There are plenty of negotiating tips online for property buyers. But, oddly, there are almost no tips for sellers.
Partly, that's because if you pay an estate agent, negotiation is one of the things you're paying for. They ought to be good at it. (Though in a hot market, some estate agents get by without having great negotiation skills, a weaker market usually finds them out.) But often, an agent will still want your input to the process. And of course, if you're going for sale by owner, you'll need to improve your negotiation smarts, anyway.
So here are our top tips for vendors negotiating a property sale.
Before You Negotiate
The first rule of good negotiation is to know your bottom line.
That's not the same as knowing what price you want for your property. It's about knowing your priorities, and particularly, knowing your BATNA - "best alternative to a negotiated agreement". For instance, if you can't get a negotiated offer at the right price, is your best alternative to stay put? To invest in extending your home? To rent the property out? To sell at a lower price, as long as it covers your finance obligations? You need to know what is your "walk away" point.
You also need to know your priorities. For instance, if you want a quick sale, perhaps because you need to move overseas for work, you might prefer a cash buyer who can pay a quick deposit rather than a slightly higher price from a buyer who needs finance. The highest price isn't always the best offer.
And make sure you've done your market research. If you have priced your property quite aggressively to try to maximise your profit, recognise the fact, and be willing to come down a little. If, on the other hand, your property is priced to sell, then you won't have as much room to budge on price, so you'll need to think of other concessions you could make (such as conditions in the contract).
The Negotiation Process
It's easy to think of a sale as Price, Offer, Purchase. But in fact, most property purchases are the result of a long process of negotiation, and understanding that process is crucial to getting the right deal.
Following a buyer's first offer, the back-and-forth process can take several iterations. You may want to wait to see what other offers come in, for instance, or you might go back to the buyer with a small concession.
Home inspection results are sometimes used as a pretext for setting the clock back to zero and renegotiating the price. You don't always have to give way on price; sometimes, buyers will be content to pay the agreed price, but on condition that remedial work is completed before settlement takes place. You'll need to do the sums to work out which route is best for you.
During this process, always remember that the game needs to be played, like chess, one move at a time. If you have received a concession - for instance an increase in the offer - always make a concession in return. (Ideally, you and the potential buyer should always be seeing your negotiating positions coming closer together.) Conversely, never give anything away without getting something for it. Even if you don't care about a quick sale, if a buyer asks for more time before settlement, you need to ask a price for that concession - whether it's a better offer, a bigger deposit, or some other condition in the contract.
Many vendors negotiate by simply splitting the difference between the buyer's offer and the asking price. However, that's not always a good idea. Your response to an offer implicitly structures negotiations, and you might be giving the wrong impression. For instance, if your asking price was $700,000 and your buyer offers $500,000, then if you respond by indicating $600,000 would be acceptable, they'll naturally head for $550,000 as their next offer - splitting the difference by halving the gap again.
On the other hand if in the same situation you go to $650,000, you've made a smaller concession - you're saying "You have to come to meet me". You're conceding something, but you are not going the whole way. The buyer might go to $550,000, but if you have to respond, you'll be coming back with a suggested price of $600,000, not $575,000. That's a big difference, but you made the difference right at the start of the negotiation, not at the end.
Most vendors think first and foremost about price, but there are numerous other factors on which you can negotiate. In fact, if your priority is the best price, then you should look to make most of your concessions on non-price factors such as contract conditions, timing, and even included furnishings.
For instance, one nail-biting contract negotiation was concluded with the vendor agreeing to a demand for a full professional cleaning of the property before the handover. The buyer paid a higher price, but was concerned to have as little as possible to do on moving home, since she had a stressful job involving a lot of international travel.
Many buyers will want changes to the settlement date, either to enable a fast move-in, or to give them more time to arrange finance or sell their existing property. That gives you a chance to insist on price concessions. Remember - even if it's no skin off your nose, don't give anything away without a concession being made by the buyer, too. As they say, "fair exchange is no robbery."
Increase Your Options
Buyers will often aim to impress on you that they have other options and that your property is only one of a number that they could buy. Ideally, you should be able to counter this by having other potential buyers in the frame. Aim not just to get one good offer, but to get a number of offers or indications of strong interest. The more options you have, the better.
And of course, if you have the luxury of not needing to sell, that's an option that needs to be emphasised!
Make Timing Work
Learn to make timing work for you. Keep the pressure on your buyer. You can always stipulate a time limit; if they don't get back to you within 24 hours, you'll go to the other bidder to see if they can match the existing offer, for instance. In a hot market, or if you have a sought-after property, that can boost your price handsomely. It's also good to sell quickly - if a house has been on the market for a long time, buyers might not be in a hurry; if you have an offer at the first open home weekend, they may feel they have to get in there or miss out.
On the other hand, if you have the ability to take your time, a vendor's impatience could work in your favour. In that case, let them make the running.
Disclosures are Discretionary
Disclosing too much can lose you money. One vendor actually told a potential purchaser the size of his mortgage - giving away his bottom line in the negotiation. Be very careful to think hard about the possible effect of any disclosure that you make during the negotiation process.
Some kinds of disclosure may work in your favour. For instance, if you moved in and rebuilt the entire property yourselves, so you could bring your kids up in a nice area, that's worth talking about - it shows you're not a flipper, you're asking a fair price for selling a property that's got a meaningful place in your lives. That could just help shift your seller's mind towards "giving" you that last $15,000 step.
You can always say something like "We can't go a lot lower as we have a mortgage to pay off." But never, ever give a number!
How to Negotiate Price as a Seller
On the other hand, keep your ears open for any information that a potential buyer is willing to volunteer.
- Are they under pressure to move by a certain date?
- What options do they have?
- Is this a "head" or "heart" purchase?
- How much of the price will be covered by finance? How sure are they to get it?
- Are they focused on price or are other things more important - no hassle, certainty?
Your Tactics Always Depend on Circumstances
Suppose you have an offer, good, above your BATNA, but not exceptional. Your property has been on the market for two weeks. What are your negotiating tactics here?
They will differ depending on the circumstances. Suppose your alternative is simply to stay where you are - you don't need to sell. Your vendor has seen their dream home and affordability isn't an issue for them. In this situation, sit tight and wait for them to increase their offer.
But suppose you need to sell because of money problems. And your buyer has made it clear they need to move fast but they're not particularly in love with the property as long as they can make the move to your suburb. Do you risk it? You might be better advised to take the "bird in the hand" - perhaps going for one small price increment to get that fast completion.
How to Respond to a Lowball Offer
Some buyers make real lowball home offers. Some of them are "just testing", some are investors for whom every dollar saved increases their rate of return, while others are set on buying but want to make sure they don't pay too much. The latter may just be worried that the market is booming and some agents are setting asking prices way too high - if you've done your market research, you know what your property's really worth, but perhaps they don't.
Don't just react emotionally to a lowball. Work out why you've got a lowball offer. If a buyer offers 10% below your price, are they trying to get a steal? Or is this a sign that your idea of the price you should get is out of line with reality? Or, perhaps, does it reflect the fact that they've identified issues that they think would justify that discount? (That might be the case if, for instance, they really want a 3 bed house, and are putting in an offer on a 2 bed - it's their problem, not yours, if they need to do some building work.)
Your final decision will probably reflect market activity. In a sellers' market, you can afford to pass on a lowball. With a non-standard property in a slow market, particularly if your property has been on the market a while, you may need to consider negotiating.
Handling Counter Offers
If you have the good fortune to find yourself in a multiple offer situation, ensure you make the best of it. You should open a transparent negotiation, telling potential buyers that you have received several offers, and asking them to make a best and final offer. You might ask for a substantial earnest money deposit as well as for indications of price, to ensure you don't end up taking a high offer from someone who in the end can't raise the finance.
Closing the Deal
Having gone through the negotiation process you may be 95% there. At some point, you need to ask yourself if it's enough. Remember your BATNA? How far above your BATNA have you come? Assessing the result of negotiations this way, rather than thinking about how much more you could get if only you push a little more or try a little harder, might help you decide to close the deal.
Don't be greedy. Stock market traders often say "Leave something for the other guy" - that makes sure you take a profit while the market's still going up, instead of seeing it go up in smoke when the market tanks. The same is true of selling your house. Get too greedy, and you may see weeks of patient negotiation closed when your potential buyer walks away.
Don't play games. And don't take it personally. Negotiating the sale of your property isn't about ego, and it's not a judgement on you or your property - it's simply about getting the best price you can.
Alternatively, you could talk to us at Sellable. We'll deal with all the negotiations for you - and we're motivated to get the best price we can on your behalf.