Making an offer on a property – where to start!

You really want a property and are keen to put in an offer but where do you start? No one wants to pay more for a house than we should, so how do we get the best deal? What is the magic figure to start the negotiation process?

Making an offer on a property is similar to playing a game of chess – each party waiting to see what move the other party is going to make. And unlike other transactions, where there is a set price and little room for movement, there are generally no set prices or rules!

What is the process?

The process of making an offer on a property can vary. The first offer can be verbal or it can be written.

Before entering the ‘game’, understand the rules and preferably make the offer in writing – this eliminates any confusion or misunderstandings concerning what the offer and conditions were.

The negotiation process begins when you first meet your agent. He or she will form an impression of you, ask questions to understand your situation and formulate an idea of what you might pay for the property within your budget.

Before getting to the offer, this relationship with your agent might consist of a number of phone calls, second and third visits to the property and possibly some inspections.

During this process and before you make an offer make sure that you:

• Have a clear understanding of the process. Get the agent to explain how he or she intends to present your offer to the seller.

• Know what price you want to pay for the property and work out your strategy to accomplish this. For example, depending on the property you are interested in buying and the asking price, you may wish to start at a figure somewhere below that price. You should be careful, however, not to go too low as you may offend the seller and spoil your chances of a deal. On the other hand, you do not want to pay more than is necessary.

• If possible, get information about other comparable properties that have sold in the area recently.

• Have an understanding of the seller’s motivation to sell, their preferred settlement date and any other information that may make your offer stronger.

. Consult your professional real estate agent to help you broker a deal that will maximize your chances of buying the property.

• Have patience!  Some property offers can take a while and they can be stressful. Don’t rush offers if you don’t need to. Read the signs from your agent and don’t necessarily accept their urgency on your next offer unless you think there is good reason to do so.

Should I get a valuation?

Although this is generally done as part of the loan process, it would be useful to have a valuation done on the property.

If you want to get your offer on the table, you can always add a condition that it is subject to a valuation. However, the vendor might not accept this condition and you might miss out on the property.

If you are thinking about getting a valuation as part of the offer process, check with your lender to enquire which valuers they use to make sure it can be accepted as part of the loan application – you don’t want to pay twice.

Here are some questions to ask before making an offer

1)      Have there been any offers made to date? If so, what were these and why were they rejected?

Sometimes it is not the price offered which has seen an offer rejected. It might have been due to settlement dates, conditions, etc. You don’t necessarily have to up the price, it may be just a matter of changing (adding or deleting) a condition or two.

2)   How did the seller arrive at the asking price?

This question will give you an understanding of whether the seller has an asking price they are looking to achieve. It may be that they are being unrealistic or need a certain amount for a particular reason, for example, buying another property. Remember too, what a seller wants or “must get in hand” has nothing to do with the fair market value of the property.

3)   When did the property come on to the market? Has it been recently listed or has it been “sitting” for a long time?

4)   Are you the first or only agent offering the property for sale?

5)   Has the asking price been reduced at all and if so, to what extent?

This question may give you a handle on how motivated the seller may be to negotiate and to what extent.

6)   Have any deals fallen through?

       Other considerations.  Here are a couple more important considerations you should take into account before you make your offer.

Physical condition. Consider its physical condition – the floors, roof, termite infestation, cracks, age, mechanical systems – electrical and plumbing, how much, if any, renovations may be needed and its related cost, covenants, everything!

    Valuation report. If you are seeking financing, remember your lending institution will require a valuation report in order to protect their interest. The report will be based on certain factors such as, recent comparable sales and listings in that area and fair market value. Therefore, while you may be excited about the property, you should be careful when making your offer.

Common mistakes

There are some common mistakes people make when making an offer. Don’t fall into this trap.

1) Playing games. Be upfront if you are interested in the property. You don’t have to give an agent your life’s history but enough information for them to know to contact you and keep you in the loop if there is movement on the property.

2) Lack of research. You can’t make an informed offer if you haven’t researched the market and the property.

3) Talking the property down. This could work against you.