Negotiating When There is Low Supply
So you are out looking for a property on a rain drenched Saturday. It’s your fourth or fifth inspection for the day. It’s around lunchtime, so not only are you wet, cold and miserable, you’re hungry as well.
You are hoping that this is your dream property as the past few inspections left you feeling like you will never find what you are looking for. Hoping that the past two weeks of downpours will minimise your competition and feeling somewhat proud that you managed to brave these harsh conditions, your heart suddenly skips a beat as you see a small mountain of dripping umbrellas at the front door. You finally realise that everyone else had the same idea.
Two thoughts immediately come to mind. Should you just hang your head low and turn around feeling totally deflated once again or do you feel like barging in like a bull in a china shop to beat down the competition.
ANSWER:Don't do either.
Buyers’ Agents face this dilemma every day. Yes through the thick of it all, come hail, rain or sweltering heat, we go through a calm and calculating methodical process to see if firstly the property is suitable and secondly if it is, how do we buy the property before auction at a fair market price.
So now that you have haggled with your better half and agreed that the property is ok, yes not 100% perfect, not even close to what you originally planned to buy, you decide to proceed because you have no energy left too continue looking.
Lesson #1 - Don’t Settle. Patience is your best virtue.
As BA’s we often have to advise our clients to do the same as it may take a few more weeks to find what we are looking for. The less properties on the market, for example in the winter period, the longer it may take you to find the right property.
Lesson #2 - The most useless question for most buyers is “What are you quoting?” or “ What is the price guide?"
The less you speak to the agent, the less buyer input they have by which to gauge how the sales campaign is going. Stand near the agent for a few minutes pretending to admire some mundane feature, and sooner or later you will hear the price guide, which will bring us to…
Lesson #3 - The price guide is NOT the price the vendor wants.
On second thoughts it may not even be the price on the sales agency agreement. In NSW the agent is not allowed to quote less than a figure on the selling agency agreement. Some agents have been know to put “Above $xxx” on the agency agreement without indicating a high price expectation.
Lesson #4 - Expect to pay more…
If you are looking in a very select area where there are very few properties on the market, and an almost zero chance of a high-rise being built next door, such as Bondi Beach, then a good rule of thumb is that at auction you could expect to pay at least 10% more than what is being quoted.
Sale Type – Auction
Agents answer – We think it will sell somewhere between early to mid $700,00’s.
My interpretation – I wonder if the vendor will expect anything less than $750,000.Very unlikely. Based on past experience in situations like this it would more than likely sell for around $770,000; however I would not be surprised if the property sold for closer to $800,000 at auction.
Lesson #5 - Don’t play guessing games.
Your best friend right now is a valuer. Get an independent valuation. Before you actually start looking for a property, interview some valuers, or meeting one from a trusted referral is even better. In order to make this work for you, you will need to be able to get a valuer to commit to doing a valuation, not only on short notice but also within a 24hr time frame. Some will only be able to turn around a valuation in a week or more.
So just when you thought it was going to get easier, it’s not all as simple as that. Most Buyers Agents do not use a valuer and do what is called an “Appraisal”. This may give you a good indication of expected price but does not have the professional input as a valuation does.
Don’t be surprised to find that most valuers will not want to take on a single valuation for an unknown client to those very tight deadlines, but are happy to do so for a buyers agent who give them up to a 100 jobs a year.
Lesson #6 - Don’t forget to do your own research.
Even with a valuation giving you the numbers by which to maximise any potential offer you may make, there are many things you can learn about, that will help you negotiate.
Lesson #7 - For sale by Auction does not mean has to be sold at Auction.
Simply put the vendor has a property to sell at a suitable price and the agent is hired to sell the property at the best price. Anybody can make offers and buy properties before auction.
An agent must take all offers to the vendor unless the vendor has given instructions in writing that either they do not want any offers at all prior to auction or offers only above a certain price should be forwarded to the vendor.
If an agent will not be giving the vendor your offer they must inform you that the offer will not be forwarded to the vendor.
Ask the agent from the beginning if they will accept offers prior to auction. Many agents will not ask or promote to get offers and will only advise you to come to the auction.
Lesson #8 - Get off the block early.
Be on your best game with research. Make sure that you are inspecting properties from the very first (or at the latest, second) inspection. If you only see the property after the second week on the market then good chances that you are far too late.
Lesson #9 - Listen.
Spend as much time as possible at each inspection. Often all I do at the inspection is walk past groups of people and listen to what they are talking about. Some of the things you may pick up are:
• Do people like or dislike the property?
• Are they exited?
• Are they talking about the asking price?
• Do they talk about attending the auction?
• Have they asked for a contract?
• Are they pointing out certain negative aspects of the property?
Lesson #10 - Be selective.
You can maximise the time available to see each property by being a lot more selective as to the properties you short list for inspection.
If you happen to inspect a property and the bedroom looks way too small, make sure that you take notes of the size, even if you have to take out your tape measure. I always carry a digital laser measure with me at all times. So when you are going through the online listings automatically discard any property, which has a room the same size or smaller. The more things you find wrong with properties the shorter your short list for inspections will become and the more time you will have not only to really have a good inspection, but also to negotiate.