Buying a House? This is Better Than A Pay Rise.
It’s probably the biggest purchase you’ll make in your private life. You will be tied to the deal for years. If you can save £20,000, that is equivalent to earning an extra £25,000 (if you pay 20% tax). You need to be able to negotiate well, the playing field is not level – they are using an estate agent whose job it is to negotiate on their behalf, and this is what they do day in, day out in this very area.
The Common Mistake when Buying a House
You’ve been looking for a house for a while (you’ve been through dozens of front doors), and not found quite the right one, then you come across this little beauty on-line. It looks perfect: right size, good garden, brilliant location. So you arrange to go and see it. But when you get there you make your first mistake just as you get out of the car, because you both fall in love with it. It has now become an emotional purchase and you are already thinking ‘I don’t want to lose this one – there will never be another like it – ok, I’ll pay the asking price if I have to!’. To make things worse, as you are walking up to the front door, your other half says ‘don’t mess this one up – I love it!’
The pressure is on. The estate agent has already told you that loads of people are interested in this one and that this type of property doesn’t come up very often. This one is new on the market so someone is going to snap it up straight away.
The Estate Agent – Let’s Understand Who You are Negotiating With
First rule: don’t tell them too much. You don’t want them to dislike you, but you don’t need them to be your best friend. Remember that they need you. Once they have a property to sell, the one and only thing that they need is a buyer, and preferably lots of them. They won’t start ignoring you for any social reasons. They will then want to find out lots about you:
- What is your budget? Careful with this one. If your budget is £300,000, tell them it is £250,000, but be a little vague about the exact nature of it.
- When can you move? Make sure they know you can act quickly – you want to be one of the first they contact if a new house comes up.
Turn the tables on them; be ready to ask them loads of questions – get them talking. Ask them their views on the market. Remind them that the market is still a bit tough and uncertain. If they say that the market is great then don’t argue with this – it will mean that there are lots of properties available – more choice for you ( a ‘buyer’s market’ – use this phrase). If the market isn’t so great, then this means that it is slow for them (also good for you – you can’t lose!).
One of the biggest priorities for an estate agent is to move properties quickly. It is not good for their business to have properties hanging around on their books. If a house is on the market for £300,000 and they are going to make 2% from the sale, the difference between a sale at £300,000 and one at £280,000 is only £400 to them.
Here’s how the conversation went between the seller and the estate agent when they first met:
Estate Agent: ‘This is a beautiful house; it’s really marketable – we will be able to sell this one really easily’
Seller: ‘What is it worth?’
Estate Agent: £270,000 – £275,000
Seller: ‘What would you market it at?
Estate Agent: ‘£295,000’
The thing to remember is that market value for houses is very hard to gauge. It is much more about what someone is prepared to pay.
Make sure they know that you are looking at other attractive options, but do not tell them which houses.
The Seller – This is Where the Power Lies
You need to meet them. If the first viewing is with the agent only, tell them that next time you would really like to meet the seller. Tell them it’s because you want to ask about living in the area or something. You may not always get to meet the seller, but it is worth asking.
You want the seller to like you. Tell them you really like the property – tell them you really like what they have done with the place. Ask them why they are selling – always – and pay attention to the answer. If they are leaving the area, then it will be for a job probably, so they will need this to be a relatively quick sale. If they are trading up (to a bigger house), ask them if they have found the new house – if so they really need this sale to go through quickly. – they won’t want to lose the new place.
Don’t fall for all the selling – the seat outside where they love to have a glass of wine in the evening watching the sun go down. They did that twice after they moved in. Then they were too busy watching Coronation Street.
It’s Offer Time – How to Structure Your Negotiation
Be bold. What is the worst that can happen? If you go too low, the chances are that you will not automatically lose out – it is in the estate agent’s interest to come back to you and tell you that you need to increase. How low you should offer can only be assessed on a case by case basis, but go for it. Talk to a friend about it who is not emotionally attached to the purchase – and choose a friend who is good at this sort of thing. Make the number un-round – it will sound more credible (£277,600 – not £275,000 or £280,000)
You will have to go through the estate agent so be very succinct with your words – don’t say too much! Simply say this to them:
‘We have had a long talk about this, and have decided that we are prepared to make an offer, and we can pay £XXX,000’.
Then do not say anything. Even if you are met with silence on the other end of the phone, do not say anything. The estate agent will tell you it is too low. Don’t move. Tell them that you understand the seller’s position, but that is the offer that you are prepared to make. The conversation will end quickly – if it doesn’t, then be the one to end it quickly.
They will come back to you and say that the seller cannot accept your offer. They may even say that there are other offers – this may or may not be true. Ask them when the other offers were made, and see if the answer makes sense. If they are evasive, then ask yourself why. Don’t ask what the other offers are.
They will ‘disempower’ themselves to the buyer – it is a good tactic, so you must do the same. Say that you have to speak to your other half, or your parents, or the bank. Do not rush to increase your offer – call them back with one. This way you retain control – even if the call back is 15 minutes later. They will not rule you out – they need options remember.
You will probably have to increase your offer. This is ok. Don’t worry about hearing ‘no’. It is better than them accepting your first offer – this would mean you didn’t go low enough!
Assume that you will have to make 2 or 3 moves. Do not move by the same amount every time – they will expect the same sized move again. Do not make your moves with a bigger increment each time – they will expect even more. Make your moves decrease in size as you offer – this will make them think that they are really squeezing you.
Every time you move place a condition on it: including the carpets etc; taking the property off the market immediately (you don’t want to be gazumped).
Hold Your Nerve
Don’t panic. Keep the dialogue open. Make another offer if you need to – this is why you started low, so that you have room to move if you have to. Then be bold again. Don’t say ‘final offer’, but indicate to them that this is as far as you can go. You need to set your walk away point or break point. This is not aspirational, but worst-case scenario, so that you know where you can go to if you have to. This will stop you paying more than you intended.
So, have a plan, ask questions, make the offers on your terms, and through the whole process stay in control.
‘Only those who risk going too far can possibly find out how far one can go.’ TS Eliot
Do you know anyone who is buying a house? Share this with them – they will thank you!!