How to negotiate a house purchase in a frothy market
The UK housing market has had a shot in the arm. It's frothy. It's gazumping and giddiness all over again. A powerful tonic of government stimulus (in the form of a temporary stamp duty holiday), continued cheap money and a new hyperawareness of the importance of the home, open space, a garden and so on, as a consequence of a year spent within the confinement of our homes (for those more confined that others, this hyperawareness may be closer to a physiological need..) Not to mention healthier household savings balances as a consequence of.. not doing very much this year.
These market conditions are seeing surging asking prices and eye watering sale prices, particularly with certain types of properties (think gardens) and certain areas - think rural retreats and of course London.
So, as a buyer determined to buy the house you so desperately desire, how can you negotiate the best of a tricky situation and maximise the deal for yourself (and minimise your purchase price)?
Be aware of cognitive biases
The SCARCITY effect is front and centre here. When you are told viewings are stacking up on this property - watch yourself - this is likely to make you to want the property more - for no reason other than you believe lots of other people want this same scarce resource
ANCHOR BIAS is right in the mix too. Estate agents are opening extreme with toppy guide or asking prices. They may know these are unrealistic, but it will have the effect of shifting your expectations (to the upside) AND, even if you manage to pay less than asking, it will make you feel satisfied with a deal that is an improvement on that asking price (which you have been anchored to), even if said asking price is pure fiction.
SUNK COST FALLACY is another to watch out for - when you've agreed to buy, had the survey done (at your expense) and booked the removal van. If the survey turns out things which you realise are going to cause major problems for you, or you realise the neighbours are going to make your life hell.. you can always pull out. Sunk cost fallacy may make you feel that - well, we've gone this far, so we might as well carry on... you can always pull out and secure a good situation from this point onwards.. don't justify the future with the costs of the past.
2. What about negotiating the best price?
It is true that this is more tricky when there are more buyers in the market. HOWEVER, here are some things you can do to get the BEST DEAL, in spite of this.
A) INFORMATION IS POWER. Find out EVERYTHING you can about the other offers and the seller. Some estate agents will tell you a lot more than you think if you ask the questions. Are they REALLY cash buyers? How much over asking is their offer.. I once asked an estate agent "oh it's a lot over asking is it? - so is it £20,000 over?" to which he replied "oh no, not that much" Now I knew where I needed to place my offer within a good degree of accuracy
B) Understand the impact of TIME and how the sale journey looks from the SELLER'S PERSPECTIVE - GET INSIDE THEIR HEAD. So - perhaps you had to offer more than you intended to secure the house and see off the other buyers.. OK - all is not lost. Think about the path to completion and the implications of the passing of time. Does the seller think these market conditions will prevail in 3 months if they have to re-list it? Is their move to a new home contingent on this sale? The more we understand about their circumstances and how these may change with the passing of time, the more power we have.
C) In the knowledge of as many of these factors as possible, USE THE SURVEY AS A SECOND NEGOTIATING POINT. At this stage, the other interested buyers may have moved on - you have had the survey done and perhaps it has thrown up some issues with the property. The magnitude of these issues is secondary here. What this juncture presents is an opportunity to negotiate the price down from that heady final offer you made... The only question that really matters here is HOW MUCH LOWER A PRICE WOULD THE SELLER ACCEPT TO KEEP THE SALE ON TRACK? Begin below this level and be prepared to move to this point to make a meaningful saving.
"BUT ALL THIS MAKES ME FEEL UNCOMFORTABLE, AND IT SEEMS UNFAIR" I hear you say. If much of this makes you feel uncomfortable, that's ok and quite normal. Negotiation is uncomfortable. My questions to you as you consider this are:
1) Do you believe the estate agent is arranging 10 viewings on a single day for any other reason than to influence you into over paying? AND 2) Do you think the vendor is choosing their actions for any other reason than to extract as much money out of you for their house as they possibly can? SO SHOULDN'T YOU PROTECT YOURSELF AND DO THE SAME?!
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