How to negotiate down the price of your first home

After years of rising interest rates, Australian home owners are finally starting to see some relief with a cut in February and more forecast by the end of the year. But for those not yet in the market, this means property prices are, unfortunately, back on the up.

However, this doesn’t mean prospective home buyers can’t take matters into their own hands to try and cut down the cost of their first home. Negotiating well below asking price can save you years’ worth of mortgage repayments. Here’s how to do it.

For those not yet in the market, property prices are – unfortunately – back on the up.Credit: SMH

Get pre-approval: See your lender before attending open homes if you want a good deal. Pre-approval can help with negotiating a lower price in any market by removing doubt around the sale falling over due to finance.

It shows you’re a serious buyer and could give you leverage during negotiations. Make sure you let the real estate agent know you’re pre-approved up front.

Get to know the seller’s motivation: Information is vital before you start negotiating, investment specialist Andrew Woodward says.

“Knowing the seller’s motivation enables you to understand the likelihood that you can use the information to negotiate a better price. The two most common factors are time and security. If the seller needs a quick sale, time is more important than price,” says Woodward.

Don’t discount the value of relationship building with local real estate agents.

Offering flexibility around settlement timeframes might solve problems for the seller that are more than money, and result in a lower price.

Do your research: There are plenty of valuation tools available where you can get a feel for the value of the property, and even find out what the neighbours paid for their home, which can help with identifying unrealistic asking prices so you can confidently offer a lower price.

Be ready to jump: Be prepared to act quickly and present your offer in writing on the same day as an open home. This demonstrates you are serious.

Arjun Paliwal, chief executive at InvestorKit, says speed and readiness are key, admitting that many first-time home buyers tend to take time digesting the details of a property, often seeking advice from others and waiting until the next week to decide.

“By the time they’re ready, the agent may have moved on to other buyers, which can be frustrating for them. Being swift and prepared can set you apart from other potential buyers,” Paliwal says.

Understand the local market: Whether it’s a buyers’ or sellers’ market in the area you’re looking to buy in can really help, as market conditions vary significantly by location and property type.

For instance, house prices in Sydney’s Cabramatta have surged 28.9 per cent over the past year, and Marsfield has seen a 21.4 per cent increase. In contrast, house prices in Surry Hills have declined by 8.2 per cent, and Leppington has dropped by 2.2 per cent.

“In areas with rising prices and high competition, sellers hold the advantage. Conversely, in location where demand is softer and prices are declining, buyers are in a better position to negotiate,” says Steven Tropoulos, property advisor with Highfield Private.

Use the Sandwich Method: Start by identifying a home that is slightly less desirable than the one you’re interested in, and that has sold in the past three months. Your target property will likely sell for more than this one.

Then, find the least desirable home that is slightly better than yours, also sold within the last three months. Your property will likely sell for less than this one. “While most buyers focus only on comparable sales, this nuanced approach gives you a more accurate sense of pricing by consolidating both ends of the spectrum,” Paliwal says.

Don’t underestimate personal connections: Don’t discount the value of relationship-building with local real estate agents. Sharing the fact that you grew up nearby, or have kids in a local school can go a long way in convincing a seller to accept a lower offer from you over that of, say, an investor.

Over time, agents will remember buyers who are proactive and engaged, which can give you an edge when they’re recommending offers to the vendor.

Walk away: Once you’ve made an offer, be prepared to walk away. Sellers can sense when you’re emotionally attached, so waiting for the phone to ring without constant follow-ups can put you in a stronger position.

If the property is genuinely on the market, the estate agent will call if they’ve got good news, so don’t fret.

• Advice given in this article is general in nature and is not intended to influence readers’ decisions about investing or financial products. They should always seek their own professional advice that takes into account their own personal circumstances before making any financial decisions.

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