[LISTEN TO PODCAST]
Listen to PART 2 of this conversation, where we unpack the fundamentals of the negotiation process. In the event you missed PART 1 of this 2-part series: How to negotiate the best offer for your property – listen to it here.
Leadhome Properties’ experienced property practitioners, Desiré Ludick, (Johannesburg West) and Tracey Hicks (Greenstone, Kempton Park, Edenvale & Bedfordview) delve into some of the intricacies of property negotiation to share some of their most valuable insights.
Agent and negotiator
Tracey Hicks: “There are three parties in any negotiation; the buyer, the seller and the agent. The agent is the negotiator. The agent’s mandate rests with the seller, so protecting the seller’s interests and achieving the best price is paramount. Throughout the negotiation process, the agent works quietly in the background in many complex ways, to facilitate a sale. There are very sound reasons why the agent is the negotiator. Selling a home is an emotional process, both from the buyer’s and the seller’s perspectives. It is the agent, however, who keeps a level head during negotiations; the seller’s role is to show the property, the agent’s role is to sell it.”
Offer to purchase
A property has been listed on the market for two weeks at R1.3 million. Interest is buoyant with multiple viewings booked and feet through the door. Four keen buyers have indicated that they wish to make an offer. What is your process?
Tracey Hicks: “In this instance, I would advise the prospective buyers that as there is a lot of traction on this property, all offers will be presented to the seller at the same time. Therefore prospective buyers should make their best offer within the specified timeframe. This effectively gives each buyer an equal opportunity to put their best foot forward. There is no auctioning process or playing one buyer against the other. Communications with each buyer are transparent and on a level playing field. The five offers are then presented to the seller.
- Offer one is cash but is R50,000 below the asking price. No further negotiation will be entered into, as per the agent’s discussion with the buyer.
- Offer two is at the full asking price but is subject to the sale of the buyer’s property.
- Offer three is R100,000 below the asking price. The buyers have already sold their existing property and are awaiting registration.
- Offer four is R1,26 million, but the buyer requires bond approval.
The terms of the offers are now scrutinised by the agent and the seller to determine which offer/s are the most solid and favourable, and which pose a risk. Based on the real estate agent’s professional and area expertise and through discussions with the buyers, the agent is able to best advise the seller.
Let us say that the seller now elects to negotiate the top three offers by counter-offering. At this point the agent will step away to make phone calls to each of the buyers in turn, beginning with the most favourable offer (Buyer 1) stating that ‘I am with the seller who is countering to R1,28 million. I have two other offers on the table (Buyers 2 and 3), but yours is the most favourable, are you willing to increase your offer?’ This is the heart of the negotiation. The closing of the deal will depend on the buyers’ responses and through a process of negotiation and elimination, the right buyer will emerge and the sale will be concluded there and then.“
Tracey Hicks: “There is, however, a possibility that a sale could potentially still fall through. Let us say for example, that all the buyers’ conditions are subject to bond approval. As agents, our objective is to conclude a successful sale, however, if the buyer is unable to secure a bond, the deal could fall through.
Remember, we still have other offers in hand. The way we negotiate multiple offers to safeguard and complete a sale is as follows:
- The second-best offer, Buyer 2, becomes the Backup Offer.
- I advise Buyer 1 that their offer has been accepted but we have a Backup Offer, and they need to raise a bond and provide guarantees within 21 days.
- I then advise Buyer 2 that their offer has not been accepted, however, as they have put in a Backup Offer, they are second in line to purchase the property should Buyer 1 fail to raise a bond. A clause to this effect is included in Buyer 2’s offer.
- We can legally inform the buyer that the backup buyer is willing to purchase the property should their attempt to raise a bond fail.”
Desiré Ludick: “It is important to note that a seller is never legally obligated to accept an offer, not even if it is a full price offer, but can be made liable for agent commission if the offer is not accepted.”
Competing offer to purchase
Tracey Hicks: “There is a different scenario in which a competing offer to purchase is applicable. Let’s say I receive an offer today, from a buyer (Buyer 1) subject to raising a bond. This offer is accepted by the seller. Then, within several days, I have another buyer who is interested in the property but who also needs to raise a bond. I can now put in a Competing Offer on the same property. Specific clauses permit continued marketing of the property and stipulate specific time frames for conditions to be met. Both parties are now effectively in a race to the finish line by raising a bond. But for argument’s sake let’s say the Competing Offer Buyer, raises a bond first, before Buyer 1. Buyer 1 will receive notification from the attorney stating they have 3 days or 72 hours notice to raise a bond and provide guarantees, failing which, the Competitive Offer will purchase the property.”
Desiré Ludick: “Based on my experience, a seller should never decline an offer outright. Instead, the seller should counter-offer with a short expiry deadline. This compels the buyer to respond rapidly putting pressure on a positive outcome, or the offer falls through.
This also applies vice versa. So if a property generates a lot of traction, receiving offers very early on and the seller still wants a window of opportunity to receive other better offers, it is always a good idea to receive the offer but extend the seller’s acceptance deadline to a minimum of seven days. This gives the seller ample time, should no better offers be forthcoming, to accept or negotiate the initial offer.”
For more information or to request a valuation, please contact:
Property Practitioner, Greenstone, Kempton Park, Edenvale & Bedfordview, Leadhome Properties
Property Practitioner, Johannesburg West, Leadhome Properties