Monday, 12 September 2011
So, the property was passed in and you, yes you are the highest bidder! At that moment, not only are you nervous but you are probably thinking what happens next: Trick or treat? Here are some tips to settle your nerves.
Traditionally, the amount of property on the market increases significantly during spring in the lead-up before Christmas, and so too does the number of properties that are passed in. Be prepared!
Unless it is teeming with rain do not follow the agent inside. This is akin to being put in isolation. Even though you have the exclusive rights to negotiate with the vendor, it is critical you stand in a position outside where you can assess whether there is any competition or just family friends who are pretending to be buyers. The impact that perceived pressure can have (not knowing who your competition is or the implied prospect of competition) is a powerful negotiation tool that agents are only too happy to use against you. That aside, standing your ground displays strong body language even though you might be shaking at the knees.
Now, let the games begin. The first step is to ascertain the reserve price. More often than not the reserve is not the price at which the vendor will ultimately sign the contract but rather the vendor’s authorised or asking price which is usually higher to allow for the negotiations. A good question might be “what is the lowest price the vendor will sell for”.
It is at this point that you will need to decide what your strategy is. This should be based on your own research as to what you estimate the property is worth under low competition and at the upper end when there is intense competition. Just because the property has been passed in does not mean that this is market price, it is simply a price point for further negotiation. The market value is what you and hopefully the vendor have assessed it to be based on comparable sales evidence and in reality, they should be the same. The key is to work within the price range you determined and not waiver from it.
From my experience, it is almost impossible to conclude a sale unless both parties are willing to negotiate except when the vendor must sell. The extent of any negotiations will depend very much at which end of the price range the property is passed in for. For example, if the price is at the lower end of your range you have more flexibility but never forget that your aim is to minimise the outcome. Clearly, knowing if there is any competition (in waiting) will affect how flexible you are.
Don’t be frightened to say things like, “This is already at the upper end of what I think the property is worth” even if that is not the case. If there are no other buyers in sight and everybody has left except yourself, then minimise the amount you are willing to counter-offer. Don’t fall in to the trap of making the same counter increments as the vendor. Often the agent will say things like “would you meet the vendor halfway”. Consider your position, always deliberate and minimise the outcome.
Now, just to totally challenge you, consider this. It is a fact that 90% of all communication is conveyed through eye contact and your body language, which puts buyers at a distinct disadvantage compared with the vendor, who has an agent working by his or her side.
As Kenny Rogers once wrote and sang “You got to know when to hold ‘em, know when to fold ‘em, Know when to walk away and know when to run”. Do you have the poker face?
Warwick Brookes is the president of the Real Estate Buyers' Association of Australia.