How to Control Real Estate Negotiations
How to Control Real Estate Negotiations
The number one rule when negotiating is that you should control the negotiations. Decide where you want to be at the end of the negotiations, before you put in any offer. Have your final position firmly in your mind.
Register your Interest
In some cases it is best not to make an offer, but just to register your interest in a property. This can be done by writing to the agent, indicating that you are interested, and advising them that you would like to be contacted before the property is sold. This keeps you in the ballgame and lets you monitor the property, as well as letting the owner know that in your view the property is overpriced. It is also a good idea to send the vendor or the solicitor a copy of the letter so it doesn’t evaporate into thin air because of inter-office politics or the agency waiting to sell to their preferred buyer.
Check the Legal Documents
Even if you find the perfect property at the right price, never make an offer unless the relevant legal documents, such as contracts of sale, vendor’s statement and copies of title and contract notes are ready. You leave yourself open to be gazumped as the Instruments Act states that a contract must be signed by the buyer and the seller, and that a letter of offer is not binding on either party.
Many people believe they can secure a property by having a letter from the vendor accepting their verbal offer. Unfortunately this is not the case. Unless there is a signed contract of sale from the vendor, whether it be a private sale or auction, there is no binding obligation from either party.
We attended the auction of a family home that was passed in for $900,000, with the reserve being $1 million. Our post-auction negotiations continued and we settled on a figure of $965,000. The contracts were signed by my party and were in the process of being signed by the vendor when there was a knock at the door. What transpired was almost surreal, but another interested party had got the auction time wrong and had arrived late, but was prepared to pay in excess of $1 million. The vendors hadn’t completed their side of the contract signing, with only the wife having signed. The husband refused to sign the contract of sale, of course wanting to take the higher figure. The other purchaser offered a cheque and there was a stand-off until legal options were sought from relevant parties. Unfortunately it was ultimately sold to the other party for the higher price. The legal viewpoint was that the contract had not been completed.
My Word is my Bond
A gentleman’s word is never his bond. We had secured a verbal agreement for the sale of a home of a high profile media individual who naturally wanted to keep the transaction quiet. We had finally agreed on price but there were no documents to consummate the deal. We were concerned that the vendor would change his mind and asked him to ring our client in America to confirm that it was proceeding and the deal was done. Not only did he ring our client on several occasions to congratulate him, but through the conversation they had many mutual acquaintances. Everybody thought it was done.
Then the vendor decided he had an extra taxation issue and raised the price by $250,000 one week later. It was a special property, though, and while my client was extremely upset he had a feeling from his discussion that the personality of the vendor was questionable. Being a successful businessman he always has concerns when someone grovels to him saying ‘my word is my bond’ or ‘you have a deal, mate’. He still bought the property but remember: the deal is never done until the contracts are exchanged and a deposit has been given. Never trust anybody’s word when money is involved.
A strategy that can be used in private sale negotiations is to make a Clayton’s offer, that is, an offer which is not really an offer. You indicate that you are interested in the property at a particular price level, but you do not document the offer until you get acceptance from the vendor. This encourages the vendor to lower their price expectations without you even making an offer. Vendors tend to treat a Clayton’s offer as a real offer, even though it ultimately falls through. They often will come back to you to renegotiate. If they do, they are sending you a clear message that they are prepared to take a lower price as they haven’t got any other offers.
With private sale contracts or contract notes, as part of the conditions of sale there is a time limit of acceptance. However, in an auction situation you haven’t got that luxury: you are agreeing to buy on the terms of the auction or whatever terms you have agreed to prior to the auction.
While most contract notes and contracts of sale specify a date and time for acceptance of the offer, it is imperative that you take great care when including a time such as ‘the offer expires at midnight’ in your negotiation under private sale conditions. When using deadlines you must be prepared to walk away. If you do make a deadline ultimatum and it hasn’t been accepted, don’t increase the price, just extend the deadline. While in most cases a time limit puts pressure on the seller, if you really want the property and have put a time limit on your offer and then the time limit expires, you are left in no man’s land. When you come back to the table to negotiate, the seller knows that you really want the property and the advantage is with them. Always keep the channels for information and discussion open. This is vital.
– David Morrell
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