You can’t Negotiate basic Economics

I watched an episode of the British TV show Location, Location, Location last night. If you haven’t seen it, it is a property show, where the presenters are experts at finding you the right property. Every week they take on 2 sets of equally desperate or frustrated property buyers, looking for their perfect house.

This week they had widely different budgets: one couple had £1.5 million, the other a more modest £200,000. What struck me was the last 5 minutes of the show. At this point the presenters are usually helping them buy the property they chose by negotiating with the sales agents on their behalf. Cheeky low bids are common, and often followed up by a more reasonable offer which is accepted.

This week showed the influence of Economics on the issue. From my undergraduate economics class I remember well the rules of Demand and Supply, and here was a perfect example. The high budget couple were in a very different market to those with the lower budget. At £1.5 million there are less houses for sale, but also much less buyers, making it a very different environment for doing a deal. There was little or no competition from other buyers at this point, so it seemed an obvious choice to negotiate.

Indeed, they discussed a ‘long game’, with a view to getting a much reduced price (the house they wanted was £100k over their budget), and started out by not even putting in an offer, but telling the agent they were interested but that the value wasn’t sitting right with them and should it come down in price they might renew their interest and come back to see it again. This prompted several weeks of negotiations, before they did indeed strike a deal (sum undisclosed but everyone seemed to be happy with the numbers).

The couple with the small budget had no such wiggle room. The economic conditions did not help, at that budget there was a huge demand, but much smaller supply of quality housing. In fact, they were advised to not even bother negotiating, and put an offer in for the price the sellers wanted. There were 3 other people looking at the house and the sellers had already rejected 2 ‘under asking price’ offers. They took the advice and got the house. You could tell that although happy, they wondered, could they have got it cheaper?

What would you have done?

Personally, I would have paid full price. It is not always appropriate to negotiate, and we need to recognize that. Market conditions were against them, negotiating could easily have lost them the house. Sometimes life is more important than negotiating. Sometimes. Just don’t tell my Dad I said that….