Australia: Negotiating the Price

Overview

When buying a property, it usually pays to haggle over the price, even if you think it’s a bargain. Don’t be put off by a high asking price, as most sellers are willing to negotiate. In fact, sellers generally presume buyers will bargain and rarely expect to receive the asking price for a property (although some vendors ask an unrealistic price and won’t budge a cent). In popular areas, asking prices may be unrealistically high (up to double the real market price), particularly to snare the unsuspecting and ignorant foreign buyer. It’s a good idea for your peace of mind to obtain an independent valuation (appraisal) to determine a property’s market value. If a property has been realistically priced, you shouldn’t expect to obtain more than a 5 or 10 per cent reduction.

Timing is of the essence in the bargaining process. Generally the longer a property has been for sale and the more desperate the vendor is to sell, the more likely a lower offer will be accepted. Some people will tell you outright that they must sell by a certain date and that they will accept any reasonable offer. You may be able to find out from neighbours why someone is selling, which may help you decide whether an offer would be accepted. If a property has been on the market for a long time, e.g. longer than six months in a popular area, it may be overpriced (unless it has obvious defects). If there are many desirable properties for sale in a particular area or developments that have been on the market a long time, you should find out why, e.g. there may be a new road, railway or airport planned.

Before making an offer, you should find out as much as possible about a property, such as the following:

• When it was built;

• Whether it has been used as a permanent or a holiday home;

• How long the owners have lived there;

• Why they’re selling (they may not tell you outright, but may offer clues);

• How keen they are to sell;

• How long it has been on the market;

• The condition of the property;

• The neighbours and neighbourhood;

• Local property tax rates;

• Whether the asking price is realistic.

For your part, you must ensure that you keep any sensitive information from a seller and give the impression that you have all the time in the world (even if you must buy immediately). All this ‘cloak and dagger’ stuff may seem unethical, but you can be assured that if you were selling and a prospective buyer knew you were desperate and would accept a low offer, he certainly wouldn’t be in a hurry to pay you any more!

If you make an offer that’s too low you can always raise it, but it’s impossible to lower an offer once it has been accepted (if your first offer is accepted without haggling, you will never know how low you could have gone!). If an offer is rejected, it may be worth waiting a week or two before making a higher offer, depending on the market and how keen you are to buy a particular property.

If you make a low offer, it’s wise to indicate to the owner a few negative points (without being too critical) that merit a reduction in price. Note, however, that if you make a very low offer, an owner may feel insulted and refuse to do business with you!
If you want to buy a property at the best possible price as an investment, shopping around and buying a ‘distress sale’ from an owner who simply must sell may result in the best deal. Obviously you will be in a better position if you’re a cash buyer and able to close quickly. Cash buyers in some areas may be able to negotiate a considerable price reduction for a quick sale, depending on the state of the local property market and how urgent the sale is. However, if you’re seeking an investment property it’s wise to buy in an area that’s in high demand, preferably with both buyers and renters. For the best resale prospects, it’s usually best to buy in an area or community (and style) that’s attractive to local buyers.

An offer should be made in writing, as it’s likely to be taken more seriously than a verbal offer.

BUYING AT AUCTION

If you have an eye for a bargain or enjoy the thrill of the auction room, you may wish to consider buying a property at auction. Before doing so you should:

• Ascertain the true market value of the property. The best way to do this is to check on the selling prices of similar properties in the immediate area.

• Pre-arrange your finance. You will probably be expected to pay a 10 per cent deposit as soon as your bid is successful and sign a contract within a day or two (if not immediately).

• Inspect the property thoroughly. Never buy unseen no matter how low the price. If it seems too good to be true, it probably is!

If the property seems genuine, you could consider making a pre-auction bid of around 20 to 30 per cent less than its market value. Prices fetched at auction are notoriously unreliable, and sellers who are ‘jittery’ may (legally) agree to a deal before the auction, in which case you could have yourself a bargain!

An alternative to buying from an agent is to buy at auction, although this method is generally used for properties at the upper end of the market. Auctions have become increasingly popular in the last few years, as sellers can sell quickly and buyers can usually save money (it’s most common in Melbourne and Sydney). However, it’s absolutely vital to do your homework before buying at auction, particularly regarding the market value of properties. Many agents quote a price 10 or 20 per cent below a property’s expected sale price in order to attract more interest at auctions, although in a sellers’ market many properties sell for much more than their reserve price. Property auctions are advertised in local newspapers and may be held on site.

You can engage a buyer’s representative to find a house, bid for it at auction and negotiate the sale. Agents may charge as little as a few hundred dollars to bid at an auction or up to 3 per cent of the price if they conduct a search and secure a property. However, this can save you a lot of money, time and trouble. It isn’t wise to bid yourself unless you know the ropes and are confident of what you’re doing. It’s necessary to have your finance in place in advance when buying at auction, as you’re required to pay the deposit on the spot (usually 10 per cent) and close within a reasonable period. Cooling-off rights don’t apply when buying at auction.

© Survival Books Limited 2006

“Buying a Home in Australia & New Zealand” 1st Edition, Graeme Chesters.
Reproduced with the permission of Survival Books Limited.

Further information on this topic can be found in “Buying a Home in Australia & New Zealand” 1st edition, by Graeme Chesters.

For extensive information about buying a property in Australia & New Zealand, you can purchase this book at www.survivalbooks.net