Great news, you have found your perfect home and you’re ready to put in an offer. Do you make a “lowball” first offer and see how it goes, or do you pay the asking price to get it all wrapped up? Maybe you want the property so badly that you should offer above asking price, just to be sure?
The right offer from a buyers perspective is one that secures the property at the lowest possible price. But it's not guesswork, you will need a well thought through strategy to ensure you have the highest chance of success.
It's important to remember that you are making one of the biggest financial commitments of your life and you should try to avoid making an “emotional decision”. Research of approximately 3,000 buyers has shown that people decide whether they want to make an offer within 40 seconds of walking through the front door. But when it comes to determining what that actual offer looks like, a little more “logic” should be applied.
Your initial offer is usually just the start of a negotiation process and there is every possibility it will be rejected or countered. But don't take that personally, it's all part of the game and that's where having a strategy can help out. When considering how much you are willing to pay and putting together your game plan, there are some broad principles that should be taken into account. These are;
- What are overall market conditions like?
- What are the motivations of the seller?
- How strong is the demand for the property in question?
- How strong is your position as a buyer?
- How much do you really want the property?
When you put all of this information together you should have a reasoned and logical approach for entering into negotiations. Addressing each in turn:
1. How are market conditions?
You will need to start with a “macro” assessment of the market. Reading blogs on the internet and talking to local estate agents will help you determine the condition of the current property market. In particular, you should try to understand;
- In general, is it a buyer or seller’s market?
- Are prices generally increasing or decreasing?
- How long are properties taking to sell on average?
- Are there many alternative or competitive properties already listed on the market?
2. Motivations of the seller
Having gotten to grips with market conditions, you should turn your attention to the motivations of the seller. It goes without saying that a highly motivated seller is likely to consider a lower price. But how do you determine just how motivated the seller is? Here are some simple things to consider;
- Has the seller already found a property they want to purchase?
- Does the seller want to close quickly because they are moving away from the area?
- Have they had a couple of offers fall through already?
- Are there any known problems with the property that might put purchasers off or limit the offers that might be received?
- Have there been any price reductions, especially in a short period of time?
- Is the seller using multiple agents? While this doesn’t necessarily mean that the seller is more motivated, it does mean that the buyer can get an agent working more proactively to have their offer accepted, as the agent will be keen to wrap up the commission.
- Is the seller a builder or developer who might want to release the capital for their next project?
3. How strong is the demand likely to be?
The laws of economics determine that high demand results in a higher price. That’s pretty obvious – right! So you need to figure out just how "in demand" the property is. Some tips and tricks include "teasing" information out of the seller or the agent, or accessing public information to determine;
- How is the property presented and priced compared to the competition?
- Is the property clearly priced to sell?
- Does the property have any specific features that will make it high demand?
- How long has the property been on the market?
- If there is an “open house”, sit outside the property for the duration to see how much activity there is.
4. How strong is your position?
One of the most important things that you can do is to present your offer and your ability to proceed in the best possible light. In particular;
- Are you a cash purchaser or do you have financing already agreed? A purchaser with a larger deposit also reduces the financing risk and is generally seen more favorably by sellers.
- Can you make it a relatively simple transaction or are you caught up in a complex chain?
- If you meet the seller, make a good impression. It’s amazing how far this strategy goes, as sellers like to think that their homes are going to “nice people”.
- Get your team in place. Communicate that you have a mortgage agreed, a conveyancing firm, a surveyor etc all lined up and ready to go.
- Where possible, show some flexibility to work with the seller’s timetable. This again goes a long way to making a positive impact.
5. How much do you really want the property?
As an overriding comment, if you have truly found your dream home, then you shouldn’t miss out on it by trying to negotiate over the last £500. Understand that you are making a “life” decision. You might kick yourself for years to come if you miss out on the property you always wanted because you played it tough.
Remember that just as you have a maximum price you can afford, the seller has a minimum price that they are willing to accept - irrespective of market conditions or your buying position. As long as there is an "overlap" between your highest buying price and the sellers lowest acceptance price, a deal should be done. For example if the seller wants £375,000 but is willing to take £360,000 and the buyer can afford to pay up to £370,000 - then a deal should be done in the range of £360,000 to £370,000. But where in that range the deal is agreed will be determined by the factors discussed above.
Want to know more?
Please read our further blogs to better understand all the "jargon" involved in offering, negotiating, and buying.
The process involved in buying a home is more fully detailed in our step by step guide to home buying.
You can also find the answers to the questions we are most commonly asked by buyers: