The seven rules of negotiating

Author: Janet de Silva

Date: March 20, 2007
Publication: Sydney Morning Herald (subscribe)

With the property market hotting up in sought-after areas of Sydney and Melbourne, you may be
thinking it's finally time to buy or sell. But how on earth, in the daunting world of real estate, can
you secure the best price?
It's not just the sharp suits and gleaming smiles of estate agents that cause many people to feel
out of control when it comes to negotiating the sale or purchase of a property. Even seasoned
investors get nervous when the hard bargaining begins.
As any agent will attest, there's an art to negotiating a successful property deal. Not only do you
have to be able to haggle - and a surprising number of people find this difficult - but you also
need to do it in a way that doesn't show you up as greedy, gullible or green.
Here are some tips from the experts.
Knowledge is power
Much of the work involved in successful property negotiating occurs long before you sit down
with the other party.
Whether you are buying or selling, it's important to have a solid grasp of what the property is
worth. "You need to be able to negotiate with some authority by arming yourself with facts and
figures," says Melbourne-based buyer's agent, Michael Ramsay, a former president of the Real
Estate Buyers' Agents Association of Australia.
A good place to start is to research comparable sales in the area, the history of the property and
what it sold for last time. Basic data on recent property sales in most areas of Australia is
available free from the Australian Property Monitors' website (www.homepriceguide.com.au),
which also supplies detailed information for a fee. Buyers should also pay a visit to the local
council to check about any development applications or covenants (such as a heritage overlay)
that affect the property. Where possible, a builder's appraisal is also recommended.
"If a builder has inspected the property and found that the plumbing is suspicious, this is
something you can point out to the agent to justify why you don't want to pay the vendor's asking
price," Ramsay says.
Making an offer
Got a fair idea of what the property is worth? Now you're ready to sit down at the negotiating
table. With a private treaty sale, the advertised asking price is the best price the vendor hopes to
achieve. Negotiating is a necessary ritual.
Typically, the buyer offers a lower price, knowing that he or she can raise this offer if the vendor
refuses to meet it. It may take a good deal of to-ing and fro-ing from each party with small,
incremental offers and counter-offers until a price is agreed upon.

But how low should your first offer be? If the asking price on an unit is $500,000, will you
poison the deal with an offer of $430,000? Is the rule of thumb to offer 10 per cent less than the
asking price?
Much depends on what the property is worth, Ramsay says. "You shouldn't flinch from putting in
a very low offer if you really believe the property is worth a lot less than its asking price. But you
need to be well informed about the property."
Ramsay warns that you risk offending both vendor and agent if you can't justify your offer.
"Some agents and vendors will walk away from a buyer they don't think is genuine," he says.
Buyer agent Byron Rose, of Sydney's Rose & Jones, agrees. "It's important to keep the agent and
vendor on side. Basically, you want to keep the door open all the time. Once the door is slammed
shut, you've lost your leverage."
If you put in a realistic offer and it is rejected, what then? Buyer agent Deborah West, of
SydneySlice - a company with clients across Sydney's east, west and lower North Shore -
suggests asking the vendor to put a counter-offer on the table before you make your next offer.
"You should always try to get the vendor to engage in negotiations, otherwise you can end up
bidding against yourself," she says.
As a general rule, agents recommend against putting in your best offer first.
"If you put in an offer too high, too early, you end up feeding vendor expectations and pushing
them higher," says West. "You need to hold back some money for the negotiating process."
Beating the competition
One of the most difficult things about buying a property through a private treaty sale is the lack
of transparency in the bidding process. If an agent tells you there is a higher offer from another
buyer, it's not always easy to find out if that buyer really exists or the agent is simply trying to
get you to cough up more money. You can try asking the agent to show you the offer in writing,
but he or she is not legally obliged to do so and most offers tend to be verbal.
West says a good strategy in this situation is to drill the agent about the other offers: "If there are
no other genuine buyers there will often be inconsistencies or mistakes in the agent's feedback.
Being in constant close contact with the agent is the key in this situation."
It is also important to ensure the agent has passed your offer on to the vendor. "Have your agent
confirm in writing that he or she has done this, and at what time," Ramsay says.

Pre-auction offers
Amid reports of renewed investor interest in the Melbourne and Sydney property markets, many
buyer agents are advising their clients to make a pre-auction offer to secure the property ahead of
a hotly contested sale.
West believes one of the keys to a successful pre-auction bid is to be ready to exchange
contracts. This means completing all "due diligence" such as building and pest inspections and
having the sale contract reviewed by your solicitor ahead of making the offer.
The aim is to be one step ahead of the competition. "If you can provide a signed contract and a
deposit cheque for immediate exchange, your offer will be the most attractive to the vendor,"
says West, who employed this strategy recently to secure a Californian bungalow in Artarmon on
behalf of a Hong Kong-based investor.
Figuring that the property would be hotly pursued at auction, West made a pre-auction offer
within three days of the property coming on to the market. Two other competing offers emerged,
but eventually it came down to West's client and one other party. When the other party submitted
an offer that was $2000 above West's final offer, the vendor - keen to complete the sale that
afternoon and knowing that the other party was ill-prepared - gave West the opportunity to match
the other offer.
"We exchanged contracts within the hour of our offer being accepted," recalls West.
Conditional offers
When you are negotiating for a property outside the auction system, you have the opportunity to
put conditions on your offer. It's an opportunity not to be missed, insist buyer agents, who nearly
always stipulate a lower deposit amount, such as 5 per cent rather than the industry standard of
10 per cent.
Putting a time limit on the offer is another tip. "Leaving an open-ended offer on the table gives
the agent an opportunity to shop around at the next open for inspection," says West.
Also consider the timing of your offer. Many buyer agents, for instance, steer clear of making an
offer ahead of weekend inspections.
"You don't want your offer sitting on the table for other buyers to view during a Saturday open
for inspection," West says.
Byron Rose says he often makes a pre-auction offer late on a Saturday to outsmart other
prospective purchasers.
"It puts us in the box seat. Most people like to relax on Sundays rather than run around and buy
properties."

Negotiating with an agent

Setting and negotiating a price can be equally stressful for sellers. Most of us hate the idea of
asking for concessions, but in situations where stock is scarce - as is currently the case in parts of
Melbourne and Sydney - it's worth trying to negotiate a discount on your agent's commission.
Alternatively, you may like to suggest a sliding scale where the agent is given extra incentive for
selling the property at the highest price.
According to West, while it is difficult to avoid paying less than about 2 per cent commission in
Sydney's east, agents are often more flexible in the western suburbs where commissions can be
as low as 1 per cent, although 1.5 per cent is more common.
Ramsay, who specialises in Melbourne's inner eastern and bayside suburbs, says agents'
commissions are often negotiated, especially on properties above $1 million.
That said, some companies will not negotiate, preferring to forfeit the property rather than bend
company policy, he says.
CASE STUDY: RICHARD AND SARAH
Guidance simplifies things
It took four days of negotiations, three offers and the services of an experienced buyer's agent
before Richard and Sarah Ralphsmith clinched the deal on their property in a bayside suburb late
last year.
The three-bedroom Californian bungalow failed to sell at auction and languished on the market
for several weeks until a similar house in the same street sold at auction for an unexpectedly high
price.
"Suddenly, all the under-bidders at that auction realised that the passed-in property up the street
was a bargain," says Richard, a deputy creative director at a national advertising agency.
So Richard and Sarah engaged the services of buyer's agent Michael Ramsay.
"We had felt reasonably confident bidding at auction because it was a transparent process, but
bidding blind over the phone was a very different matter," Richard says.
Four parties were involved at the start, but in the end two parties battled it out.
Figuring that the other bidder might be scared off with a final knockout bid, Ramsay advised his
clients to raise the stakes by $4000. "Our aim was to blow the other bidder out of the water, "
says Richard. The strategy worked and the couple secured the house for $11,000 more than their
first offer, which pleased the couple.
"It was great to have an experienced negotiator in our corner. We didn't have to stress about the
process at all."
7 RULES OF NEGOTIATING
1. Arm yourself with facts and figures*
2. Point out any defects in the property
3. Try to keep the agent and vendor on side
4. Don't put your best offer first
5. Understand the importance of timing
6. Keep your emotions in check
7. Know when to walk away