Negotiating a property transaction isn't easy, much less if you are doing it for the first time. So we have compiled the 3 things you must know for your next negotiation!
Summary: Other than being about the price and money, negotiation is also about understanding Time factors, Qualifications & Eligibility, & Conditions to be met for a property transaction to go through. The value of an agent is in the negotiation process rather than the administrative paperwork.
To understand the nitty gritty details of what to look out for during negotiation, read on!
Offer & Negotiation
For a property transaction to go through, there always has to be a offer & negotiation process. This process can be done between the seller agent and the buyer agent, or it could also sometimes be between the direct buyer and the seller agent. The seller agent is the one who is under instruction from the seller to get the best price and sort out the whole negotiation, handling the offers professional and providing advice along the way.
Being honest and ethical in the offer
There is a need to emphasise some guidelines and rules for an ethical and honest offer process. Why is this so?
In Aaron's experience, he has met agents who are making offers to test the market, offering 440k for a unit asking for 400k and creating excitement for the seller before ghosting. This is also true of competing direct buyers. For example, an offer from buyer A has met the asking price at 920k and buyer B offers to negotiate and up his/her offer to 930k. So the offer from buyer A is rejected, only for buyer B to disappear altogether in the end.
These situations are clearly of agents and buyers being unethical and not serious in their offers. This creates frustration for sellers in the process and ends up hurting potential buyers also.
Making a serious offer
So buyers might ask, what's the correct way to go about making an offer?
The most important thing is to be serious about your offer. Make an offer to the unit you like the most before moving down the list, instead of making several offers at once and then shopping for the best price.
When seller agents meet buyers with offers they deem not credible, they would propose that the buyer come with a cheque. This is met with great resistance sometimes, with fears that their money will be cheated off them. To provide assurances, reputable agents will not be interested to lose their careers over this sum of money nor will sellers be interested in the several thousands when the transaction is about the hundreds of thousands. Thus, a cheque is more to confirm the seriousness of the offer.
If buyers are serious when they make an offer, proposing a cheque is the natural thing to do.
When a buyer refuses to back up an offer with a cheque, it signals an offer that is unlikely to be serious.
For Aaron, when there is a buyer agent acting for the buyer, he would trust the agent's offers due to mutual respect as agents. There is an assumption that an agent would be ethical and know what he/she is doing. Therefore, when an offer from a buyer agent is accepted, there is trust that a competent agent will be able to produce the cheque.
Sadly, there are some agents that do not follow through and somehow break this trust, either when they are just offering without buyer instruction, testing the market, or perhaps even unhappy to go through with the deal due to the percentage of co-broking commissions they stand to earn.
In a property transaction, the hardest thing to handle is often the offer and negotiation process, much more than the administrative paperwork. For several parties to come together and meet to close the deal takes more than we would realise.
Especially for buyers without agents, it's important to know that the negotiation might not always be about the money. Other factors in play include:
Time - Timeline and processes
Qualifications & Eligibility of the buyer
Conditions to be met in individual situations - Loan approval, law firms etc.
It's vital for buyers and buyer agents to understand these factors at play during the negotiation process in order to work out how an offer would be taken seriously by the seller. For the buyer, it's really helpful to have a trustworthy buyer agent that can assist to understand these factors and take charge of negotiating with a seller agent.
There is also a concept of staging and playing the market. Even though it rarely happens in recent days, it's about creating an auction out of the market by going to different buyers and informing them of the latest higher offer price. This is done in the hopes of raising the final selling price of the unit.
To Aaron, instead of creating an auction, a seller should determine an acceptable selling price and let the seller agent handle the process, to seek out the buyers who are willing to meet this price or make the highest offer. As a seller, it is also important to be credible and gain trust from potential buyers. Buyers that feel a seller is insincere and looking to create an auction would eventually pull out of the transaction.
Agent as a consultant
As discussed, the process of offer and negotiation is not an easy one and can often be emotional for sellers and buyers alike. Therefore, agents are the best choice to fulfill this role of chief negotiator in the process.
Rather than being a salesperson that's pitching to his/her own client to close the transaction, an agent now needs to take the role of a consultant. Being a consultant means providing a service to ensure the interests of the client are met. In the negotiation process, a competent agent would be able to always stay calm and rational, in order to make the best recommendations to the client.
A competent agent can never be more emotional or anxious than the seller, in order to be in the right state of mind to manage the negotiation!
In order to have a smooth negotiation and offer process, it's important to understand all the factors involved in the transaction. This usually is the responsibility of the appointed agents. When it comes to the offer, it's only honest and ethical to be serious and sincere to follow through upon agreements.
We would love to hear any comments or questions you have about the offer & negotiation process in a property transaction!
Watch the video for Aaron's soundbites on how he negotiates and handles offers!