One of things I love about the real estate game is that it is all about people. Sure, bricks and mortar are involved, but it is people who build, sell and buy property. Try as they might to remain unemotional, the fact is that very few people can be clear-headed, particularly when it comes to buying or selling their own home. This personal involvement intensifies if the property for sale has been lovingly renovated by its owners. Even investors can get very personal when it comes to choosing a property to add to their portfolio and selling it down the track.

So one thing to never lose sight of when negotiating on a property is that the owners are human beings with very real emotions and sometimes very irrational ideas on what their property is worth. Everybody loves a bargain when they buy but nobody wants to “give their property away”. Even in a forced sale situation, there is a difference between the seller walking away feeling resolved about taking a loss over them leaving the deal feeling fleeced.

It is crucial when negotiating to understand the concept of win-win. This means that both parties come away from the negotiating table with the feeling that they have achieved something. If a deal is struck, the buyer gets to buy the property, which is an obvious win for them. Ideally the purchaser feels like they paid a fair price and the seller feels like they achieved a fair price. But is is not always possible, particularly if the vendor’s expectations are too high or if the market has dropped since they purchased the property.

In a sellers market, the buyer may be the one to feel remorse after paying “too much”. But in a buyers market the person who takes the hit is the owner. And if you expect somebody to take less than they want for their home, you will be more likely to achieve a favourable outcome if you haven’t insulted the vendor during the negotiation process.

There are so many ways to deliver an offer and buyers often forget life’s little niceties in this situation. How often have we met sellers who have been put offside by the manner in which the buyer has wielded their market power? And then they dig their heels in and refuse to negotiate further with that particular buyer. Or they drop their asking price to a more realistic level and find another buyer, who they favour over the first one, sometimes even at a lesser price.

I love the saying “honey attracts more flies than vinegar” and it certainly applies to property negotiation. How you deliver your offer can make the difference between acceptance and refusal. Show empathy for the owner who needs to take less if they want to sell, don’t be arrogant. Work with the selling agent to get them to prepare the vendor before delivering a low offer, give them some sort of advance notice so that the offer isn’t a rude shock. And if your offer is at market value, you will no doubt be able to get the agent on side. But if you insist on making an offer that is way below market value you run the risk of alienating both the agent and the seller, which greatly reduces your chance of getting any subsequent offers accepted even if you reach a fair price.

Regular readers of my blog will now that I often talk about getting the “ducks lined up” before making an offer on a property. We often see buyers making bids far to early in the process and long before they are in a position to sign a contract. But in the time it takes to complete the due diligence, it is important to employ some “pre-negotiation” tactics. Communicate with the agent and keep them posted on where you are up to in your own process. Don’t just go silent then turn up with a signed contract and expect everybody to jump for joy.

Just remember that you are dealing with people who have feelings and probably take the sale of their home very personally. Even if they have to take a dive on the eventual sale price, their half of the win-win equation will be knowing they got the best price that market was likely to offer, that their agent worked hard for them and that they can now move on with their lives.

At the moment it is very hard to work out what the Sydney property market is doing. Certainly none of the experts seem to have a handle on it.

 
February is always a time when we exercise more caution than usual, particularly with our investor clients. Normally at this time of the year we have a combination of a stock shortage and fresh buyer activity from rested property hunters and new entrants. It takes a while for the market to take up the slack caused by the downtime over the Xmas period, so we usually see heightened competition, increased auction clearance rates and a spike in prices. And this situation can last until the end of March. In boom years it continues unabated until spring. In 2007 I remember the market ran full steam ahead right up to Xmas!

So far this year has been no exception on two counts. There is a stock shortage and there also appears to be plenty of buyers out there.

But we are now more than halfway through February and last weekend the auction clearance rate was still only 52%, which is a similar level to where it was at the end of 2011. Some properties are languishing (more so in the higher price bracket) while others are selling way above expectations (a number of 2 bedroom cottages in Marrickville spring to mind).

The open houses over the past few weekends have also been a mixed bag. At some properties we have had to queue up before taking a peek inside, while at others we had the house and the agent to ourselves. And there hasn’t been a clear pattern as to why this is so. It is not as simple as saying that anything over $1.5M struggles while everything under $1M flies out the door. We have seen properties well under the $1M without any interested buyers.

Feedback we are getting from selling agents is that both buyers and vendors have been sitting on their hands while they wait for another interest rate drop. Now that the banks have taken matters into their own hands and instigated their own rate rises, we hear that a lot of potential vendors have decided to delay listing their properties for sale. Conversely a lot of buyers seem to have decided they are sick of waiting for lower rates and will take the plunge regardless.

So if these indications turn into a trend we will start to see a rise in both clearance rates and sale prices.

The upshot? Well, we will still exercise caution. That is certainly not to say we won’t be buying anything, however. Because we know the market so well and understand prices, we can assess value and strike accordingly. We also know when to leave something alone because it is selling at a premium that may not be sustainable come April.

And for owner occupiers who have just found their dream property it may well turn out that it is worth paying a premium and it’s just bad luck that their perfect new home came on the market now instead of a more advantageous time. Just remember to decide on your maximum limit before you begin bidding or negotiating so that the emotion doesn’t take over.

How exciting! You have found a property that you would like to buy and have had your offer accepted! And to show how serious you are, you have handed over a $1000 holding deposit. Only thing is, a holding deposit holds nothing.

Now I do not know why some agents persist in getting a holding deposit from buyers since, in NSW, once you have had an offer accepted on a property there is absolutely nothing binding until contracts have exchanged.

There are two ways you can exchange contracts on a property. But you will not always be given the choice of which one to use.

The first way is with a five day cooling off period. You can do this in the agent’s office on a Saturday afternoon if you like and you don’t need to get any legal advice prior to doing so. It is commonly the done thing to pay an initial deposit of 0.25% when you sign the contract and the balance of the 10% prior to expiration of the cooling off period. By exchanging contracts with a cooling off period you will have 5 business days to complete your due diligence. This process includes getting your contract reviewed, building & pest inspection and/or strata search done, finance approved and balance of the deposit arranged.

The benefit to you is that the property is then off the market. The vendor cannot entertain offers from any other buyers and only you can change your mind – but if you do so, you will incur a penalty of 0.25% of the agreed purchase price. So, say you have offered to pay $500,000, this penalty would be $1250.

The main reasons for backing out within the cooling off period would be either a bad building inspection or strata report or an inability to come up with the finance. We hear of plenty of buyers making offers before they have finance approved but even if you have pre-approval, the bank could take longer than the 5 days to give you an unconditional finance approval or the valuation could come short

One thing to bear in mind here is that in a competitive market, or if you have made a pre-auction offer, it is highly unlikely that you will be given the option of exchanging contracts with a cooling off period.

The second way to exchange contracts is to sign an unconditional contract. The only way you can do this (other than at an auction) is to have your solicitor or conveyancer review the contract, advise you on it, then issue a Section 66W Certificate. This certificate waives your cooling off period, making the contract unconditional. Under these circumstances you need to have done all your due diligence - the contract reviewed, building & pest inspection and/or strata search done, finance approved and deposit arranged - before signing a contract.

The risk here is that while you are busy doing your due diligence, the property is still on the market and other buyers can make offers. Time is of the essence and you need to keep the pressure on your banker, solicitor and inspector/s.

So, back to the issue of a holding deposit. Our advice is to only hand over a deposit at the same time you hand over a signed contract – and get some assurance of exactly when the exchange is expected to take place. A holding deposit is simply an unnecessary step in an already complicated process. All it really serves to do is give the inexperienced buyer a false sense of security.