How to negotiate when buying a home

Tips from a buyer’s agent

When should you negotiate on a home purchase?

Properties in Australia tend to either sell via auction or private treaty.

While auctioned properties are sold under the hammer (or via a post-auction negotiation if they are passed in), buying a home via private treaty is very likely to involve a negotiation process.

Most of us don’t know when negotiation is appropriate and aren’t comfortable with making an offer for a purchase – when we visit a shop there is a designated asking price, and we decide whether or not to accept this invitation to buy. 

But when buying a property, negotiation is a serious business, and you need to be prepared accordingly. 

How much can you save on a negotiation?

Most people only buy a property a few times in their lives, and for many of us negotiating a price doesn’t come naturally. 

But since a property is the single largest dollar value purchase most people ever make, the potential savings from negotiating well are too significant to be ignored. 

Indeed, with the median value of a home in Australia rising close to $750,000 in the early part 2022, it’s clear that saving just a few per cent of the purchase price can amount to very meaningful dollar saving!

In round numbers, if you can negotiate 5-10% from a $1 million purchase, then this adds up to a hefty $50,000 to $100,000 saving, not to mention the interest you’ll never have to pay on the additional mortgage balance! 

Can you offer lower than the asking price?

You can offer a below-asking price and negotiate upwards. However, you will need a good reason to do so. A reasonable negotiation on a house will depend on a number of factors: the current property market, the prevailing sentiment and the quality and desirability of the asset in question, the number of buyers searching in the market, the current property valuation and the supply and availability of comparable properties for sale on the market locally. 

It’s important not to put forward an initial offer figure which is so low that the vendor considers your offer to be derisory, as this will likely put them offside immediately. Learn other things that you should not do as a buyer. 

On the other hand, the negotiation on a property purchase isn’t only about price but also about getting the right terms on a deal, which may involve trying to find a win-win outcome for the vendor and you as the buyer. 

What is the best way to negotiate a house? Here are our six top tips:

You could draft an entire book on the psychology, skills, and tactics involved in a negotiation, but here are six short tips to get you on your way, including some of the key mistakes made when negotiating a purchase price:

1. Fail to prepare? Prepare to fail

Firstly, to be in the best position to negotiate, you need to make sure that you are well prepared to execute the deal.

If you don’t have a property to sell before you can make a purchase, then typically this is the strongest position from which to negotiate. 

Make sure you have your finances in order, with a mortgage pre-approval in place if applicable, and have an experienced solicitor or conveyancer ready to help you with contractual matters. 

The most powerful and compelling offer when buying a property is often an unconditional offer. This isn’t always achievable, and you may need to make an offer subject to a finance clause and a satisfactory building and pest inspection. 

2. Research, research, research!

How can you know if you’re getting a good deal if you don’t know the true market value of the property? In short, you can’t!

Inexperienced buyers often make the mistake of ‘anchoring’ to the listing or asking price, but vendor expectations can often be inflated (after all, we all like to think our own home is special!). 

You need to conduct enough market research to understand what comparable properties have been selling for locally to gain a full appreciation of what might represent a fair purchase price.

This may involve paying for subscription data on detailed recent market sales or engaging a professional buyer’s agent to assist you (as they will have access to a full sales database). 

3. Understanding vendor wants and needs

While the selling price is often the most crucial factor for a vendor, it is not the only factor.  

Sometimes a vendor may need a quick settlement, for example, if they are looking to relocate for work or travel purposes or if there has been a recent separation.

Discuss with the agent selling the property whether there is anything you can do to make an offer more attractive to the vendor and be prepared to accommodate their desires where possible. 

4. Be clear, concise, and confident

Whether bidding at an auction or making an offer via private treaty, be clear and concise in the offer you are making. 

A part of the challenge in getting an offer accepted for a private treaty sale is getting your offer to be accepted ahead of other prospective buyers. 

One standard effective tool is to make a written offer and state that the offer expires within a given timeframe (such as after 48 hours, for example).

This can put the pressure back on the vendor to accept your offer if it is made in good faith, rather than using your offer as leverage to find a higher price from other interested parties. 

5. Remember to give as well as take

While we all want to get the best possible deal on a purchase, it’s important to remember that a negotiation is a two-way process, and just because a first offer may be refused, you needn’t be put off.  

You need to listen to feedback from the vendor and their agent, and sometimes a compromise may be needed to get a deal across the line. 

After all, you don’t want to undermine a potentially attractive purchase for the sake of a minor point or request. 

6. Keep your emotions in balance

Alongside relocating and changing jobs, buying a property can be one of the more stressful life events that folks go through, and it’s easy to become emotionally charged or wrapped up in a transaction. 

Hard though it can be, it’s important to remain as emotionally detached as possible when making a property purchase, to keep a cool head, and not appear too eager or desperate to buy!

Through your market research, you should have a clear idea of how much the property is worth, and how much you are prepared to pay.

It’s very common for bidders to get carried away in the heat of an auction or to increase their offers significantly as a selling campaign plays out, but if you can keep your emotions in check then this will stand you in the best possible stead for a successful negotiation. 

Given how competitive the Australian property market is, more and more buyers are engaging a professional buyer’s agent to assist with buying a house. Buyer’s agents are skilled negotiators with years of experience and industry knowledge. They know the true market value of a property and can help you with the due diligence and negotiation process. As a result, they de-risk the deal and ensure you get the right property at the right price and terms.

Other FAQs about property negotiations

How do you negotiate an overpriced house?

One of the best negotiation strategies for overpriced properties is to back up your offer with pricing data of comparable properties in the area. 

On the other hand, while a house might look too expensive, you want to make sure you are not missing out on a great opportunity. You can verify if the house really is overpriced by doing your own market research. This will allow you to feel in control of the negotiation and offer a more realistic price.

Know your limits. Some people walk out of a negotiation owning an asset they can’t afford. 

This is where a great buyer’s agent is worth their weight in gold. Having a buyer’s agent working on your behalf brings market expertise to the table, but also leaves your emotions out of the negotiation. 

How do I make a counter-offer?

Counter-offers are part of the negotiation process when purchasing a property in most scenarios.

As a buyer, you can make an offer below the initial asking price and if the seller is not happy with it but still willing to negotiate, they could counter your offer for a higher price than yours, but lower than the original asking price. Ideally, these negotiations result in both the vendor and the buyer coming to a middle ground on the price.

Don’t forget to put an expiration date on your counter-offer. This can put pressure on the seller and help you get a quicker response. 

How to negotiate when buying land?

Before choosing and negotiating a block of land, be aware of any covenants and restrictions that might impact future development. Laws play a big role in land negotiations, as you need to make sure the development of your property complies with the sustainability, plumbing, building, and safety laws of the area. Keeping this in mind and proactively planning ahead will help you make well-informed decisions throughout any negotiation process.

You should also consider all costs involved in building a property prior to making an offer. It’s important to know when to walk away from a negotiation, as this can save you time and money.