Price is not the only negotiating factor in a competitive market.
Looking at the numbers, you can understand the constant headlines about a property market downturn. Auction clearance rates are down and days on market, vendor discounting and the stock on the market are up.
For homeowners looking to sell this means that properties are on the market for longer, an average of 79 days compared to 55 in July 2018 (Core Logic), more people are having to discount from the original price guide, average discounts are 6.7%, compared to 5.1% in July 2018 (that’s around $16,000 less on a million dollar property) and there’s more competition on the market, an average of 8.8% stock on market compared to 4.8% in July 2018 (Core Logic) that’s twice as many properties to compete with.
Resilient micro-markets do exist in Sydney and Melbourne, the cities hit hardest by the downturn and many properties are still achieving higher than expected results. Recently, LJ Hooker Avnu agent Adrian Bridges sold a Cremorne duplex in six days for $110,000 over the price guide.
He says “I always launch things early as there is less competition on the market and there is higher search engine traffic for listings — meaning more eyeballs on our properties”.
Alongside effective timing and marketing strategies concessions are becoming an increasingly important negotiation strategy for real estate agents looking to secure sales quickly, as buyers take their time shopping around and play hardball when it comes to negotiating a deal.
“Deals aren’t so clear-cut anymore and it’s a reflection of the market,” says LJ Hooker Avnu agent Anthony Godson, who recently sold 25a Park Ave Mosman after 14 days on the market (The Mosman average is 51 days). “There are a lot of new buyers, but they are coming in with their eyes wide open; they are wary and they’re in no rush. If a home ticks all their boxes we’re getting strong interest, but otherwise negotiations have to come in.”
Common areas of negotiation are settlement dates, renting back to the owner, and the inclusion of furniture and appliances. In this market, buyers are likely to request a delayed settlement to give them more time to sell their own property, while others – such as downsizers – may wish to buy a property in advance of their retirement but don’t want to move in just yet. Renting it back to the current owners for a set period can work well for both parties.
Having the existing furniture and furnishings included in the sale, whether owned by the vendors or the styling company that staged the property for sale, can be a win-win. The vendor has fewer items to move and has the freedom to purchase exactly what they need for their next home without having to get rid of their existing furniture. From the buyer’s point of view, they may have liked how the house was presented when they viewed it, and want to be able to move straight in without having to furnish it. This is particularly the case when it comes to buyers returning from living overseas, Godson says.
If issues have been highlighted in a pest and building report, a buyer in this market is also more likely to insist that things be repaired or rectified before signing on the dotted line. A pool fence that doesn’t meet compliance is likely to become a point of negotiation, as are repairs to leaking pipes or water damage. In these cases, the inconvenience factor is as important as the cost of fixing the items in question.
“Our job is to eliminate any potential roadblocks in the way of moving forward on a sale,” Godson says. “If we can eliminate roadblocks through concessions, we can get it across the line faster.”
Letting a property languish on the market to the point it becomes ‘stale’ tends to put buyers off, and the lack of buzz around it often results in a less-than-ideal selling price. “If you aren’t willing to negotiate on concessions, you run the risk of missing an opportunity with a buyer,” Godson says.
Owners of older-style apartments now have to compete with a growing number of new developments, with developers offering incentives such as furniture and fixture packages worth tens of thousands of dollars when people buy off the plan. It’s crucial to have a concession strategy in place to be able to position an apartment favourably against other offerings on the market.
Concessions are also valuable in positioning a property as an appealing option if first home buyers are weighing up whether to build or buy a new house (and take advantage of the associated government grants and concessions) or to buy an established home or apartment.
“It pays to have a concession strategy in place in the early stages of a property campaign,” Godson says. “When you and your agent are on the same page around what you can negotiate on, it helps them bring in a wider pool of buyers and strengthens the emotional connection a buyer forms with your property – and this gives you and your agent the upper hand in negotiations.”
Concessions may work wonders in the sale of a property, but landlords should take care when it comes to negotiations with potential tenants. LJ Hooker Avnu’s Head of Property Management Nick Georges says being too willing to offer tenants incentives (such as the first month’s rent for free, repainting or reflooring an apartment, or reducing the security deposit) can lower the value of a property in a tenant’s eyes. “It looks desperate and puts the tenant in control,” warns Georges.
High-end properties can be a different story, however. If a good tenant is willing to pay the asking price and is ready to move into a vacant property, agreeing to certain requests can be the smart way to go. Putting in a side gate, painting a room, or replacing the dishwasher in a premium property can be points of negotiation, but it should be the tenant who does the work and pays for the changes, not the landlord.
“If you give them the okay, give them clear guidelines on what they can do,” advises Georges. “You have to be very specific.”
Talking through concession options with your real estate agent is as vital for landlords as it is for sellers and owners in such a competitive market. If the downward trend on home prices continues as predicted, it’s the savvy property owner that will succeed in selling or renting their property quickly and profitably.
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