How to negotiate buying a house

Whether you have your heart set on a house as your new forever home, or you’re planning your next investment, it’s important to go into any negotiation about price with a level head and as much information as you can, until you’re ready to make an offer.

Once you’ve determined how much you can afford to borrow on your salary and found a property that suits you, negotiating a price that works for both you and the seller is another key factor.

If you do not wish to negotiate yourself, you could consider engaging a buyer’s agent, who may be able to take care of some of this work for you. If you are buying a property on your own, however, here are some tips and strategies that might help you secure a good price.

12 tips for negotiating the price of a house

When negotiating the sale price, these are some key things to keep in mind that could help you get a good deal:

1. Do your research beforehand
2. Consider an independent valuation
3. Compare prices for similar properties
4. Understand market conditions
5. Get to know the seller’s motivations
6. Check for potential issues with the property
7. Be finance ready
8. Be prepared to negotiate
9. Leave your emotions at the door
10. Use clear communication and stay calm
11. Have a ‘walk away’ price in mind
12. Make an offer in writing

1. Do your research beforehand

When purchasing a property, it pays to do your due diligence. By arming yourself with as much information as possible on the value and condition of a property, you may be able to more easily identify if the asking price is too high. Likewise, if the asking price for a property seems suspiciously low, you may question the reasoning behind this. Most importantly, doing your research can help you be more confident in making an offer you think is fair.

Explore more: 10 things to consider when buying a house

2. Consider an independent valuation

Understanding the value of a property can help you come to a decision about what you might be prepared to spend on it. An independent property valuation can be a good way to establish what a property’s worth and potentially serve as a guide when it comes to deciding on an offer amount.

A property valuation is a detailed report on a property’s market value, undertaken by a property valuer. A valuation report will typically take into account such things as the size and layout of the property, the structure of the building, the location and surrounding amenities, local council zoning rules and recent sales in the area, as well as market conditions. Valuers charge a fee for this service, and this fee can vary depending on many factors, such as the location and style of home, the size of the block and the complexity of the job. So, it could be a wise idea to get a few quotes and find out exactly what you will be getting before engaging a valuer.

3. Compare prices for similar properties

Another way to help work out the approximate market value of a home is to look at recent sales of similar properties in the area yourself. Generally speaking, it is best to compare properties that have the same characteristics as the one you are looking at, so if you are considering a three-bedroom home on a large block, look for homes of a similar size that have recently sold in the area.

It’s also important, as much as possible, to consider such things as the age, structure and condition of the property relative to others that have sold in the area, as well as the relative proximity to such things as shops and public transport.

You can check the sales history of particular properties and locations with organisations such as Property Value by Corelogic, Domain or Realestate.com.au. However, it could be wise to take online valuation estimations with a grain of salt, perhaps consulting and comparing a few different sources before arriving at a value judgement.

It may also be possible to order this information from your state or territory government, for a fee.

4. Understand market conditions

Developing a good knowledge of the local housing market before you even start looking for a home can give you an edge later on. On top of that, doing your homework about market conditions and how quickly homes are selling in a particular area can give you a clearer picture of the level of competition you may face from other prospective buyers.

You can use tools such as the ones listed above to monitor local listings and observe how long they are on market for, as well as checking the reports for recent sales nearby. You could also attend inspections and ask selling agents for information, or keep an eye on auction clearance rates. If you find the market is favouring buyers (if prices are going down, for example) then it could give you more wriggle room for negotiating the price on a particular property.

5. Get to know the seller’s motivations

When doing your homework on a property it is also a good idea to understand the motivations of those selling the home (the vendor) so you can tailor an offer around their needs. If they need to sell the home quickly (or they are what is sometimes known as a ‘motivated’ seller), then they may be happy to opt for a shorter settlement period, and might accept a lower offer. Conversely, if they are in no rush, some may look for a longer settlement and be willing to wait for an offer that comes closer to their asking price.

It is important to note that the real estate agent who is selling the house, no matter how friendly their manner might be with you, is working for the seller and is therefore acting in the seller’s best interests. For example, an agent may not be willing to reveal if a seller is motivated, for fear that this might drive down the price of the house. As such, it’s worth looking out for other ways to help gauge the mindset of the vendor and how motivated they may be to sell the home.

Some signs which may indicate a motivated seller include an empty home with no furniture or a property that is listed as part of an estate. The amount of time the property has been on the market is also an important clue to help determine the motivation of the seller – if a property has been on the market for a long time, it could potentially be that the seller has not received a great deal of interest, and may be willing to consider your offer. You could ask the agent this question or alternatively search on Google for any historical advertising for that property.

6. Check for potential issues with the property

It is a good idea to find out if there are any current issues with the property you’re looking at, such as structural defects or damage, before you settle on a price. You can ask the selling agent, but a building inspection or pest report carried out by an independent professional could also help shed light on this information. If any concerns are uncovered during these inspections then this could arm you with the facts you need to better negotiate the price of the home and potentially help prevent some unexpected costs further down the track.

Sometimes, the seller of a property will obtain a building and pest report prior to putting the house on the market, and will make this available to any potential buyers to make them aware of the state of the property and any potential defects. This is not a requirement, however, and if there is no building and pest reports available, then you can arrange one yourself.

If you are unable to get a building or pest inspection before negotiating the price, you may be able to make these inspections a condition of the contract. This means if you receive an unsatisfactory report you may be able to terminate the contract, if on reasonable grounds, or use the threat of termination to potentially extract a compromise from the seller, such as a reduction to the purchase price or an agreement from the seller to repair any issues before settlement.

7. Be finance ready

When it comes to negotiating the price of a property, it is important to be financially prepared. This could include knowing your budget so you can position yourself as a serious buyer.

One way you could do this is by considering a home loan pre-approval, so that you know what price range you are likely to be able to afford.

Having pre-approved finance could potentially help demonstrate your standing as a motivated buyer when you need to negotiate your preferred terms, and you could even be able to offer a shorter settlement period, which may be attractive to a motivated buyer.

Pre-approval is a way for a lender to get a sense of your financial situation so they and you know in advance exactly how much they will be willing to lend you, when the time comes for you to make an offer on a property.

It is important to keep in mind that pre-approved finance does not guarantee that your lender will give final approval to your loan. Once you make an offer on a property, your lender will want to obtain a valuation to make sure that you are not paying more than it is worth, and if they feel you have offered too much, they may not give the final sign-off.

8. Be prepared to negotiate

Negotiation is all about strategy. Knowing what you want to do before entering into negotiations will lend you more confidence if there are complications, such as competing offers or a reluctant real estate agent. It’s a good idea to have your plan written down, including the maximum price you feel you want to pay for the property, how much ‘wiggle room’ you have in terms of your budget, and if you are prepared to pay a premium, over and above what you think is fair value, just to secure the property. Keep in mind that it is difficult to predict market conditions, and if you pay too much, you could be facing negative equity if the market falls. And, the higher the price, the more you will have to pay in mortgage repayments, and the more, over time, your loan will cost due to interest.

Explore price scenarios with Canstar’s Home Loan Repayments Calculator

Actually beginning negotiations is as simple as contacting the real estate agent handling the sale. They may give you documentation to fill out, depending on the state or territory, which could include a multiple offer notice, an expression of interest form, or even a copy of the official contract of sale. It’s important to read these documents carefully and understand what it is that you have been presented with – and if it’s a legally binding offer, what happens if you don’t want to go through with the purchase. (It could be a good idea to seek suitably qualified legal advice.)

9. Leave your emotions at the door

Buying a property can be a battle between your head and your heart. Even if you’re in love with a house and you’ve already begun to picture it as your forever home, it’s important to be wary of letting your emotions impact the negotiations for the purchase. Rather than letting your feelings for the property get the better of you, it may be better to focus on the research you have gathered, and be strict on your limits when it comes to your budget and the conditions of sale.

If you decide a home is overpriced and the seller refuses to lower their asking price, then you may need to balance your feelings for the home against the possibility that you may be overpaying, or even committing to a purchase that might stretch your means and budget.

It also may be worth considering what aspects you value the most in a home before jumping into negotiations. For some the value may be solely in the market price of the home, while for others it may be in the convenience the property offers in terms of location or when it is available to be purchased.

Having an understanding of what you value the most in a property early on is important to have a successful negotiation down the track.

10. Use clear communication and stay calm

The way that you act around some real estate agents or private sellers could potentially impact your bargaining power. For example, if you appear particularly eager to buy, they may feel they do not need to move as much in their negotiations. On the other hand, if you play it cool and express no interest at all in a property, and do not at least let the agent know that you are potentially interested, then you may find yourself out of the loop, and you may find out too late that the seller is already looking at or has accepted an offer.

When it comes to buying a house, communicating clearly about your intentions and hopes could help put yourself into the best possible position to get the deal you want.

11. Have a ‘walk-away’ price in mind

One aspect of the negotiation that you may choose to keep close to your chest is your ‘walk-away’ price, or in other words the maximum purchase price that you are comfortable to spend. If you have been particularly open about this, you may not have much room to move during negotiations, as the agent knows exactly where you stand and could try to make you pay as close to that price as possible.

A real estate agent may ask you to reveal your budget, or even the amount you would be willing to offer, but you do not have to tell them this information, especially since they will likely feed it back to the seller. You could instead think about advising that you have adequate finance and that you want to buy the property at market value. If needed, you could provide a market estimate based on your research and instead discuss the value of the property.

12. Make an offer in writing

If you are serious about a property and want to put in an offer, opting to do so in writing and asking for a written response from the sellers could not only show how serious you are as a buyer but could also potentially avoid confusion later on around the price or conditions you are proposing. Offers generally should include how much you’re willing to pay and any conditions of sale, such as repairs, deposit amount and the timeframe in which you could settle.

If a property is advertised as being for auction instead of for sale, you may still be able to make a pre-auction offer. If a seller is particularly motivated, or if clearance rates in the area are low and they are concerned that the property might pass in at auction, then they may potentially be willing to accept a pre-auction offer.shu

When it comes to negotiating the price of a home, being prepared is a great way to boost your confidence. Like most major purchases, doing your groundwork, keeping your emotions out of the decision, knowing your financial limits, communicating clearly and making sure you are seen as a serious bidder could be key to getting the right deal for you.

Cover image source: Dragen Zigic/Shutterstock.com