Never offering the asking price!
Posted by markharrison on September 6, 2006
I had a call from a (non-investor) friend saying that she and her partner had been to view a flat on Monday evening.
The liked the flat – it was in the right place, just big enough, and they are desparate to “get their feet on the ladder”.
Anyway, on Tuesday morning, they phoned up the estate agent, who told them that there were several more people interested in viewing the property, and that in order to get the vendor to take it off the market, they would be advised to offer the asking price…
… so they did.
This is, almost always, an incredibly bad mistake. The reason that they did this is that they thought the vendor would be really pleased, and take the property off the market.
Now, a key principle of negotiation is to put yourself in the shoes of the vendor, and imagine what they would think. If you had put a flat on the market at the weekend, and had a viewing on Monday, then you’d be fairly pleased. If you got an offer on Tuesday, you’d be very pleased.
However, if that offer were the asking price then, either immediately (or at least by the end of the week), then you’d be kicking yourself because you should have asked more (or so you believe.)
If you live in a place where offers can go to contracts pretty much same day, then this isn’t great for the buyer – at best you’ll have a grumpy vendor who isn’t going to be motivated to leave everything perfect. If, however, you live here in England, where the vendor then has to put the contract to his/her solicitor, who will typically take 6-8 weeks to sort it out, then it can be awful. In all that time, the vendor can unilaterally pull out of the deal, leaving you the buyer exposed to costs.
Now, I’m not saying you should never pay the asking price, only that you should never make it your opening offer.
A vendor who receives a lower offer, then ends up negotiating back up to the asking price, is typically far happier with the result, because they feel that they have “won”… and you should always aim to leave the other party feeling that they have won!