As exclusive buyer’s agents, we’re frequently asked how much one can negotiate on a property’s price. The answer isn't straightforward, as it requires considering both the property's value and the seller's situation, along with market insights and practical factors such as needed repairs or the seller's financial pressures that may require a quick sale.
Since the seller’s circumstances are not known, although they can be inferred from multiple factors, the focus at the beginning of negotiations must start with the price and how it aligns with the perceived value of the property, considering the property itself and the segment of the real estate market it belongs to.
This is where an exclusive buyer's agent becomes essential: someone capable of evaluating the true value of a property, using in-depth market knowledge. They can help define a well-grounded strategy for initiating negotiations, ensuring that emotional factors, which can heavily influence the final value of a property, are pushed to the background. It's important to begin by clarifying key concepts and factors that may contribute to a misalignment between the advertised price and the purchase price.
Advertised Price
The advertised price is the amount at which a property is listed for sale by the seller or real estate agent. It reflects the price the seller hopes to achieve, and it's what you'll see in property listings, advertisements, or on real estate websites. In many countries, it’s standard practice to consult a real estate expert to help determine the right listing price.
While the seller may have an idea of the price they want, agents typically use their knowledge of the local market to suggest a competitive and realistic price. However, this isn’t always the case in Portugal. Often, sellers decide on the price based on what they’ve seen neighboring properties sell for, or assigned a perceived value of the property, an emotional perception without mapping it against reality or the surrounding real estate market.
In other cases, to secure a listing, agents may mislead sellers with promises of higher offers for a property. This leads to property values becoming even more detached from a fair market price.
Purchase Price
The purchase price is the actual amount agreed upon between the buyer and seller during negotiations.
In some cases, particularly in a highly competitive market and area, the property might sell for the advertised price, especially if it's priced fairly and attracts multiple offers quickly, however in Portugal, it is quite common for the selling price to be lower than the listing price.
This can happen for several reasons:
1. Negotiation Culture:
In Portugal, as in many other markets, negotiations are a key part of the real estate transaction process. Sellers may initially list a property at a higher price to leave room for negotiations, knowing that buyers will likely offer less.
It's a strategy that gives both parties flexibility during the negotiation process. Buyers typically expect to negotiate a lower price, and sellers are often prepared for this.
2. Overpricing:
Sellers, or even some real estate agents, may set an initially high listing price, whether due to a distorted perception of the property's value or condition by the owner, or due to incorrect valuation and/or expectation management by the listing agent.
The impact of the real estate agent is often perceived as being larger than it is, but it still exists, either unintentionally or intentionally as part of the listing agent's strategy.
The overpricing of properties by the listing agent can result from a strategic approach to prioritizing other products in their portfolio, as a consequence of their approach to listing the property, or many other reasons.
3. Approach to Negotiations:
It is common to expect both the seller and the listing agent to aim for a sale price as close as possible to the asking price. For the seller, this is a straightforward motivation, often driven by the desire to achieve the best possible return on their property.
For the listing agent, this is frequently about maintaining their reputation as top sellers with potential clients.
The sale price, however, is ultimately determined by market forces, and the perception of value is shaped by these market conditions. This reflects the balance, or imbalance, between supply and demand in the market.
To secure the best price for a given property, it's essential not only to have a solid understanding of the market, but also to be able to assess the value of the property within the context of that market.
However, this alone may not be enough, especially when we're dealing with humans negotiating over a product that one or both parties might have an emotional attachment to. In this context, having the support of a good exclusive buyer's agent can make all the difference.
An exclusive buyer's agent not only brings market knowledge and can accurately assess the fair market value of the property, but they can also leverage this expertise to construct a well-founded strategy for making an offer.
This strategy can help propose a price that more closely reflects the true market value, and potentially even lower, depending on the buyer's agent's ability to identify negotiation opportunities and leverage potential discounts.
In essence, a good exclusive buyer’s agent adds value by managing both the emotional and financial aspects of the transaction, ensuring the best deal possible for the buyer while navigating the complexities of human behavior in negotiations.
Fair Market Value
Much of the value that an exclusive buyer’s agent can bring to a buyer is the ability to assess the fair market value of a property. This is often seen as a key differentiator by many buyers. The question that many ask is how an individual or company can position themselves as experts in such vast geographical areas.
It is a fair and rational question, but one that underestimates the full scope of a buyers' agent's responsibilities.
A buyers' agent is not only a specialist in the purchase process but also skilled in navigating the various challenges that different transactions and parties may present; they can assemble a team that allows the buyer to address challenges that may arise during the purchase of a specific property; and are knowledgeable in the tools and platforms necessary for property assessment, such as property surveyors helping to determine a potentially fair value for the property.
In Portugal, there are several platforms available that can help assess property values and identify potential market trends. Some of these platforms offer free access, providing limited information, such as property prices and basic market insights.
While the free versions of these platforms can provide a general understanding of the market, subscribing to their premium services can offer deeper insights, helping users make more informed decisions on property investments.
These tools are essential for any exclusive buyer's agent, and by extension, for the buyer as well.
Not only do they help assess the fair market value of a property by considering its features and market context, but they also provide data often omitted from property listings.
This additional insight can be invaluable during negotiations, helping to build a well-founded rationale that supports the buyer in securing a property under more favorable terms.
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