the art of negotiation - nhbc · 2017-02-10 · the art of negotiation 04 the seller 07 negotiation...

Autumn 2016

Countrywide Quarterly Report

The art of negotiation

Johnny Morris

Research Director

[email protected]

David Fell Research Analyst

[email protected]

Authors

The buyer06

COUNTRYWIDE QUARTERLY REPORT AUTUMN 2016

For many people the idea of a negotiation conjures up the image of a winner and a loser. One person ends up walking away happy with the other leaving in despair. The reality is rather different. While both parties know what they want and have a plan to get it, deals get done when people find common ground and can meet somewhere in the middle.

The property market is no different. Sales happen

when a buyer and a seller can reach a compromise

that leaves both of them happy. While the price

of a home tends to be the focus of the negotiation,

there are a whole host of other factors involved too.

Who the buyer is, how the deal is funded, and the

timescales they’re both working towards all affect

their negotiating position.

But the way in which people negotiate isn’t

only governed by their financial position and

timescales. It’s people that buy and sell homes

which means their personality and the other

options on the table also play a role. This report

looks at the different ways people negotiate

a deal. The first two pages focus on sellers and

ways they push for a sale while the final two

pages examine buyers and unpick their

negotiating strategies.

The art of negotiation

The seller04

Negotiation tactics07

CONTENTS

contents

42

The sellerSelling a home is a big deal and people tend not to do it very often. Owners decide to sell for all sorts of reasons, but what unites almost everyone is their desire to get the best price in the shortest amount of time. But every seller is slightly different, and is driven by a whole host of needs and desires, all of which have an effect on how they go about selling their home.

Given that no two homes are identical, it’s not surprising that there’s usually some deliberation over their value. Owners naturally put a higher price on their home than the buyer, and it’s only when they can agree that it gets sold. The following two pages look at the selling process; from a home first coming onto the market, to the vendor accepting an offer, or not.

Starting the conversationWhenever it arrives, the first offer is a welcome expression

of interest. It takes an average of 11 days between

someone putting their home up for sale and them

receiving their first offer, a figure which closely reflects

the strength of demand in their market and the level at

which the asking price is set. While it might be welcome,

more often than not vendors turn down the first offer

in the hope or expectation of getting a higher price.

In 2016, 71% of first offers were turned down, a figure

which has dropped slightly since last year. London

homeowners are more likely than anyone else to hold

out for a higher offer in the future, turning down 82%

of initial bids.

The length of time a home has been on the market tends

to determine whether or not the first offer is accepted.

Vendors turn down 80% of first offers made on homes

that have been on the market for less than a week, while

at the other end of the spectrum, 55% of opening offers

are accepted on homes that have been for sale for at least

six months.

So is turning down the first offer the right decision for most

sellers? For the most part the answer is yes, with some

exceptions. 78% of vendors who turned down the opening

offer ended up with more money. A figure which varies

depending on who’s making the second offer. If the

person making the first offer comes back with a second,

the vendor almost always achieves a higher price for their

home. But if the first buyer walks away and it’s someone

else making the second offer, their chances of getting

more money drop to 61%. Quite often it’s the first buyer

who walks through the door who is also the keenest.

5


Best and finalWhere they have a choice, most vendors choose

to sell their home to the person who is willing

to pay them the most for it. In 2016, the highest

offer was an average of £4,400 or 1.8% above

the second highest. But while price is important

it doesn’t always determine who ends up buying

a home. Over the last decade around 1 in 5 vendors

decided not to accept the highest offer, a figure which

tends to reflect the strength of the housing market.

In a strong market where prices are going up, sellers are

most likely to accept the highest offer. Should the sale fall

through, there’s likely to be someone else waiting in the

wings to step in to match the offer or even pay a little

bit more. But during a downturn, the balance of power

changes and sellers have to pay much closer attention

to the ability of their buyer to complete on their sale.

In 2010, at the height of the slowdown, a record

28% of vendors opted not to take the highest offer.

Typically this means accepting an offer from a buyer who

they feel is a safer bet in the face of greater uncertainty.

Walking awayMost buyers and sellers fail to agree a price, and the

strength or weakness of the market actually makes little

difference to the chances of two people agreeing a deal.

In 2016 two thirds of buyers and sellers failed to agree

a price, leaving the vendor to find interest elsewhere.

Negotiations typically proceed at a faster pace in stronger

markets with buyers in particular acutely aware of the need

to complete quickly. Between 2010 and 2016, the time

between a buyer making their first offer, and the successful

or unsuccessful conclusion of negotiations fell from two

weeks to four days.

Just under 45% of all homes that are put up for sale

don’t sell, a figure which has steadily fallen as the market

has picked up since 2010. Around two thirds of the homes

which don’t sell have had an offer accepted on them,

which subsequently falls through because either the

buyer or the seller decides to pull out and the home isn’t

re-marketed. Buyers are most likely to withdraw their offer

in weaker markets while sellers are disproportionately

likely to pull out in stronger ones. The remaining third

of unsold homes are withdrawn from the market without

an offer ever being accepted.

6


Mortgage

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35%

30%

25%

20%

20%

15%

10%

5%

0%

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Sellers who don’t take the highest offer

Source: Countrywide Research

2006:£6,600

2008:£12,900

2010:£8,300

2012:£7,700

2008:£12,900

2016:£4,100

Average amount turned down by not taking the highest offer.

v

The buyerBuyers come in all shapes and sizes but what unites almost all of them is that they try to negotiate with the seller, some more successfully than others. In 2016 just 15% of buyers met the asking price in full with their first offer and a degree of negotiation was required for a deal to be agreed. When making their first offer buyers balance going in too low and risk offending the seller with having a much higher offer accepted leaving them wondering if they could have paid a little less.

Although the strength of the buyers hand is influenced

by the market and how many other people are out looking,

negotiation of one kind or another happens every day

in every market up and down the country. In slower more

buyer friendly markets, negotiations tend to be dictated

by the person putting in an offer. Whereas in markets

where prices are rising quickly and stock is thin on the

ground, buyers often find themselves up against a number

of others, negotiating upwards to give the seller the deal

they’re after.

Typically there is a hierarchy of buyers with seasoned

investors ready to pay in cash at a moments notice

somewhere near the top of the pecking order and those

who are part of a long chain with a small deposit

somewhere near the bottom. This year chain free cash

buyers negotiated an extra 2% off the asking price

compared to someone in a chain with a mortgage. But the

way buyers negotiate makes almost as much difference

to the chance of agreeing a deal as their position. Almost

everyone who buys a home fits into one of the eight

groups listed opposite which trump their wealth and

position. Many first time buyers negotiate in a similar way

to seasoned investors.

Different negotiation strategies are more successful at

different times as markets change. The most successful

buyers are chameleons, quickly changing the way they

negotiate depending on who the seller is and the strength

of the market. What worked for someone buying a home

in Newcastle from a landlord during 2010 is less likely

to go down quite so well five years later with a second

stepping Londoner.

7

COUNTRYWIDE QUARTERLY REPORT AUTUMN 2016 COUNTRYWIDE QUARTERLY REPORT AUTUMN 2016

8

25%

UKLondon

60%

50%

40%

30%

20%

10%

0%

Jan-

07

Apr-

07

Jul-0

7

Oct

-07

Jan-

08

Apr-

08

Jul-0

8

Oct

-08

Jan-

09

Apr-

09

Jul-0

9

Oct

-10

Jan-

10

Apr-

10

Jul-1

0

Oct

-10

Jan-

11

Apr-

11

Jul-1

1

Oct

-11

Jan-

12

Apr-

12

Jul-1

2

Oct

-12

Jan-

13

Apr-

13

Jul-1

3

Oct

-13

Jan-

14

Apr-

14

Jul-1

4

Oct

-14

Jan-

15

Apr-

15

Jul-1

5

Oct

-15

Jan-

16

Apr-

16

Jul-1

6

Sept-

16

Home sold for more than the first asking price

Negotiation tactics

Name: The chancerDescription: The largest group of buyers makes just a single, close to asking price offer on a home. While they’re successful around a third of the time, they walk away if they’re not. 2016 habitat: The Midlands Likely 2017 habitat: The South

Name: The peacockDescription: The peacock makes the most of their non-financial assets (babies, first time buyer status etc) to tug at the seller’s heart strings.

2016 habitat: LondonLikely 2017 habitat: The Midlands

Name: The jitterbugDescription: The jitterbug makes a series of increasing offers before withdrawing their best and final, in the fear that they’re paying over the odds.

2016 habitat: The NorthLikely 2017 habitat: The South

Name: The bulldozerDescription: The bulldozer falls in love with a home and refuses to let anyone or anything stand in their way. Rival bids are met by a flurry of punchy counter offers.

2016 habitat: LondonLikely 2017 habitat: London

Name: The chipperDescription: The chipper makes a series of close to asking price offers, increasing in ever smaller steps as they get closer to what the seller of the home is looking for.

2016 habitat: The SouthLikely 2017 habitat: The South

Name: The anglerDescription: The angler makes a very low opening offer to see if the vendor takes the bait before upping their offer to a more competitive level.

2016 habitat: The MidlandsLikely 2017 habitat: London

Name: The wheeler dealerDescription: The wheeler dealer makes a single low offer on a whole host of different properties at a similar time in the hope that one of them will be accepted.

2016 habitat: The NorthLikely 2017 habitat: London

Name: The thinker Description: The thinker is in no hurry to make any decisions. A week of waiting sits in between a rejected offer and a subsequent higher one.

2016 habitat: The NorthLikely 2017 habitat: The North

19%

15%

11%

5%

8%

4%

Source: Countrywide Research

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the art of negotiation - nhbc · 2017-02-10 · the art of negotiation 04 the seller 07 negotiation...

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