You may have zeroed in on the house you want to buy, but how much should you pay for it? You can’t kowtow to the seller and give him exactly what he wants.
Everyone knows that an asking price can always be negotiated. However, your bargaining may backfire if you quote a figure that is much lower than that demanded by the seller, which may prompt him to consider other buyers. Arriving at an offer price is always tricky.
On the one hand, there are reports that suggest property prices are rising, but at the same time, there are studies that point to a drop in demand for housing projects and the large number of unsold houses in every city. So, how do you arrive at a good number that will please you and the seller?
Do your homework
Try and get a realistic picture of the asking price before making a counter offer. Sellers usually hike the price by 15-20% compared to that of similar properties in the neighbourhood. “Don’t take the broker or seller at face value. Make enquiries in the neighbourhood about the condition of the property and the prices of similar properties sold recently.
This will help you compare the prices and assist you in arriving at the offer price,” says Ganesh Vasudevan, vice-president of Indiaproperty.com, a Chennai-based real estate portal. Some property agents deliberately hike the cost of a house since they know that buyers will negotiate. As they charge a commission, which is a percentage of the sale value, the higher the sale price, the more their gains.
This is also the reason that the owners who sell their houses privately can offer a lower price since they don’t have to pay the broker’s fee. If you want to save money, you could search for the houses put up for sale directly by the seller either on the Internet or in newspapers.
You also need to check out the duration for which the property has been in the market. If it has been on sale for more than six months, you could easily haggle for a bigger discount.
If the house is mortgaged, knowing the outstanding principal could be helpful. “It’s possible that the seller may have defaulted in some of the payments or is finding it difficult to pay the EMIs. This will give you more bargaining power while negotiating the price,” explains Vasudevan.
If you are buying the property as an investment, you should also consider the potential rental yield. “The house should be able to yield an annual rental income of at least 6% of the property’s value. If the yield is lower than this, it won’t make sense to buy the house,” says Pankaj Kapoor, CEO of Liases Foras, a real estate research firm.
If you are still keen on the house, you can use the lower yield as a tool to further reduce the price. You can easily find out the rental value of the property by asking tenants in the area or checking the rent being asked for by owners on various property portals.
Let the broker know your budget
Kapoor advises that sometimes it is better to inform your broker about the budget you have earmarked for a house. “By doing so, you mentally prepare him and the seller for the discounts that you will ask for. The broker, too, is aware that the seller keeps some buffer to negotiate the price downwards,” he adds.
However, you need to be firm on the budget as the broker may pressurise you to increase it. “The agent will try his best to close the deal fast as it means quick money for him. So he will concentrate on the positive elements of the house and try to keep the rates high,” says Kapoor.
It’s always a good idea to keep a margin of 10% for contingencies. This may help you raise your price during negotiations. However, to ensure that you don’t lose out completely, your initial offer price should be marginally lower than the final price/budget you have allocated.
If you manage to get the house within your budget, the contingency fund will come in handy to carry out renovations in the house. It may need some touch-up, such as a fresh coat of paint, or you may like to make a few alterations to suit your taste and comfort. If the house is in excellent condition, you could use the extra money to pay the stamp duty and registration charges, which is usually 6-10% of the value of the property.
Don’t be hasty
“Though there is some risk involved, a potential buyer who is keen on negotiating the rates in a sluggish market should avoid showing urgency while buying a house,” says Kapoor. Obviously, if you seem desperate about the house, the seller will be unwilling to lower the price. You could use the time to collect more cash to buy the house. Om Ahuja, chief executive officer, residential services, Jones Lang LaSalle India, says that a buyer with ready cash always has an edge over the other buyers when it comes to negotiating the price. “The seller may be more willing to lower the price if he is guaranteed an immediate cash flow rather than having to settle for a deferred payment plan,” he adds.
Be specific about the deal
Ask the owner to specify the fixtures that he will be leaving behind. What you see installed in the house is not what you may finally get. For instance, will the ceiling fans or curtain rods still be there? Are the cupboards installed permanently or will the owner remove them? Such questions are important or you may end up spending extra for such essentials. It is possible that the seller may be moving to another city and is not keen on taking all his furniture and fittings along. If you like any item in a good condition, you could try to include it in the deal. This will be beneficial for bigger items, such as air conditioners, refrigerators and furniture.