Guide: How to negotiate when buying property in Australia

With property booming in Australia, it is more crucial than ever for buyers to know how to negotiate. Property investment expert and KnowHow founder Bushy Martin shares this insightful and practical guide.


When was the last time you had to negotiate something important? What did you think and how did you feel before, during and after the negotiation? What is stressful? Were you anxious? Did you achieve your outcome?

The interesting thing is that every one of us is negotiating every day, it’s just that many times we aren’t aware of it. Every interaction where we want to get something or get something done involving others is a negotiation. And one of the core skills to achieve sustainable success in any endeavour is to become a good negotiator, and to be able to influence others in a positive way to get what you want or to achieve the best possible outcomes.

So I want to focus on the subtle art of negotiation. We’ll start with some general principles, and then given the rare window of opportunity that is available to secure good quality property before the impending boom in values in Australia, we’ll drill into some clever negotiation tactics that will help you secure a property in a high demand market as a precursor. And the good news is that these negotiation approaches can be utilised in any negotiation situation you find yourself in.

So lets start with some general approaches that you can apply to all and every negotiation.

Changing your outlook on negotiation

As renowned negotiation expert Margaret Neale reveals – one of the biggest challenges that we face in negotiations is that we view negotiations as a battle, and that battle is characterised by “I’m going to try to get stuff from you that you don’t want to give me; and I’m going to try to keep you from getting my stuff.”

If we view negotiations as a battle, we already have a problem. Neale suggests that what’s more important is that we look at negotiations as an opportunity for collaborative problem-solving and looking for a solution that makes you and them better off, * better off than your alternatives, better off than your status quo. But because there is single control in negotiation, I cannot force you to say “yes”. All I can do is present proposals where you believe it is in your interest to say “yes”. And so, once I take that perspective on negotiation, which highlights the importance of the other party as well as me, so many more opportunities and potential win/win solutions open up. It could be for any situation, whether it’s a new job and you’re trying to negotiate the terms of your employment, whether you’re trying to buy something, in a meeting, or deciding with your partner who’s going to take the dogs for a walk on a cold dark rainy morning.

Neale reiterates that you need to focus on solving the problem, not on winning the battle, because if you find yourself in a battle and in a power struggle in a negotiation, you’ve already lost. The key to being able to solve problems in a negotiation is to understand as much as you can about who you are negotiating with, what motivates them, what will influence them to move down that path of agreement with you of their own volition.

Remember that in negotiation, goals are important, and we absolutely need to know what a good deal looks like for us. But we also need to have flexibility in how we achieve that goal. We need to remain open to the opportunities and explore often unexpected pathways – to go with the flow and see where it leads to get you to your desired outcome, To have a GPS, not a rigid recipe. And for me, this a lesson that I continuously learn and relearn because too often, I choose a path to my goal because I’ve chosen it, not because it’s the right one.

Building a good rapport

Retired FBI Lead Hostage Negotiator Chris Voss also provides some innovative negotiation approaches in his book Never Split the Difference.

Voss sums it up beautifully when he says that “negotiation is the art of letting the other side have your way”. And how do you do that? We have two ears and one mouth, and we need to use them in those proportions. By continuously asking questions and making affirming statements that allow the other party to talk freely. This way, rapport grows, trust develops, and you gain a much greater understanding of exactly what their needs and preferences are so that you can then create solutions that satisfy them as well as you.

It’s about building emotional equity and what he calls tactical empathy. In simple terms, people prefer to do business with people they like, so if the other negotiating parties get to know you and like you, they are more likely to trust you and then more likely to negotiate favourably with you.

The magic happens when you ask questions and provide reassuring prompts that allow the other party to come up with solutions that they feel are their idea, but are really in alignment with what you are wanting to achieve

The four key drivers of a negotiation

So, what are the key forces that surround and drive a negotiation? In my experience of thousands of negotiations over the years, there are four key components: Hopes and Dreams, Uncertainty, Trust and Perceived Power.

Hopes and dreams

Most negotiations are about helping to fulfil each parties’ hopes and dreams. It’s not generally about the objects or products themselves, but it’s about how each party imagines what life is going to be like when they negotiate those things and how their lives and wellbeing will improve. In this regard, most negotiations are emotionally driven, and the bigger the perceived value and investment, the bigger the emotional investment and expectation, which tends to cloud rational judgement and gets in the way of objective decision making. And I’ve found the best way to avoid this is to get others to negotiate on your behalf.

Uncertainty

The key to a successful negotiation is to eliminate or minimise the uncertainty for all parties. Uncertainty and fear of the unknown generally results in emotionally driven responses and the instinctual fight-or-flight reactions can shipwreck negotiations. So, the key is to eliminate uncertainty in the parties and the process with good, clear and regular communication on who is doing what by when and why. It sounds simple, but most people forget this. This means that in addition to you finding out as much as you can about the other party, you also share the right information about yourself that’s going to be conducive to the outcome of the negotiation.

Trust

We constantly need to consider how we can create a trusting environment for a negotiation. How can you be trusted? How can you trust the other parties? As discussed in my book The Freedom Formula and outlined in detail in Charles H Green’s ground-breaking book The Trusted Advisor, trust is built on the integrated combination of four key criteria:

  • credibility – which is what someone has done and said,
  • reliability – which is someone repeatedly doing what they say they will do,
  • intimacy – feeling comfortable emotionally with someone; that intuitive ‘gut feel’ based on openness and honesty,
  • and self-interest – the degree of impartial independence versus the level of vested interest of the parties involved. This is often the most important ingredient.

There are two simple, yet proven and powerful tactics you can use in tandem to build trust with almost anyone you meet. As he also says, a great negotiation is actually a great collaboration, and collaboration requires trust between two people. And you can improve trust by applying the tactics of what Voss calls Mirroring and Labelling.

Mirroring

Mirroring is the repetition of key words the other person uses in conversation. It’s designed to show the person that you’re listening and that you understand them. According to Voss, mirroring is most effective when you repeat up to three words from the last words your counterpart has spoken. This is especially effective in defusing anger or hostility.

For example, if the other negotiating partner says: “I’ve had a really difficult year, and it seems like you’re discounting all the financial and personal stress I’ve been under”. You simply respond: “Financial and personal stress?”. This approach puts people at ease, reduces tension when it’s a stressful situation, and makes the other person feel like you are listening. And as we all know, people love to talk to someone who is paying attention to them.

This simple approach helps quickly build rapport, reveals more of what is important to them in a negotiation, and buys you time to think and reflect on the best solutions and options to negotiate a mutually agreeable outcome.

Labelling

The second approach is to use what Voss calls Labelling. A label is a verbal acknowledgment of the other side’s feelings or positions. Labels are used to neutralize negative emotions or reinforce positive ones. Labels start with you responding with:

  • “It seems like…”
  • “It looks like…”
  • “You appear to…”

These two techniques – mirroring and labelling – work beautifully in tandem.

Voss demonstrates the technique in a fascinating exchange. Voss describes sitting across from a woman that we’re going to call Stella. Voss asks just two brief questions to kick off the conversation. The rest is about mirroring and labelling, so listen out for it. This is how it goes:

Voss: “Tell me what you’re passionate about?”

Stella: “Well, I love escape room games.”

Voss: “What is it about escape room games that makes you passionate?”

Stella: “They’re fun to do with your friends, and they’re immersive, and it challenges your mind.”

Voss: “It challenges your mind?” [note the use of mirroring Stella’s last 3 words]

Stella: “Yeah, you only have 60 minutes to get out. There are a series of puzzles you have to solve to get out.”

Voss: “It sounds like you love mental challenges.” [Now he’s used labelling]

Stella: “I do. It’s an immersive experience, like being part of a play…You also try to make it the best experience for others, so they enjoy it too.”

Voss: “It also sounds like you really like to help people.” [again, labelling]

Stella: “I guess I do. I never really thought about it like that.”

Voss: “You sound like a really loyal person, too.” [more labelling]

Stella: “Ah, that’s nice to say. My friends do say that about me!”

In this brief exchange, Stella never asked Voss a question about himself. She didn’t learn much about Voss because she did almost all the talking. But here’s the amazing part – when she was asked how she felt about the exchange, she said “It made me feel like he was really listening to me and I connected with him”.

This simple conversation demonstrates how to build an instant rapport with another person by simply using mirroring and labelling to encourage the other person to talk about themselves. And in researching this, I’ve realised that this is a subliminal approach I take in my podcast interviews to get the guests opening up about subjects of interest, and it’s amazing how I’ve built great relationships and friendships with our podcast guests after just one interview, as the guests often comment on how connected they feel with me after the interview. So listen out for examples of my mirroring and labelling approach during the interviews.

Voss calls this approach “trust-based influence.” If you want another person to say ‘yes’ to your idea, you must first gain their trust. Once they trust you, you’ll be far more influential and more likely to strike a deal that makes both of you happy.

Perceived power

This is about where the perceived power lies between the parties in the negotiation, based on the circumstances and environment surrounding the negotiation. Perceived power can have a big impact on the negotiation stance of the parties involved. 

Let me share a good example of something that happened in America some years ago.It’s late at night in a big city, and Ted the businessman is walking through a dimly lit deserted parkland on his way home.All of a sudden, a would-be robber in a black Balaklava wielding a gun sneaks out from the shadows, points the gun at Ted’s head and demands that Ted give him his wallet and Rolex watch or he’ll shoot him. How would you feel at that moment? Would you be scared? The attacker feels he holds the power in the negotiation because he’s holding the loaded gun and he’s threatening to take Ted’s life by shooting him if he doesn’t cough it up. An uneasy silence ensues, and then Ted responds. ‘Thanks mate, please shoot me as you’re doing me a favour. I’ve got terminal cancer and I only have a few months to live, so go ahead and please put me out of my misery’. In an instant, the perceived power in the negotiation has completely shifted. The robber has been completely disempowered. The result – the would-be robber turned and ran into the night.

So to summarise, the best negotiations fulfil all parties hopes and dreams, they eliminate uncertainty, build trust, and balance the perceived power playing field to set the scene and arrive at win/win outcomes.

Property negotiation

Let’s now turn to the specific negotiation of buying a home, and for the purposes of this discussion, we’re going to focus on the situation of when you’re buying a home that is 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? Because this is a situation where you are potentially only one of many competing buyers of which you know nothing about. You are all dealing with a selling agent who is effectively a professional negotiator that is negotiating all day every day, and generally you don’t know who the seller even is.

This situation is a bit like you being the small shepherd David up against the giant heavily armoured ogre Goliath and his army. You really need to be able to craft the negotiations in a clever way that allows your sling shot offer to hit the real estate sales agent Goliath between the eyes in a way that your offer looks better and feels more appealing to both the agent and the seller – and generally you only get one shot at it.

You are trying to make your offer more appealing than all of the other competing buyers to the professional selling agent and the unknown invisible property owner, seller or vendor. So, the playing field and perceived power is well and truly slanted towards the seller. This is a very challenging and difficult competitive environment to negotiate in.

The statistics

Here are a few relevant stats to further set the scene. 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 that results in over six offers before you finally secure your property. 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 (Allianz survey),
  • 13% feel they paid too much for their property (Home.com), and
  • 28% are heartbroken that they didn’t get the property they wanted (Home.com)

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 are likely to be negotiating on a property only a few times in your life in a situation where you are dealing with a professional full time independent negotiator in the selling agent who is doing this all day every day, and he knows where you sit relative to other buyers that you aren’t even aware of.

The perceived power is clearly with them, as you are wearing the anxiety of most of the uncertainty. The seller hasn’t even met you as the buyer so there is no basis for trust, and all of your future hopes and dreams for you and your family’s lifestyle become focused on this property – a highly emotionally charged position.

So how can you level the playing field in this situation, particularly in a seller’s market like we are at the time of this recording?

Fortunately I’ve been involved in a huge number of high priced negotiations over the years, both as an architect and project manager – where I was trying to win massive multi million dollar design and building tenders for up to $300M against international competitors – as well as being personally involved in over a dozen property purchases and also assisting thousands of our clients to secure property as home owners and investors. So, here are some of the buying negotiation tactics and approaches that I employ or have seen employed to give you the best chance of securing the property you are interested in. This will coincide some suggestions I’ve borrowed from a piece by industry stalwart Bryce Holdaway.

Cash is king

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 have already obtained finance pre-approval from a lender via your savvy mortgage broker. And it’s really important to make sure that it is a full finance 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.

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 look or chat about your finances. These letters aren’t worth the paper they are written on, and given the increased bank scrutiny, along with continuous and often daily policy changes that banks are making, you can find yourself in the dangerous position of not being able to complete the purchase if the finance approval is declined once you have provided all of your detailed financial information.

However, assuming that you have taken the 1-3 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 evidence this to the Real Estate Sales Agent, this provides increased certainty of your offer without the concerns that are usually attached to offers ‘subject to finance.’ What you’re doing is giving the vendor certainty and security, which is something 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 dynamically changing lending environment.

Know the prevailing selling conditions

Make sure you research and know the driving negotiation metrics of the area. You need to know what the average Days on Market and the average Vendor Discount is in the particular area where the property is. This is about determining if prevailing conditions create an environment that is a buyer’s market, sellers market or balanced market. It’s about understanding the perceived power position.

If there are more sellers than buyers, then it’s a buyers market and you have much more leverage and power in the negotiation. If it’s a balanced market then there is an equal spread of buyers and sellers.

And if it’s a sellers market, where there are few sellers and many buyers competing for a property, you need to work much harder, faster and smarter and potentially have to pay more for the property – and this is exactly the situation that most popular parts of Australia are now in.

So you need to research and know your metrics. f properties have been on the market for a long time as recorded in ‘Days on Market’, you know you’ve got good leverage in the negotiation. If you can see the market is moving quickly — meaning the Days on Market are short — you understand it’s a seller’s market and so the negotiating position isn’t with you as the buyer.

A confirming indicator can be found by looking at Vendor Discount rates. If you can see that they’re taking large Vendor Discounts, the power is with the buyer. Again, if there’s little vendor discount, or if it’s in a strong market, it’s likely to be zero discounts. In fact, it might even sell for more than the advertised price, which is exactly what is currently happening in lots of areas around the country.

By doing this, you are able to see the strong and healthy markets, and it gives you an idea of exactly what sort of market conditions you’re negotiating in. And where can you find these metrics? Core Logic provides reports that you pay for that give you weekly updates on these and other key metrics. Alternatively you can access these informative core logic property reports for free if our KnowHow finance brokers are assisting you to finance your purchase. Many other property strategists and buyers agents can also assist you with the same.

Negotiating starts at hello

As soon as you say hello to the agent, the negotiation has begun. Experienced buyers know this, and they know what to reveal and what to conceal. Remember that they are expert negotiators who do this every day of the week, so as soon as they have seen you or started talking to you, they are sizing you up and they’re asking you qualifying questions, even when it seems like they are just chatting casually about you and your family. They want to work out if you’re a serious buyer first, and then they want to find out as much information as they can to craft the negotiation when it comes to that time.

Don’t be surprised if an agent suggests that you and your partner ‘walk through, and have a look at the property!’ so they can spend some time chatting to your kids. Your kids don’t know what’s going on, and so its not uncommon for a seasoned sales campaigner to ask your kids lots of leading questions — for example, are you thinking of moving, or moving schools? And the kids are quite willing to give all the information, and the agent is banking on this for the later negotiating stage. So remember: as soon as you say hello to the agent, the negotiation has begun. Experienced buyers know this, and they know what to reveal and what to conceal.

Smart is dumb and dumb is smart

Next is to keep in mind that when it comes to property (along with most other negotiations), ‘smart is dumb and dumb is smart’.

What I mean by this is that you don’t want to come across too smart or too clever when it comes to dealing with the selling agent or the vendor, for nobody ever wants to help a know-it-all. However, if a person comes across as warm, friendly, humble, down to earth and curious, most of us are happy to help them and give them more information.

So when it comes to negotiating, it’s a really bad mistake to come across as smart or detached and aloof. You actually want to come across as dumb and friendly, because then the agent who’s dealing with you feels more inclined to give you more information. Then, if you’re smart about hearing what they have to say, you might get some key intel, which will help you to craft your offer.

So in negotiations, try and keep your ego out of it. Just remember that you’ve got two ears and one mouth and you should use them in that proportion when you’re negotiating. This means twice as much listening as talking. And remember the old saying that wise men talk when they have something to say, but fools talk because they have to say something.

Knock out offer

The next tip to consider in an overheated sellers market where there are more buyers than sellers, like we are currently experiencing in most parts of Australia, is to consider making what is called a knockout offer.

If you’ve done your homework on the area and the property with the assistance of detailed property research reports from Core Logic, and you know what the true value of property is (which is often not the agent’s advertised listing price or range) based on properties that have sold recently around the area, or if your going to be holding the property long-term and understand that paying an extra $10k to $20k now will be worth a lot more to you in the future, consider putting in a knock out price upfront and early. This will be attractive to the selling agent who is often looking for a quick sale so they can get paid, and it will keep the competition at bay and get the vendor’s attention.

Over the years I’ve seen many buyers who are afraid to put in an early knock out offer or bid if it’s at an auction. They wait for the competition to build over time and, ultimately, they end up paying more than the price they would have done had they offered a knock out offer from the start.

So know the value or how much you are able and prepared to pay for the property, and consider making a knock out offer, particularly in a sellers market where many buyers are competing for fewer properties. This just may blow the competition out of the water and secure your property sooner rather than later.

Negotiation is more than the price

The next thing to remember is that negotiating on the purchase of a property is not all about price – you need to find out what the selling vendor really wants and what’s really important to them. Then, everything is up for negotiation, from the timing, to the conditions, to you name it – everything is always up for grabs.

It takes some digging, and buyers agents are experts at this. It’s about asking the right questions in the right order at the right time in the right way to find out exactly what the seller wants and needs, because it’s not always just about selling for the best price.

For example, if there is a divorce involved, then there could be more motivation to have a quick settlement time frame, or someone may have a real preference to have the perceived security and certainty of an unconditional contract, rather than anything that has conditions like subject to finance or subject to a building inspection. This means that in some cases, the perceived certainty of an unconditional contract at a lower price might be more attractive to a seller than a higher price with conditions attached.

In other cases, the seller may be interested in the early release of your deposit to enable them to help secure their next property purchase or whatever it is that they have intended for the funds.

It is also worth considering the real estate agent’s motivations. As commission-only selling agents, they are often under pressure at the end of the month, end of the quarter or end of the year to reach their sales targets. So, they may be more motivated to make a sale happen in your favour at these times, as it affects their ranking in the office and their cash flow.

As the famous author of The 7 Habits of Highly Effective People, Stephen Covey, famously said, ‘First seek to understand and then be understood’. And this is very important in negotiating the purchase of a property. Find out what it is that they want so you can create a win/win/win scenario, as well as creating other valuable negotiation points that are away from straight price. This also means that you reduce competition with other potential buyers, as you aim to satisfy the seller’s total needs, not just how much they are going to get in dollars.

Timing

Consider seasonality when you are buying a property. There is generally less demand in the winter and the most demand in spring, so buying property during the quiet times can be to your advantage.

And on a micro scale, a successful tactic that I have employed is to make an offer on a Friday night before the weekend open inspections so that you effectively take a property off the market before others get the chance to see it.

The tale of two properties

When you are making an offer on a property, always make sure you are perceived as considering to buy two similar properties. What I mean by this is the selling agent needs to think you always have a suitable and viable alternative property you are also considering – let’s call it option B. If you’ve been out and about looking at property, you will be familiar with a lot of real estate agents saying, “Hey look, I just need to let you know there’s another buyer in the mix”. This is negotiating 101 for the agents, but you often don’t know if this is true. So a good counter to this is to say, “That’s great. I’m still interested in the property, but I also have another property I’m interested in”. This way, you still show that you’re keen, but also that you’re not desperate for the property.

Equally, depending on the market you’re in, you can say to the agent, “Hey, here’s my offer. Just letting you know, I’ve put two offers in at the moment on two other properties I really like. So whoever gets back to me first is going to be the one that we take.”

Again, this gives you a position of strength, provided the market dictates that you can actually do that.

Team up with a buyers’ agent

In conclusion, if you’re looking to purchase a property, it’s important that you’re armed with as many winning negotiating tactics that you can when you’re up against fierce competition and you’re dealing with a real estate agent who negotiates all day, every day for a living. So if you don’t come prepared, chances are you are going to be outmatched during the crucial negotiation phase.

And this leads me to the biggest tip I can give you to optimise your chances of securing the property you want at the price you want under the terms you want – engage an independent expert buyers agent. It still staggers me that with over half a million home sales a year in Australia, only about 2.5% of them involve a buyers agent. This compares with 45% in the USA, where most buyers engage a professional buyers advocate to find, negotiate and secure the property on their behalf. This is in order to level the playing field and to eliminate the biggest risk in a property purchase – you and your emotions, because you just don’t know what you don’t know and this can be very costly when it comes to property purchases.

Let’s Talk

Success begins with a smart strategy and the best possible finance deal. Bushy Martin and his team are ready to help you get the right property at the right price, and get set up for success. Talk to the team at KnowHow, now.

More reading

Read more about the art of negotiation for property investors here.

For a more detailed breakdown of how you can unlock freedom with finance and property, read Bushy Martin’s book The Freedom Formula: Live More, Work Less And Leave A Legacy With Property.

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