How can you successfully negotiate the price of real estate? And at what price point should negotiations begin and end? Many buyers may have these questions. It’s only natural for buyers to want to purchase a property as cheaply as possible within their limited budget. In this article, I, a top real estate salesperson, would like to answer these questions for all the confused buyers out there.
Table of Contents:
- Starting and reaching a compromise in price negotiations
- Going through a real estate agent who has a direct request from the seller
- Knowing the seller and the reason for selling well
- Giving decision-making authority to an excellent real estate salesperson
- What to do if a better second choice applies for the same property later
- If you really want it, buy it at full price
- There are no real bargains to be found.
- Conclusion
The Reliability of This Article
This article was written by someone with the following background:
- Over 15 years of experience in real estate brokerage at a well-known major real estate agency
- Successfully closed more than 300 real estate brokerage cases to date
- A certified 1st Class Financial Planner
- A Certified Financial Planner (CFP)
- A licensed Real Estate Transaction Specialist
Starting and reaching a compromise in price negotiations
Let me start with the conclusion:
The typical starting point for price negotiations in the Japanese real estate market is around 5-6% of the property price, and the general compromise point is around 3%. However, it should be noted that these figures vary depending on the property and the seller, and cannot be applied universally. It’s a case-by-case situation.
In books and internet articles, you may often see suggestions to start negotiations at around 10%, but this is too high. The idea that starting negotiations from a larger discount will lead to a better outcome is a common mistake made by amateurs. It’s important not to forget that there is a seller on the other side of the property. Negotiating a discount is not a game with a machine, but a “negotiation” with a single human being, the seller.
If you make an offer of 5 million yen for a property worth 50 million yen, it will damage the seller’s impression. From the seller’s perspective, they may feel “looked down upon” and the negotiation that could have been successful may end up being unsuccessful.
Going through a real estate agent who has a direct request from the seller
To negotiate the price advantageously, it is very important to negotiate through a real estate agency that has been directly delegated by the seller of the property.
In the Japanese real estate transaction system, if a real estate agency is directly delegated by the seller of the property, it can receive brokerage fees from both the seller and the buyer. However, if the real estate agency is not directly delegated by the seller of the property, it can only receive brokerage fees from the buyer.
In other words, from the standpoint of the real estate agency, being directly delegated by the seller means it can receive twice the usual brokerage fee.
Therefore, when negotiating the price, it is important to negotiate through a real estate agency that has been directly delegated by the seller. That real estate agency will work hard for you to conclude the deal because it will receive brokerage fees from both the seller and you, making it a double deal. The agency will have a high level of enthusiasm to close the deal.
Whether or not the real estate agency has been directly delegated by the seller can be confirmed on the property documents or on the real estate agency’s website. If the property documents has the kanji characters for “専属専任媒介” （exclusive representation）”専任媒介” （exclusive mediation）or “一般媒介” （general mediation）the property is being handled by a real estate agency that has been directly delegated by the seller. On the other hand, if the kanji characters for “仲介” （mediation）or “媒介”（intermediary） are the only ones listed on the property documents, the real estate agency is not directly delegated by the seller. Similarly, it can be confirmed on the real estate agency’s website.
Knowing the seller and the reason for selling well
First, let’s ask the salesperson at a real estate agency about the seller’s reasons for selling and their intentions.
There are various reasons for selling, such as debt repayment, dissolution of joint ownership, purchase of a new property, and disposal of inherited property. In some cases, the seller may be in a hurry to sell by a certain deadline or may be willing to accept some price negotiation.
It is also advisable to try to find out the seller’s true intentions as much as possible. If you have a skilled real estate agency salesperson, they may have already shared the negotiation range with the seller in advance. Knowing the negotiation room in advance can be advantageous in negotiation.
The important point here is to build a strong trust relationship with the real estate agency salesperson and make them your ally. An attitude without sincerity or one that is only obsessed with price cuts will lose trust. The real estate agency salesperson is not only responsible for the seller but also for you as the buyer.
Giving decision-making authority to an excellent real estate salesperson
If the real estate agent is excellent and trustworthy, it may be a good idea to give them the authority to negotiate on your behalf. For example, if you find a property you like that costs 50 million yen, you can ask the real estate agent to negotiate as follows:
“I want to apply to purchase the property for 47.5 million yen. If you can negotiate a price between 47.5 million yen and 48.5 million yen, I will buy it. Please finalize the negotiations.”
On the other hand, the real estate agent may have been told by the seller in advance, “I will sell for 48 million yen or more.” In this case, there may be no need to go back and forth in negotiations, and the deal can be finalized at a price that satisfies both the buyer and the seller. Alternatively, if the seller’s desired price is “49 million yen or more,” the real estate agent will negotiate hard with the seller to reach a compromise between 48.5 million yen and 49 million yen. They may be able to get a concession of 48.75 million yen from the seller. Either way, giving the real estate agent more freedom in negotiations can lead to concessions that are difficult to obtain under normal circumstances.
This is an effective method if you want to avoid the hassle of price negotiations and want a smooth transaction with the seller.
What to do if a better second choice applies for the same property later
From the seller’s perspective, the priority is to sell to a buyer with favorable conditions.
During your price negotiation, if another buyer comes with better purchase conditions, you will have to decide whether to purchase at or above the conditions of the second offer. For example, if the second offer is a purchase condition without a limit order, you will have to decide whether to purchase without a discount or give up on the purchase.
To avoid such situations as much as possible, a method is to conclude the sales contract as soon as possible. At the time of the purchase application, it is effective to inform the seller of a specific date when a sales contract will be possible upon agreeing to the conditions and make the sales contract date as close as possible to the date of the purchase application.
For information on the priority order of purchase applications, please refer to the article below.
If you really want it, buy it at full price
You may think that it’s not relevant to talk about this while discussing price negotiations, but it’s important so I’ll say it anyway. If it’s a property that you really want to get your hands on, then you should not negotiate the price. Other people want the same property as you do, and if another offer comes in with better conditions while you’re negotiating, you might miss out on buying it.
The fundamental principle of real estate purchasing is to buy a property you really like without any discount negotiations.
Price negotiation is just one factor that can support your decision to buy, but what really matters is your desire to own the property. Finding the right property is almost like fate. Once you find the property you feel is perfect, you should focus on not missing out on it, rather than negotiating the price.
Also, don’t think that “getting a discount is a given.” Some buyers complain when their desired price negotiations fail, but that is solely the buyer’s concern and has nothing to do with the seller. There are many sellers who do not negotiate the price at all.
Remember once again, the reason for purchasing should be “wanting” rather than “getting a discount”.
There are no real bargains to be found
“Do you have any properties that are cheaper than market value?” This is a question that real estate agents are asked at least once in their career.
The answer is yes, there are hidden gems out there. However, unfortunately, they won’t just come to you.
There are properties that must be sold before the inheritance tax deadline, or before the payment date for a newly purchased property, and so on. These types of properties do exist, but real estate agents typically sell them to other professionals. Why? They need to ensure that the deal is finalized with certainty, and the buyer is often required to agree to unfavorable conditions. They can’t include special provisions like the ability to cancel the contract in case of problems with bank loans, or the seller’s responsibility to repair defects found in the property, which would be possible in a normal sale to an individual. Therefore, these types of underpriced properties won’t usually come to individual buyers.
Waiting for a dream (ideal) property that might come along someday is not the most realistic approach to buying a property. Instead, it’s more practical to search for properties that match your criteria among the information that is available now.
Conclusion
How was it? In this article, we took a fresh look at price negotiations from the perspective of a real estate agent.
The important point is to value the feeling of “I want this property” rather than being fixated on the price. It’s crucial to purchase a property that you can truly be happy with, regardless of whether your offer is accepted or rejected.
In addition, trust is crucial when it comes to negotiating conditions, including price, with a real estate agent. Let’s consult with each other in good faith until we are satisfied. If you clearly convey your desire to buy a property, they will surely become your ally.
We hope that you will find a wonderful property. Thank you for reading this far!
