Step 7 - Making Offers and Negotiating
In order to make a competitive offer and be able to appropriately adjust the terms of your offer to suit the Seller you need to understand the following:
What the Seller's motivations are for selling the property; and
How much other competition is there for the relevant property.
Why is the Seller selling the property
To understand why the Seller is selling the property you need to ask the agent. Simple as that, just ask the question. As I outlined in Step 6, you should also ask if there are any terms which would make your offer more competitive other than just price.
This is important because if the Seller is selling for any of the following reasons then they may be less focused on price and more focused on getting a deal done quickly:
Death - i.e. the home belonged to someone who has passed away
Debt - i.e. they are under pressure to pay off debt (or can't afford the mortgage) so they need to sell the house
Deadline - i.e. they need the money from the sale of the house quickly to meet another obligation, such as to complete the purchase of a new house as they are moving areas or they want it finalised by Christmas etc
Alternatively, if they are under no particular time pressure, such as an investor looking to cash-in on their investment, then you know price may be the most important factor in the deal.
How competition impacts the offers you make
If it is a cold or warm market and there are not many buyers interested in the property then you can submit an offer which is more buyer friendly; however, if it is a hot market or there are multiple competing offers on the property then it will be important that you adjust your offer accordingly to ensure you are making the best possible offer you can.
Essentially you don't want to go out there making lowball offers with long periods for building and pest / finance in a market where people are offering over market value with no conditions because this means you will never get into the market as your offers are not competitive.
If you have been researching properties and talking to agents in the area (as well as looking at the demand side data) you should already have an understanding of how hot the market is; however, if you have asked the agent the questions I outlined in Step 6 you should be able to get an understanding of how competitive the process is, in particular the following questions I mentioned earlier would be the most relevant here:
Have you received any email written offers?
Have you received any contract requests?
Have you received any offers via contract for sale?
What has been the feedback on the market to date?
Would an offer of [insert price below your CMA] be competitive?
What offer would secure the property today?
Additionally, if you have ascertained that there are other offers, the following questions I flagged in Step 6 will be most useful to get information about these offers:
Is the offer within or above the price range?
Why hasn’t the Seller accepted the othe offer?
Does the offer have conditions or is it unconditional?
Yes I know what you are thinking, what if the agent just lies to me? Now they shouldn't do that, but we all know that doesn't mean they won't. Generally speaking, the more upfront and honest an agent appears to be the most likely they are telling the truth - if they are being unclear or avoiding directly answering the question then it may be an indication that there actually hasn't been much interest in the property.
I really recommend checking out , he gives out really good tips on dealing with real estate agents and some great negotiation tactics.
What a competitive offer looks like
In the table below I have outlined the key components for your offer and how you may want to adjust them accordingly to make your offer more competitive by providing a buyer-friendly and seller-friendly position.
Noting that this shouldn't be followed blindly as negotiations don’t involve just two binary positions like I have listed below - you need to tailor this to your specific scenario and blend various buyer-friendly and seller-friendly positions (or meet in the middle) depending on the circumstances of the purchase. Negotiations are moving processes and they are a two-way street (i.e. you will need to give and take) so you will need to strike a balance when negotiating with the agent.
The answers to the questions for the sales agent I outlined in Step 6 should also be guiding you in terms of the offer you make to the agent.
How to make an offer
You should only be making offers via email or contract of sale.
Most likely it will be over email in the first instance so I have included an email template below for you to use if you want.
DRAFT EMAIL / TEMPLATE
Subject: Formal letter of offer: [insert address of property]
Hi [insert agent name],
Please see my below written offer for [insert address of property]:
Offer Amount: [insert]
Deposit: [insert]
Finance Clause: [insert] days from the contract date and with a lender of the buyer’s choice.
Building & Pest Inspection Clause: [insert] days from the contract date.
Settlement: [insert] from the contract date [or to your seller's convenience].
Special conditions:
1. [insert]
2. [insert]
3. [insert]
Buyer details:
Name: [insert your full legal name or name of legal entity making the purchase]
Email: [insert your email address]
Postal Address: [insert your residential address]
Conveyancer details:
Name: [insert]
Email: [insert]
Number: [insert]
Confirming I am pre-approved and ready to proceed with exchanging formal contracts of sale as soon as possible.
[This offer expires at [insert time] on [insert date].]
Kind regards,
[insert]