Negotiating on the price of a second-hand property in Japan is an acceptable practice, so do not be afraid to try. However, do understand that in a strong market, discounts may not always be possible, especially with popular and desirable properties.
How much can I negotiate?
As a rule of thumb, the average discount on asking prices is anywhere from 0 ~ 5% in central Tokyo.
Although the seller’s agent will usually advise the seller on the pricing strategy for their property, there are a variety of factors that will influence pricing:
- Market conditions. In a strong market with more buyers than sellers, some properties sell at full asking price within a week or so of listing. This is currently the case in central Tokyo.
- If they have a mortgage on the property, the bank may not let them sell for below the mortgage value. Loans in Japan are full-recourse, so selling at less than the mortgage value means the borrower must still pay back the remaining debt.
- Whether they are in a rush to sell are happy to wait for a higher offer.
- How much interest they have had on the property since listing.
- How much they paid for the property. If you think the price is far higher than current market prices, then you may find the seller purchased the property during a peak and is too stubborn to sell at a loss. As transaction prices are not made public, the seller is not obligated to tell you how much they paid for the property. An alternative question is to ask when they purchased the property so that you can ascertain the market conditions at the time they purchased.
Things to ask before starting negotiations:
- How long has the property been on the market for?
- What was the initial asking price? If it has been reduced several times, the current price may now be nearer to the seller’s bottom line.
- Why is the current owner selling? If they are an investor, they may be hoping to make money on the sale. If it was their personal home, they may have found their next home and need to sell quickly.
- How much are they willing to negotiate? It is difficult to really know how negotiable a price is without submitting a formal offer. You may try asking if an offer in the range of X would have a chance of being accepted, although you are unlikely to receive a clear answer.
The negotiation process:
(1) The buyer will submit a written offer which is a declaration of their intent to purchase the property at the price they have offered. Although not 100% legally binding, this is usually considered to be a serious offer and the buyer is expected to go through with the contract if their offer is accepted. The amount of the first offer is up to the buyer to decide. If the initial offer is too low, the buyer could be rejected then and there. The buyer would then have to come up with another offer. Buyers must have their finance sorted out before making an offer!
(2) The seller may come back with a counter-offer. The buyer can either accept this offer or negotiations will ideally continue until both parties are happy. In some cases, the seller may accept the buyer’s initial bid, or may simply say “No”, which means the buyer must come back with a higher offer.
(3) Both parties have agreed to a price and the date for signing the contract is set. The purchase contract is usually signed within a week of an offer being accepted and the buyer must have the 10% deposit (up to a maximum of 10 million Yen if the seller is a real estate company) ready to pay to the seller either by prior bank transfer or cheque at the contract signing.
*Note: Once the seller accepts your offer, you cannot change any of the terms of your offer or it will no longer be valid (things like inclusions such as curtains and light fixtures, and the exact date for contract signing and settlement can be arranged afterwards). And, unlike an application for a rental property where you may be able to negotiate new carpet or appliances, a house or apartment in Japan is sold “as-is”. Sometimes the seller may offer to do an alteration or renovation for the buyer, but this must be made clear during negotiations. Renovations by sellers can sometimes be done quite cheaply, so it it may sometimes be better for buyers to arrange for this themselves after purchase.
How to improve your bargaining power and make your offer more appealing:
- Have your finance sorted! We cannot stress this point enough. Find banks that you are eligible to apply for mortgages from – visit them and have all of your paperwork ready well in advance. This will include income tax statements, medical certificates, registered seal and other documents that will need to be prepared by you. Pre-approval will be necessary before a seller will sign a contract. If you can show the seller that you have some potential banks lined up, as well as the names of the bank staff you are in contact with, it will put you in a much better position to negotiate compared to someone who has no idea whether they can obtain finance or not. Financing for foreigners without permanent residency can be incredibly challenging and Japanese agents are often concerned about this point.
- Use a buyer’s agent. In Japan, the buyer is obligated to pay their agent a commission, and the seller is also obligated to pay their agent a commission. Sometimes the same agent may represent both the seller and the buyer, which is illegal in many countries but not in Japan. This is similar to using a lawyer to represent both parties in a dispute. As a buyer, you will almost certainly be in a weaker bargaining position if you have chosen to work directly with the seller’s agent. Regardless of which agent you use, you will need to pay a brokerage fee, so choose an agent who is working for you. A buyer’s agent is not paid by sellers and is working solely for the buyer. They want to get their client the best possible price.
- Be prepared to give up some personal information. At this point you need to convince the agent of your strong finance position just as much as you would convince your bank. If you work for a large corporation, you will need to let them know where you work and your position. You may also choose to let them know your approximate salary so they know you can afford the property. How much you want to divulge is entirely up to you, but if you are not willing to share enough information it will be difficult for an agent to present your offer under the best circumstances.
- Include a deadline on your written offer. This isn’t common practice, but it could encourage the seller to respond more quickly.
- Offer to close early. A typical closing date is approximately 4 weeks from the contract date, which works out to be 5 weeks from making the offer. If you are able to close sooner, and the seller is also able to, then make sure you mention this.
- Got cash? Being a cash-buyer will usually give you some extra bargaining power, especially with a seller who has had previous contracts cancelled due to financing problems. It won’t work in every case, however.
Negotiating with an apartment developer:
Developers of new apartment buildings may also offer discounts. They can range from 0~10% on average for apartments in Tokyo. There are several important factors which will influence the negotiability:
- If sales have just started and the building is still under construction, then usually no discounts are given.
- If the unit is being sold under the lottery-type system (chusen-hanbai), then no discount is available. This is where a select number of units are made available for sale and the general public can submit purchase applications on their units of choice. If your name is drawn from the barrel, then you are obligated to purchase the apartment at the asking price. The majority of apartments sold prior to completion are sold in this manner.
- If sales activity began some time ago and the developer is still trying to sell the last remaining units, discounts may be possible. This is usually seen on buildings with several hundred units, or buildings that have been very difficult to sell due to little interest or high prices.
- If market prices have fallen since the property was completed and several units remain unsold, larger discounts may be possible. This is because the unit price list was set at a time when prices were at their peak. The developer will not normally change the advertised prices as this will upset owners who had purchased units early on at the higher prices.
- Certain developers are known for being notoriously stubborn and may refuse to offer any kind of discount. If their apartments are priced much higher than market prices suggest and are still unsold several years later, then it may be wise to have a look at second-hand apartments listed for resale in the same building or walk away.
The chart below is based on data from a survey from various developers in Tokyo, Chiba, Saitama and Kanagawa Prefectures in 2007. The newly released apartments were not negotiable on price, but as the apartments spent more time on the market, the ability to successfully negotiate on price increased. The results were based on a 10% discount.
Most property transactions in Japan will involve one or more real estate agents, so it is important to choose one who will work in your best interests. It is the agent who will be negotiating on your behalf, so do not be afraid to ask them lots of questions and be prepared to show them that (1) you can afford the property, and (2) that you are a serious buyer.
At the end of the day there may be some properties where the seller is simply not in the mood to negotiate. If the seller is stubborn and the price is not what you are happy with, then you may just have to walk away.