- There are two key metrics buyers need to know when negotiating
- (1) Days on Market and (2) the Average Vendor Discount
- These tell you if you are in a buyer's, seller's or balanced market
In his seventh article in the series, investor, founder, author and media commentator Bushy Martin discusses the science and art behind property negotiation.
In the previous pieces, the topic was introduced by explaining how you may need to change your outlook, build good rapport by using Mirroring and Labelling techniques and the perceived power position, which you may feel is tipped against you and why cash is king.
So we now assume you have the right mindset, and have stacked as much as you can in your favour, including your finances.
The next step is to ensure you research and know the driving negotiation metrics of the area you buying into.
Two important metrics
You need to know what the average Days on Market and the average Vendor Discount are in the particular area where the property is.
This is about determining if prevailing conditions create an environment that is a buyer’s market, seller’s market or a balanced market. It’s about understanding the perceived power position.
If there are more sellers than buyers, then it’s a buyers market and you have much more leverage and power in the negotiation. If it’s a balanced market then there is an equal spread of buyers and sellers.
And if it’s a seller’s market where there are few sellers and many buyers competing for a property, you need to work much harder, faster and smarter and potentially have to pay more for the property. This is exactly the situation that most popular parts of Australia are now in.
Using the metrics
If properties have been on the market for a long time as recorded in ‘Days on Market’, you know you’ve got good leverage in the negotiation. If you can see the market is moving quickly — meaning the Days on Market are short — you understand it’s a seller’s market and so the negotiating position isn’t with you as the buyer.
A confirming indicator can be found by looking at Vendor Discount rates. If you can see that they’re taking large vendor discounts, the power is with the buyer. However, if there’s little vendor discounting, and it’s a strong market, then you probably won’t be grabbing a discount on the property price. In fact, the property could sell for more than the advertised price, which is exactly what is currently happening in lots of areas around the country right now.
By doing this, you are able to see the strong and healthy markets, and it gives you an idea of exactly what sort of market conditions you’re negotiating in. It’s about being prepared, and realistic.
Where can you find these metrics?
CoreLogic provides reports that you pay for that give you weekly updates on these and other key metrics.
Alternatively, you may be able to access these reports for free if you are using a finance broker that has access to them. Many property strategists, websites and buyers agents can also assist you with the same.
Next article: Negotiating starts at hello.