Managing vendor expectations. Help please!

Hi,

We're in the process of negotiating a private sale for a 3bed residential property in Brisbane (PPOR), and early discussions with the vendor had us talking similar ball-park figures. Things were looking promising so we arranged for a private valuation from one of the big firms so we could start meaningful negotiations. This is where it all fell apart...

Having lived in the same area for some time, and also through extensive DD we believed we knew the property was worth somewhere in the early $600's, and when the val came in it was probably $20k under where we expected. This wasn't unreasonable we thought. During this same time, the vendor has approached a number of real estate agents and done their own research to establish their price range.

With the valuation in hand we started negotiations. It turns out their expectations (as guided by the RE) were closer to $680k so didn't even want to consider or negotiate our offer in the early $600's.

So where to from here? How do I go about managing the vendors expectations? Am i stuck now since the bank will only lend up to the valuation figure?

We've tried showing them comparable sales, and of course they show us comparable sales in their price range.

It's disappointing as we liked this place a lot!

 

Would you as vendor accept the lower price? Walk away and let them test the market ...

 

I'd walk away in that scenario

 

You have lost the chance to manage the vendor's expectations - which have now been reset by their inter-reactions with the real estate agents.
Bank vals can be conservative and not representative of the true market worth of the property if it was to be put up for sale with an advertising & marketing campaign.
If you still want the property and are prepared to pay what the vendors now want, you would have to either tip in more cash of your own or approach a different lender (who uses a different valuer) and try to get the higher purchase price across the line.

One, or both of you is wrong.

 

Have several friends look through the property and submit offers in the high 500's/low 600's (below yours).

 

Thanks for the feedback Propertunity, I agree the chance has likely been lost as soon as they spoke to the agents.

In regards to the valuation, it was a pre-purchase market appraisal through HTW so I expect that to be closer to true market value than a bank val.

My comparable sales were aligned with the HTW examples. I had a quick look at the CoreLogic AVM's for the comparable sales the vendor provided and it appears in each instance the buyer paid significantly more ($30k+) than the value of the property.

 

I like this idea!

As others have suggested I will walk away and let them test the market. They may well jag a hot buyer that's willing to pay their asking price.

Given the HTW market appraisal, if the vendor was to find a $670+ buyer is it common for a second valuation to come in on the higher price range?

 

different valuers will value something differently.

Also once there is an agreed COS the valuation will 99% of the time come in at the same figure unless it was significantly out.

If the property goes to a public auction it is very rare they will value it less than what the market paid.

The valuation is at that time/day it was generated, a valuation can change 10% overnight .

 

Remember in Brisbane the (usual!) way to make an offer is present a signed contract - your friends/family had better be ready to physically sign a contract for buying the property (including gaining finance, etc). Of course they could use B&P or finance to pull out later should the very unusual happen and the vendor signs the contract.
But I don't know anyone who, to help me out, would actually sign a contract to buy a property they didn't want - for $600,000! - just in case they actually have to go through with it!

 

That's a big difference from early 600's to 680.
Walking time.

 

Interesting, and probably the most accurate answer to the actual question .

McArthur, luckily my family have different names so i might be able to keep it 'in the family' if i every tried this.

The Y-Man, this relies on you counter signing the "or nominees" it would need to be a good friend to trust me enough, my mum and dad have both in the past signed a contract for me and nominated over but i suppose they figure i am trust worthy. Then again ...

 

However, the friends don't have to sign a contract.

Quite often, RE agents will ask people going through a property what they think it's worth. If people wandering through an inspection say something along this lines of "oh, it's a nice place - just not what we're looking for (therefore, we're not wanting to put in an offer), but based on what else we've seen, we think it's probably worth around $600-$620".

If enough people start to say the same thing - and the RE agent is communicating openly and honestly with the vendor - then maybe they'll become a little more realistic about what they're willing to accept.

 

Friends don't let friends drink and sign.

 

In the end we tried meeting them half way but it still wasn't enough so off to the market it goes.

I didn't feel particularly comfortable even offering $640k but we really liked this place. Who knows, I may get a call in a few weeks time

 

That's the way, no rush.
There will always be another one.

 

Sorry to hear. Not knowing your situation, I wouldn't be surprised if it went to sell for $640-650k, except the vendor will have to fork out $10-15k in commissions, leaving them back where they started!

Estate agents will always tell vendors that their property is valued higher than what is reasonable in order to win business. Vendors obviously would love to get as much as they can so they can't say no once the dollar signs are there.

 

I suppose it depends on your goal. If you want the property maybe increase your offer to a fair and reasonable price but not above.

If you are looking for a bargain then this may not be the house. The agents have spoken and now this figure is in the sellers head. Was the agent "buying a listing"?- probably but if the gulf is too far then I think you are wasting your time.

As a solicitor often I encounter people who have unrealistic expectations on whatever outcome: price, compo payouts etc. Some think that by starting (too) high they will get a good outcome. For property in a rising market they may get a cashed up OS or Southerner buyer who makes their dreams come true. But for most it takes a lot of effort to get them down to where they should have started in the first place and then when you try to get them to a reasonable figure (not a lowball figure) they are outraged because they have already come down so far and your (reasonable) offer is now an insult and you're playing sharp tactics. So you have spent a lot of effort for no result when you could instead be looking at other open houses or in my case as a self employed person in the office making money. In other words negotiating with unrealistic sellers actually costs me money by loss of time.

Is it worth $680k ? Let them go with an agent and see. If they approach you after Christmas when peak selling season has passed to renegotiate then of course your initial offer needs to be revised downwards- assuming you are still in the market.

 

Our final offer of $640k was what we believed to be a very fair price, and in fact more favourable for the vendor than ourselves given the $590-610 valuation. As you pointed out that would be equivalent to a market offer of close to $660k.

Who knows, they may well jag a cashed up Sydney / Melbourne buyer. How likely is it that a future valuation will come in at contract price? I guess it's less relevant for a cashed up buyer with a much lower LVR.