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What Does Sale by Negotiation Mean in Real Estate
17 October, 2023 | Jonelle Lee
Sale by negotiation means that the seller has set an asking price or a price range for the buyers. The buyers make an offer based on what they think the property is worth in the current market. They can choose to offer more or less than that specific price set by the seller and in turn negotiate the sale. The seller can take an offer at any time, it is an open-ended timeline. A sale by negotiation can include conditions, and the purchaser can cancel the deal if the conditions are not met.
The property is usually advertised with a price, a price band or with the phrase “by negotiation”. Sometimes it is marketed as buyer enquiry over (BEO) or buyer budget over (BBO).
How do I make an offer?
Where the seller is using a real estate agent, you would make your offer through the agent. If it is a private sale, the purchaser would negotiate directly with the vendor/seller.
With a sale by negotiation, you will make your offer by filling in an Agreement for Sale and Purchase.
All written offers must be presented to the vendor.
What should I include in the offer?
The offer will include the price you are willing to pay and any conditions that need to be met in order to complete the sale. For example, if you need to obtain finance, if you want to get a building inspection done, review the LIM report, have your solicitor review the contract etc.
Your offer would also set out how many days you need to meet these conditions (condition dates), and the date that the sale will go through (settlement day) if the conditions are met, and the agreement goes unconditional. It is important that you allow enough time for you to do what is needed in order for conditions to be met. (article link).
The agreement will also state how much purchase deposit is due on the date the agreement goes unconditional. (This deposit is different to the bank deposit). If you are unable to pay 10% deposit on the date the agreement goes unconditional, you will need to negotiate this as part of your offer and include an amended deposit amount in the offer. If you intend to use a KiwiSaver withdrawal to pay some of this purchase deposit, you will need to get the real estate agent to amend the deposit clause to reflect this.
It is a good idea to get your lawyer to review the agreement before your sign, to ensure your interests are protected.
What happens next? Negotiation and Acceptance
If the seller/vendor accepts your offer, they will sign the agreement – making it binding.
If the vendor does not accept your offer, they may make a counteroffer. The real estate agent would present this counteroffer to you, and you can accept that counteroffer or continue negotiating back and forth. Once an agreement has been reached between the vendor and the purchaser, with both parties signing, the agreement is binding.
Once the offer is accepted, a copy of the signed Agreement for Sale & Purchase should be sent to your lawyer as soon as possible.
What if there are multiple offers at once?
If more than one person puts in an offer at one time, the sale becomes what is called a “multi-offer process”, and you would need to put your best foot forward.
If the agreement is subject to any conditions you included, it is the potential purchaser’s responsibility to make their best efforts to satisfy the conditions. There are significant legal ramifications if a potential purchaser does not make their best efforts to satisfy the conditions.
If you need extra time to be able to satisfy conditions, you can ask your lawyer to request an extension. It is up to the vendor as to whether they allow this extension or not.
If all the conditions are satisfied, the offer will become “unconditional”. This means that the purchaser and vendor must complete the sale on settlement day.
The purchase deposit (this is different from your bank deposit) must be paid on this day, if it hasn’t been paid earlier.
Why would a seller choose this option?
A seller opts to sell by negotiation in times where it may be difficult to estimate the market price of the property, they can set terms and conditions on the sale like a settlement date for example. The usual steps for a sale by negotiation are confirming your finances, making an offer, the process of negotiation, completing the sale process, working through conditions, and paying the agreed amount by the settlement date.
Are you looking to buy or sell residential property? Property Law expert, Jonelle Lee is here to be your friendly, expert guide through the process. Protect your investment, get the right advice – Contact Jonelle today!
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