For many of us, price negotiations is something we’re not familiar with at all, and it is normal to struggle, as a First Time Buyer, on how to effectively negotiate for your dream first home.
We’re used to seeing a fixed price – whether its at the supermarket at Amazon – and the only decision we have to make is whether to accept it or walk away. However, property is different; despite there being a listed price on the agent’s website, that price is the “asking” price from the seller – aka what price the seller wishes to achieve, but not necessarily the lowest price they would be willing to accept.
Why is negotiating a house price important?
Negotiating is important because you could easily save tens of thousands of pounds that you would not have needed to pay. Think about how many months or years you would have to work and save up to have that sort of money, and what it could buy (furniture, holidays, car, etc) and it becomes evident that a good negotiation is worth it.
To illustrate the importance of negotiating, here’s a typical scenario that I often see. A house might be listed by the seller with an asking price of £250k. They might be prepared to accept as low as £220k, but of course the seller is looking to get as much £££ as they can from their house sale. The fair market value of the property might be £230k.
Scenario 1 – Best Case: You negotiate hard, and manage to get a price of £220k. This means that not only have you saved yourself £30k, which you can now spend on other things, but you’ve made an instant profit of £10k on the property value, which you’ll realise when you come time to sell.
Scenario 2 – Medium Case: You negotiate but reach an agreement at £235k. You’re still saving yourself £15k, although you have overpaid by £5k. However, that might be acceptable if there were things about the property that makes it more desirable for you than other property in the area.
Scenario 3 – Worst Case: You don’t negotiate, and agree £250k. You might not be able to get a mortgage, because the surveyor’s valuation might come back at £230k, and you would have wasted £300 on the survey. Even if you managed to exchange, you’re sitting on an immediate loss of £20k on the property, which could take years of house price increases to overcome.
So you can see that a good negotiation can have a big impact on your financial situation post-purchase.
Tips to help you negotiate the house price you want
1. No-one knows the right price
You might be thinking that the asking price must be the market price, because why would the seller or the agent list the wrong price? But in reality, the seller doesn’t know the price anymore than you do – he or she isn’t a property market professional!
And agents don’t set prices – they might advise the seller, but they never usually turn down sellers even if the pricing is unrealistic, because that would just be asking the business to walk out the door to a competitor estate agent.
However, before you start any negotiation, you should get an idea of what the fair market value of the property is – read our comprehensive guide on Determining the Market Value of a Property.
2. The worst the seller can say is “No”
Often I see First Time Buyers scared of negotiating, because they fear the seller will go ballistic and enraged, and refuse to engage in any further negotiations, and the FTB will lose any chance of getting their dream home. Yes, that is a potential risk, but very, very unlikely unless you offer something silly like 50% off the asking price.
The seller is motivated to get the property sold, so even if they reject your offer, they’ll still be open to further offers.
3. Don’t fall for agent and seller tricks to pressure you
Agents know that First Time Buyers are going through this for the first time, and know that many will be naive. So they will use pressure tactics, like “many other buyers are interested”, “please put in your best and final offer”, etc.
Remember that agents are always obligated to pass on an offer to the seller, so you can always put in an offer later, even after its been rejected, and even after another buyer offer has been accepted.
Some agents and sellers run “sealed bid” processes – these are tricky to navigate and I’ll cover them in another article, but again you should not be tempted to panic, as “sealed bids” are not binding. You can always submit an offer later, and the seller would be a fool to not take it if it is better!
4. Providing justifications sometimes works
If there is something specifically negative or detrimental to the property that is the reason why you’re offering less, you should communicate that to the agent and seller. It might be something the seller wasn’t aware of, and this information could influence him or her to take a lower price.
However, justifications like “the market is coming down” or “I’m afraid of a recession coming” don’t usually work.
5. Never ever reveal your deposit size or amount you can borrow
Because then the agent and seller knows how much you can afford to pay for the property, and might use that information against you.
For example, lets say you have a £20k deposit, you’re looking at a £100k apartment (so 80% LTV). If you reveal your deposit, the seller knows that most banks can go to a 85% LTV, and therefore you can borrow enough to afford a property up to £133k. It would be easy, for a gullible FTB, for the agent and seller to create panic that there are lots of other buyers, maybe orchestrate a sealed bid process, and the panicked FTB might then offer £110k (£10k over the £100k asking) to secure the apartment.
The seller will never reveal to you the minimum they would accept – so why should you reveal what the maximum you can afford to pay with your deposit and mortgage?
6. Don’t play negotiation ping pong
This is where you and the seller go back and forth many many times with offers and rejections. If you get rejected, don’t go back with a measly increase (say £500 or even £1k), and then keep incrementing each time. You’ll lose credibility and create resentment.
Likewise, if the seller keeps coming back with just small decreases to their asking, this is not the type of seller you want to engage with. This type of behaviour signifies a seller that is a scrooge, and there’s a very likely chance that just when you get to exchange, he or she will change their mind and ask for a higher price.
7. Patience is important
Don’t feel the need to come back immediately with another offer. This puts the pressure on you, and also sends desperation signals to the seller. Even when your offer is rejected – it really isn’t – the seller will be mulling it over for days, wondering if they should have accepted it, especially if they don’t hear any follow-up offers from you.
There is always the fear that another buyer will swoop in during your inaction. And while this is true, it is also very, very rare. Most sellers only get a few offers over the space of 2-3 months before they agree to a price.
8. Its not always about price
Price is the most important thing, but there are also other factors that might get the seller to accept a lower price. If they have a pressing need to sell, or they have already found a new place and had their offer accepted, so really need to sell their current place.
Also, as a First Time Buyer, you have one of the most important leverage – you don’t have a chain!
There are many reasons why sellers don’t always accept the highest offer, or are willing to accept a lower offer than they would want. Its always worth trying to find out more about their seller’s situation, and also how to present your strong situation (e.g. chain free).
9. Furnishings & Fittings
If you’re struggling on price, consider asking for some or all of the existing furniture, fittings, and maybe even electronics to be part of the purchase.
Hopefully, you are now more confident in the steps you need to take to negotiate successfully for your first time home purchase!