How to negotiate a better deal on property

How to negotiate a better deal on property

When you are making the biggest financial commitment of your life, ensuring you get a good deal is a major priority. And with property prices back on the rise, it’s time to start honing your negotiating skills if you are in the market for a new home or an investment property.

“Negotiating is an art and for most people, it’s not something we do everyday,” says buyers’ agent Rich Harvey, CEO of propertybuyer.com.au. “I’ve seen high-level executives who negotiate big corporate deals with great skill just fall apart when it comes to their own house.”

Do your homework

To be in a strong negotiating position, you must research and understand the property market in the area you are looking to buy. Only then will you know how much you should be paying, which will help you avoid paying more than a property is worth.

“Know your market. Do a comparative sales analysis of similar properties in the area, and look at like for like,” Harvey advises.

It’s not enough to compare a three-bedroom two-bathroom house with another similarly sized property, adds Harvey – you must also compare zoning, aspect and view, proximity to amenities and other location benefits.

Beware of FOMO

Buyers who fall in love with a property are more likely to spend more than the property is worth because they can’t bear to miss out on it – and real estate agents will take advantage of that emotional connection to extract a higher price. “Don’t catch FOMO disease – fear of missing out,” Harvey says.

Whether you are buying a home to live in or an investment property, be realistic about what you can afford and stick to it. “Emotional attachment is very hard for people to overcome,” Harvey adds. “They may be looking at an area they really want to buy in, but may not be able to afford it. Our advice is to look at surrounding suburbs that may be more affordable.”

Be prepared

You will be in a much better position to negotiate if your finance is approved and your deposit is ready to go – particularly if the vendor is seeking a quick sale.

Real estate agent Mark Dawes, director of Richardson & Wrench South Sydney, says being prepared ensures your place in the game. “If you don’t have pre-approval, we don’t take you seriously,” he says.

There are thousands of home loans to choose from, so this is another area that requires a lot of research. On RateCity.com.au, you can search and compare more than 2,000 home loans.

Don’t make a ridiculous offer

If you think a property is overpriced, it’s perfectly acceptable to make a lower offer. However, Harvey advises against going to the other extreme and making an unrealistically low offer.

“You have to be fair. It can actually backfire and show the agent and the vendor that you are not interested in the property at the right level.”

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What does pre-approval' mean?

Pre-approval for a home loan is an agreement between you and your lender that, subject to certain conditions, you will be able to borrow a set amount when you find the property you want to buy. This approach is useful if you are in the early stages of surveying the property market and need to know how much money you can spend to help guide your search.

It is also useful when you are heading into an auction and want to be able to bid with confidence. Once you have found the property you want to buy you will need to receive formal approval from your bank.

What is equity and home equity?

The percentage of a property effectively ‘owned’ by the borrower, equity is calculated by subtracting the amount currently owing on a mortgage from the property’s current value. As you pay back your mortgage’s principal, your home equity increases. Equity can be affected by changes in market value or improvements to your property.

What is bridging finance?

A loan of shorter duration taken to buy a new property before a borrower sells an existing property, usually taken to cover the financial gap that occurs while buying a new property without first selling an older one.

Usually, these loans have higher interest rates and a shorter repayment duration.

What is equity? How can I use equity in my home loan?

Equity refers to the difference between what your property is worth and how much you owe on it. Essentially, it is the amount you have repaid on your home loan to date, although if your property has gone up in value it can sometimes be a lot more.

You can use the equity in your home loan to finance renovations on your existing property or as a deposit on an investment property. It can also be accessed for other investment opportunities or smaller purchases, such as a car or holiday, using a redraw facility.

Once you are over 65 you can even use the equity in your home loan as a source of income by taking out a reverse mortgage. This will let you access the equity in your loan in the form of regular payments which will be paid back to the bank following your death by selling your property. But like all financial products, it’s best to seek professional advice before you sign on the dotted line.

What is a line of credit?

A line of credit, also known as a home equity loan, is a type of mortgage that allows you to borrow money using the equity in your property.

Equity is the value of your property, less any outstanding debt against it. For example, if you have a $500,000 property and a $300,000 mortgage against the property, then you have $200,000 equity. This is the portion of the property that you actually own.

This type of loan is a flexible mortgage that allows you to draw on funds when you need them, similar to a credit card.

What is an investment loan?

An investment loan is a home loan that is taken out to purchase a property purely for investment purposes. This means that the purchaser will not be living in the property but will instead rent it out or simply retain it for purposes of capital growth.

What is stamp duty?

Stamp duty is the tax that must be paid when purchasing a property in Australia.

It is calculated by the state government based on the selling price of the property. These charges may differ for first homebuyers. You can calculate the stamp duty for your property using our stamp duty calculator.

How can I get a home loan with no deposit?

Following the Global Financial Crisis, no-deposit loans, as they once used to be known, have largely been removed from the market. Now, if you wish to enter the market with no deposit, you will require a property of your own to secure a loan against or the assistance of a guarantor.

What are the pros and cons of no-deposit home loans?

It’s no longer possible to get a no-deposit home loan in Australia. In some circumstances, you might be able to take out a mortgage with a 5 per cent deposit – but before you do so, it’s important to weigh up the pros and cons.

The big advantage of borrowing 95 per cent (also known as a 95 per cent home loan) is that you get to buy your property sooner. That may be particularly important if you plan to purchase in a rising market, where prices are increasing faster than you can accumulate savings.

But 95 per cent home loans also have disadvantages. First, the 95 per cent home loan market is relatively small, so you’ll have fewer options to choose from. Second, you’ll probably have to pay LMI (lender’s mortgage insurance). Third, you’ll probably be charged a higher interest rate. Fourth, the more you borrow, the more you’ll ultimately have to pay in interest. Fifth, if your property declines in value, your mortgage might end up being worth more than your home.

What is appreciation or depreciation of property?

The increase or decrease in the value of a property due to factors including inflation, demand and political stability.

Are bad credit home loans dangerous?

Bad credit home loans can be dangerous if the borrower signs up for a loan they’ll struggle to repay. This might occur if the borrower takes out a mortgage at the limit of their financial capacity, especially if they have some combination of a low income, an insecure job and poor savings habits.

Bad credit home loans can also be dangerous if the borrower buys a home in a stagnant or falling market – because if the home has to be sold, they might be left with ‘negative equity’ (where the home is worth less than the mortgage).

That said, bad credit home loans can work out well if the borrower is able to repay the mortgage – for example, if they borrow conservatively, have a decent income, a secure job and good savings habits. Another good sign is if the borrower buys a property in a market that is likely to rise over the long term.

Will I be paying two mortgages at once when I refinance?

No, given the way the loan and title transfer works, you will not have to pay two mortgages at the one time. You will make your last monthly repayment on loan number one and then the following month you will start paying off loan number two.

Does Australia have no cost refinancing?

No Cost Refinancing is an option available in the US where the lender or broker covers your switching costs, such as appraisal fees and settlement costs. Unfortunately, no cost refinancing isn’t available in Australia.