Cash is king. How getting your finances in order helps you at the negotiation table.
Transcript:
Hi and welcome!
In this week’s Bush Bite, we continue our special series on the art and science of negotiation, given the critical importance of your ability to negotiate, especially in the current high demand property market.
Over the last two weeks, we’ve discussed the need to change your outlook and build good rapport along with building your negotiation toolkit by helping you with mirroring and labelling and the impact of perceived power. This week we start getting into the nuts and bolts of a property purchase, and we look at how to start levelling the playing field by getting your finances in order and revisiting the old adage that ‘cash is king’.
So let’s turn to the specific negotiation of buying a home, and for the purpose of this discussion, we’re going to focus on the situation of when you’re buying a home that’s advertised by a Real Estate Agent. Generally, in these situations, the perceived power is slanted in the direction of the seller, depending on prevailing demand and supply conditions. Why do I say this? Well, because this is a situation where you’re potentially only one of many competing buyers, which you know absolutely nothing about. You’re all dealing with the selling agent who’s effectively the professional negotiator that’s negotiating all day, every day, and generally you don’t even know who the seller is. This situation is a bit like you being the small shepherd, David, up against the giant, heavily armed, Goliath and his army. You really need to be able to craft negotiations in a clever way that allows your slingshot offer to hit the real estate sales agent Goliath between the eyes, in a way that your offer looks better and more appealing to both the agent and the seller. And generally, you only get one shot.
This is especially true in a hot market such as we’re experiencing right now. You’re trying to make your offer more appealing than all of the other competing buyers to the professionals selling agent and to the unknown invisible property owner, seller or vendor. So the playing field and perceived power are well and truly slanted towards the seller. This is a very challenging, difficult and competitive environment to negotiate in. According to a reputable survey in Australia, the average home purchase takes over seven months, soaks up over 90 hours of your after hours time, involves looking at an average of 12 properties, the results in over six offers before you finally secure your property. Now that’s a lot of time, stress and headache. I’m sure this is why buying a home is considered one of the major stressors alongside death, divorce and public speaking.
So how stressful is buying property? Well, according to surveys conducted by Allianz and home.com, 42% of buyers feel overwhelmed, 51% of buyers feel very stressed when buying a home, 13% feel that they paid too much for their property, and 28 per cent are heartbroken that they didn’t get the property that they wanted. So let’s be clear, buying a property is hard, costly, time consuming and stressful. And this all comes to a head in the final price offer negotiation. The time when you’re making an offer signals to the selling agent and the property seller that you have a clear interest in the property and the point when they hold all of the cards, you will likely be negotiating on a property only a few times in your life, in a situation when you’re dealing with a professional, full time independent negotiating and selling agent who’s doing this all day, every day, and he knows where you sit relative to other buyers that you’re not even aware of.
So in the property negotiation, perceived power is clearly with the seller, and as the buyer you’re wearing most of the uncertainty. The seller hasn’t even met you, so there’s no basis for trust and all of your future hopes and dreams for you and your family’s lifestyle become focussed on this property. This is a highly emotionally charged position. So how can you level playing field in this situation, particularly in the seller’s market like we’re experiencing at the moment? Well, fortunately, I’ve been involved in a huge number of high price negotiations over the years, both as an architect and a project manager. In these, I was trying to win massive multimillion dollar design and building tenders for up to $300 million against international competitors. I’ve also been personally involved in over a dozen property purchases and have assisted thousands of our clients to secure property as home owners and investors.
Here are some of the buying negotiation tactics and approaches that I employ or I’ve seen employed to give you the best chance of securing the property that you’re interested in. And this coincides with some suggestions that are borrowed from industry stalwart Bryce Holdaway. The first tip to reduce uncertainty and give the seller confidence in your offer is to remember the old adage that cash is still king. The key here, is that if you’re borrowing money to complete the purchase, make sure that you’ve already obtained finance pre-approval from a lender via your savvy mortgage broker. And it’s really important to make sure that it’s a full financed pre-approval based on a complete loan application, including all of your financial information, and that all the bank needs is to complete a valuation to formally and unconditionally approve your loan.
But don’t fall for the trap of the quick and dirty finance approval letters that many banks offer based on a quick, cursory and often verbal chat about your finances. These letters aren’t worth the paper they’re written on, and given the increased bank scrutiny, along with continuous and often daily policy changes that banks are currently making, you can find yourself in a dangerous position of not being able to complete the purchase as the finance approval ends up being declined once you’ve provided all of your detailed financial information. However, assuming that you’ve taken the one to two weeks to achieve a full finance pre-approval at or above your property price offer and that your deposit funds are readily available and you can actually evidence this to the real estate sales agent. This provides increased certainty of your offer without the concerns that are usually attached with offers that are subject to finance. What you’re doing is giving the vendor certainty and security, which is something that most sellers vendors and agents value enormously. If you make your offer unconditional, meaning it’s not subject to finance, this strengthens your offer even further. However, if you’re lending money from a bank to complete the purchase, I wouldn’t suggest taking this risk in the current dynamic by changing lending environment. So to summarise the key points from today’s session on levelling the playing field and cash is king, the real estate agent negotiates professionally, whereas you as a buyer probably don’t. You also don’t get to talk to the seller, so that puts you at a disadvantage. The playing field is therefore very clearly tipped against the buyer. So as a property buyer, you may feel that the odds are stacked against you, but you can tip things back in your favour if you give an unconditional cash offer and in the very least, have a full finance pre-approval based on a complete loan application.
In next week’s negotiation special Bush Bite, I will reveal the two numbers that buyers need to know before negotiating. And you’ll hear how negotiation starts at hello, along with the benefits of being smart by acting dumb when it comes to successful negotiation.
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