Chapter 18: The Balance of Power
This is an extract from the ebook How to Really Buy a Property.
What's covered in this chapter
- How power in a transaction can move between buyer and seller;
- When power is real, and when it is perceived;
- How to know when you have the upper hand, and when you don't;
- What weakens the power of the buyer or the seller;
- True stories of people who thought they were in control, and lost it all.
From the moment you make an offer to the time you negotiate a completion date and exchange the person with the upper hand can vary considerably. This is yet another reason to get an agreed deal through to exchange as quickly as possible.
Real and Perceived Power
The Balance of Power has two parts, what is actually happening and who actually has the power versus what both parties (buyer and vendor) believe is happening and who they believe has the power. This means that just because you, as a buyer, may believe the market is moving down and want to renegotiate the price, the vendor may believe the opposite and think it is worth withdrawing from the sale in order to sell again for more money.
It is important from day one to understand the vendor's motivation for selling and then, market conditions aside, you will know if it is wise to cause waves after a bad survey - balanced against your particular desire for that property. Far too many buyers try to renegotiate only to find the papers are withdrawn from them by an emotional vendor who then refuses to continue the sale under any circumstances. The selling agent is the best person to ask as they should know why the vendor is selling and their state of mind at any given moment. Note here the key is 'at any given moment'.
With private sales motivation is much more difficult to gauge as the vendor may well lie in order to make himself look less desperate or conversely to try and get an offer which he can then use to push other potential buyers higher.
How the Balance of Power Changes
What weakens a vendors' power includes:
- the property being vacant and mortgage payments are high
- they have found a property they want to buy
- the market is falling
- they are in financial trouble
- they are splitting up with their partner and jointly own the property
- you have been looking for six months and this is the only place that matches your requirements and budget
- the market is rising
- your rental lease is running out
- you have a buyer on your property who has offered an extremely good price and wants to exchange fast
- this is your dream property
All of these factors can change very quickly. Imagine you have got an offer agreed on a vacant property from someone who is in financial trouble, believes the market is falling and wants the flat sold quickly so they can finalise their divorce.
Within a month the same person may have received a fantastic rental offer on the flat, come into some unexpected money, seen reports in the media of a rising market and got back together with their ex-spouse.
You have gone from having power to having none so no matter what a walk over you believe the vendor to be at the start of a transaction always keep things civil and don't assume that circumstances won't change.
Simon was a first time buyer and knew his strong bargaining position. Over a four day period he negotiated through the agent and eventually achieved an agreement at over 10% below the asking price â€“ exceptional for the market place at the time.
The chain moved forwards and the vendors of Edgeley Road booked a survey on their house in Balham. The surveyor's report suggested the house needed a great deal of work and, with so many extra costs to take into account, they decided to withdraw from their purchase of the house.
On a point of morality they felt guilty about stopping the sale of their flat to Simon and so decided to let this process proceed.
Simon's survey did not reveal any great surprises but he did believe he might be able to save a little more by renegotiating on some points regarding damp and timber. The time spent going backwards and forwards gave the vendor plenty of time to think and they concluded that actually they were underselling their own property for no good reason. Furthermore they believed the buyer was now being unreasonable in his demands and so they withdrew from the sale.
If Simon had stayed quiet and not overcooked his bargaining the vendors would probably have exchanged but greed got the better of him.
When Melissa's offer came in at £195,000 he was relieved and agreed to it immediately. The transaction moved through to the point of exchange within five weeks. At this point Melissa thought she would take a chance and, giving lots of arguments about a falling market (which did not exist) told the vendor that if he wanted to exchange he would have to reduce the price by a further £5,000.
Three weeks previously the people who owned the flat upstairs from the property in question had approached the vendor and offered him the full £205,000 so that they could change the building back into one whole house. The vendor had done the honourable thing by telling them that he was already under offer and would not back out of an agreement he had already made.
Within two hours of Melissa attempting to renegotiate the price the vendor had decided that this meant there was no need for him to remain true to his word, if his buyer was not true to hers. He asked his solicitor to retrieve the contract and called the people in the flat upstairs to give them the good news.
Melissa offered to exchange immediately at the original agreed price of £195,000 but this was still £10,000 short of an offer from buyers who had an excellent motivation to exchange on this particular property. She lost the property and all of her expenses.