the seller.
If it comes down to you and one other buyer who’s offering a similar price but without the finance condition, the seller will most likely go with your competitor. That’s because less conditions means more certainty and a faster sale for them.
Having your finances in order first also means:
- You’ll know your price range (including your top dollar).
- You’ll be able to move faster through the sale process (as you won’t have to wait for finances to be approved).
- The seller will see you as a serious buyer.
2.Do your research
What’s the property worth?
There are a few ways to assess a property’s value:
- Rateable Value (RV) (formally known as government valuation (GV))
This is a property’s current valuation assessed by local authorities and available to the public. But remember, this valuation is simply undertaken to work out what share of rates a household should pay. It’s also only updated every 3 years and doesn’t take into account any improvements made to a property (that didn’t require consents). Because of that, an RV isn’t necessarily an accurate indication of current market value.
- Online valuations
There are lots of online tools available that provide info on a property to help you determine a fair price – for example previous sales prices, estimated value range based on sales of comparable properties etc. Trade Me’s Property Insights is one such tool.
But once again, it’s important to remember that none of these tools will show the full picture. They don’t take into account the condition of the property, for example. Although they can at least give you a starting point.
- Registered valuers
Paying a registered valuer to provide an independent valuation is the most accurate and reliable option as they take into account many of the necessary factors. They’ll inspect the property inside and out and assess things like its condition, location, neighbourhood, size, as well as building materials used etc. Of course, this comes at a cost, so you’ll need weigh up its worth, but it can be a valuable tool when it comes to negotiating.
What condition is the property in?
Completing any inspections and surveys on a property before making an offer will put you in a better position when it comes to negotiating. By doing this, you’ll be aware of any defects, or areas that need attention (and if you can find out costs to fix defects, even better). This will not only help you determine a fair price, but will also mean less condition on your offer (which may make it more attractive to a seller).
Seller’s conditions of sale
They’ll have conditions to the sale too (settlement date, for example), so make sure they work for you before you go any further. In saying that, if you can be flexible and accommodate whatever the seller’s settlement date is or other seller conditions, it may make your offer more appealing.
By asking questions like these, you can tailor your negotiation.
- How long has the property been on the market?
- Why are the owners selling?
- When do they want to sell by?
If you find out that the property has been on the market for a long time and they’re looking to sell urgently, for example, then a lower price offer may be more likely to get accepted.
Or, if settlement date isn’t important to them, then you may feel more confident to include a longer settlement date in your conditions - if that’s something that’s important to you.
Other things to consider:
- Street appeal
- Outdoor space
- Room to renovate
For a full list of what to consider when assessing a property’s worth, download my handy Home Buyers Checklist.
3.The actual offer
So you’ve sorted your finance and done your research. You’ve got a pretty good idea of what a fair offer is, and you know your conditions. You’re ready (albeit a little nervous) to take the plunge, fire your offer out and cross your fingers (and toes) while you begin that agonising wait.
But how do you approach the actual offer?
While it’s tempting to go in with a low offer, thinking you’ll have room to move, it’s important to be realistic.
If you go in too low, you’ll risk offending the sellers or not coming across as a genuine buyer. In saying that, I also don’t usually advise you go straight in with your best offer either. They may counter, so save some room for negotiating.
The key to coming up with the actual figure is in doing the work before you get to the negotiating table. Do your research, understand what the property’s worth, know your top dollar and eliminate conditions, where possible.
Remember, the highest offer is not always the most successful. An offer with a lower price but fewer conditions may be chosen over a higher price with more conditions.
If you’ve reached your top dollar without any luck, and you still have conditions in your offer, you can always consider how you could compromise on these. For example, could you be flexible on the settlement date to accommodate the seller or reduce the timeframe for conditions to be met?
And of course, don’t sign anything before your lawyer has read over the Sales and Purchase Agreement, as this is a legally binding document.
If you need more help wrapping your head around the negotiation process or other free advice on buying a home, get in touch and let’s get you sorted.*
The Finance Marshall
0508 543 627
*This information is of a general nature only and has been written without considering individual circumstances or financial situations. The Financial Marshall, therefore, accept no liability for anyone who relies on this information without first obtaining professional, personalised advice.