10 Tips on How to Negotiate the Purchase Price of a Property

In the period from 2010 to 2022, with historically low interest rates and rising salaries, prices for residential properties in Germany have only known one direction: upwards. In particular, as COVID-19 hit in 2020 and rates dropped even further below 1 %, this has led to properties often being sold at asking prices within a matter of days/weeks. It was not uncommon for highly sought-after properties to be sold above the asking price in fierce bidding wars. Prices in Berlin were increasing at a staggering 14 % p.a., and many buyers were further speculating on price increases.

Fast-forward to 2022 – where this year, we have observed the fastest increase in interest rates in Germany's recorded history. This has led to almost a quadrupling of interest rates from around 1% to 3,5%–4 % on average. This increase has had a direct adverse effect on buyers’ affordability. The interest cost has basically increased by a multiple of 3-4. While there are still plenty of cash buyers buying properties, the demand from buyers who need a mortgage has declined sharply.

Why is this relevant for you as a potential buyer? Because significantly lower demand on the buyers’ side has given you an unprecedented lever to negotiate the price for your dream property. Below, you can find the most important tips pros use to negotiate prices in current times:

Tip #1: Seller’s motivation

The most important tip to gauge how much you could negotiate a price is to understand what the seller's motivation is for selling their property. A seller who wants to quickly sell their property (<1 month) will be much more willing to compromise on the price. This willingness is often driven by personal circumstances, such as a financial commitment where the money from the sale is already committed elsewhere and therefore needed relatively soon, or they are panicking that their property value will drop even further with the onset of the recession and uncertain economic outlook for Germany.

Tip #2: How long has the property been listed

You need to understand how long a listing has been listed. A general rule of thumb: the longer a property has been listed, the more scope there should be for price negotiation. For Immobilienscout24, you can use this powerful Chrome extension that tells you exactly when a listing was first listed and what price changes it has undergone. For example, with a listing that has been listed for 6 months and has already undergone 2 x price decreases, you can be sure that there is more room for negotiation and the seller is getting ‘nervous’. Keep in mind that agents often deactivate a property and re-list it (often at lower prices) on the same day to create an impression that it is 'fresh on the market'. Portals will label it as a ‘new listing’ and bump it up to the top of the search results.

Make no mistake: a deactivation does not automatically mean that the property has been reserved or sold. This is a strong signal to start negotiating the price on this particular listing.

Tip #3: Know your local market like a pro

It would be best if you become an expert in the area you are looking for. This requires you to know the average price per square meter for the kind of property you are looking for. Gaining this knowledge will mean that you have to thoroughly scan the market for current and past listings that compare well with the search profile you are after. Basically, when a property is freshly listed, you should immediately be able to tell if this is a good deal or if the price is too high. Many sellers have still not caught up with the reality of higher interest rates and are caught up in the illusion that they can sell at the top-end prices from before 2022.

To acquire the necessary knowledge of your market, the price atlases from Immobilienscout24 or Homeday are useful resources to get a rough estimate for the average price per square meter. You can use these indicative prices to start benchmarking listing prices against. Professional property valuation tools are the next steps to gaining an even more profound understanding of the local market.

Tip #4: Use property valuation tools

Using property valuation tools is the next layer to becoming a local pro. There are a couple of decent free valuation tools (such as Geomap or PropRate), but the professional ones used by banks (such as Sprengnetter, Lora, VDP, and PriceHubble) are not free of cost. The benefit of using these is that you receive tangible appraisal reports that banks actually rely on when making mortgage decisions.

The resulting valuations are almost always below the asking price, and discrepancies between 10-50% are not uncommon. These reports can be a powerful tool for your price negotiation with a seller when you need tangible data to justify why you can only offer a price that is 10-30% below the asking price. All Hypofriend advisors have access to the valuation tools mentioned. Therefore, discuss your property with them and request these valuation reports free of cost. Alternatively, you can use our valuation tool on the exposé page.

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Tip #5: Let your max price budget be your guide

You must have a mortgage advisor confirm exactly what your max affordability is (with and without buyer's commission). This will be your guiding ‘north star’ during your property search online. In your search profile, you should still include properties that are 10-30% above your affordability. That way, you can approach sellers/agents with the maximum price that you can afford and submit a written offer (ideally in German) to confirm your intention.

It would help if you backed up this offer with Hypofriend’s finance certificate because it is in German, customized to you and the property address, and has built trust with hundreds of sellers in securing the winning bid for our clients. Psychologically, a seller is more likely to go for an eligible buyer at a lower price than an undecided ‘wishy-washy’ buyer at a potentially higher price that will waste weeks/months and might turn out to be a 'dreamer' who cannot afford the property in the end.

Tip #6: Be prepared & move quickly

During these days, you may have more time to analyze the purchase in detail and carry out due diligence on the property documents for longer; you still want to be prepared and act fast when you find the right property at the right price.

Speak with a mortgage advisor from Hypofriend, check your affordability, and get a property-specific finance certificate in German to convey to the seller and agent that you are a serious buyer whose mortgage can be approved fast (1-2 weeks) and who can notarize the purchase contract fast (< 2 weeks).

Tip #7: Negotiate the agent’s commission

Agents have become very nervous. While they are acquiring more properties to sell, the requests from potential buyers have dwindled, and fewer viewings are taking place. If you present yourself as a serious buyer, you might be treated like a VIP client. The demand for you as a buyer is high – this gives you unprecedented leverage to negotiate not only the price but also the commission.

The typical buyer’s commission is 3,57 % (incl. VAT). Don’t be shy to push it down to 1,5–2,5 %. There will be some resistance from the agent, but it is in their best interest to sell the property quickly and generate revenue. An additional benefit is that as your buyer’s commission decreases, the seller’s commission is legally required to decrease by the same amount and match the buyer’s commission. This should make the seller even more willing to negotiate the price as you have negotiated a commission drop not only for yourself but also for them.

Tip #8: Sit out your price offer

When you finally make a written purchase offer below the asking price, be patient and don’t regret offering too little. Even if the seller rejects your offer immediately or after a few days, don’t rush to increase your offer. Linger on your original offer. More often than not (especially if the property has been listed for >3 months already), the seller might come back to you weeks/months later, either accepting your offer or something slightly above that.

Tip #9: Don’t fall in love with the property (too much)

When you are buying for your own use, a common tendency is to 'fall in love' with the space, features, area, etc. It’s easy to develop an emotional tie to the property, imagine yourself and your family in the space, and imagine how you would live in your new home.

While easier said than done, don’t fall in love with the property too much if you cannot achieve the desired price you want. More likely than not, a similar or even more attractive property will come on the market if you continue searching for long enough in the next 12 months. The inventory (= number of properties being marketed for sale) is increasing across major German cities as sellers are becoming more nervous about selling and have decided to put their properties onto the market.

Therefore, even if you lose a property because your significantly lower price was not accepted, another property will likely pop up soon enough (possibly at an even better price).

Tip #10: Negotiate the price on rented properties

Agents across the board are reporting that buyer's demand for rented properties has almost dried up completely. With interest rates around 4% and average yields in German cities between 1,5 – 3,5 %, the rental income is not even sufficient to cover the cost of borrowing (not to mention the actual mortgage repayment). This has made these properties very unattractive as pure capital investments. However, buying a tenanted property can still make sense and is a great opportunity for price negotiations.

After years of no to little room for negotiation, the rapid increase in interest rates in 2022 represents an unusual opportunity for buyers to negotiate the price to both make their mortgage payments more manageable and find that one seller who is willing to sell at a discounted of 20-40 %. Use data and valuation tools to become a pro, and let that knowledge inform your decision when you are finally ready to make a discounted offer on your dream property. 

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