Thanks for the reply, I guess the last time I made an offer on a place was about 3 years back and it was a hot market.. so a lower than asking price offer was just not heard of to secure the property and when we did, we were easily lead up the garden path to offer more than we had initially expected..
The situation I am in now is that its a quiet market, not sure how much interest there has been in the property and I can't gauge how motivated the vendor is to be able to know what sort of offer is realistic.
You are right, it’s a different market now. A bit intimidating I think – during the boom I knew that even if I made a mistake, capital growth would cover it up for me. Now I feel a need be a bit choosier.
I started a thread btw based on your q
http://www.somersoft.com/forums/showthread.php?p=429582, I find that knowing the underlying principles and models helps me understand how to apply them to a specific situation.
I did a search from framing and couldn't find anything.. it would be good if you could shoot me some information on it.
You might know it as ‘anchoring’ instead. Framing is setting the outside range of a negotiation. If I want to sell a car, I’ll put an ad in the paper for $15,000. You would be crazy to offer me $20,000 when I have already said I was happy with $15,000. $15,000 has therefore set (framed) one side of the negotiation.
You as a buyer come in and offer $10,000. You have now set the other side of the negotiation. The negotiation will now commence within that $5,000 range. The interesting bit comes in now. Physiologically, Australians believe the ‘fair’ point for a negotiation is in the middle. You said it yourself above.
The property is listed for 380 - 420 and the vendor is keen to sell before auction, other properties similar to that in the area have sold for 20k less than the asking price just a month before (listed for 420, sold for 400).
So in the car example, I would now have an expectation that the car would sell for around $12,500 (depending on skill and a few other things, but in general). As a sidebar, some cultures don’t have this ‘mid point = fair’ notion which is why some cultures get branded in particular ways.
But back to the car. I have still asked for $15,000. What happens if you change the frame? What happens if your first offer is $5,000? Negotiation will now commence within a $10,000 range, and the ‘fair mid point’ now equals $7,500.
In reality, there is a lowest amount that the seller won’t go below and an upper amount the buyer won’t go past. The other thing which changes it is the skill of each side and the amount of knowledge they have about the deal. Within that, the ‘fair mid-point’ is where deals tend to end up and framing helps shape that.
Sounds a little odd I know, but seems to work. I taught real estate investing at a community college for a while and I did this as an exercise in negotiating. It tended to come out the same way each time.
I thought you may be interested in framing as my understanding is that this is where ‘low balling’ comes in. They are setting the frame wide, so as to achieve a lower mid-point.
Oh, one final point. The house you are interested in above. The real estate agent is trying not to frame the negotiation. By giving a $40K range for himself, he has already given himself a buffer for that ‘fair mid point’. You might wish to give yourself a similar buffer on your side of the frame. It’ll depend on what you want.
A great way to get instant equity! 
