Making an offer on a property sounds pretty straight forward and simple, right? But if you want to make sure you don’t overpay for your future buy-to-let investment, it’s worth taking the time to understand how you can avoid paying too much.
Property is only worth what someone is willing to pay for it. So to stand the best chance of your offer being accepted, it is a good idea to reflect your knowledge in the value of the property, along with your offer. Continue reading for 7 ways to help convince a seller to accept your offer.
When you make an offer, you are also starting a negotiation process with the vendor as there is no guarantee that your offer will be accepted. Effectively, you are showing an interest. Don’t feel bad if you make a low offer, you need to keep your feelings aside. You are not forcing the vendor to sell, you are simply given them an option to accept, decline or engage; you are making an offer.
It’s also important to understand that the value of a property may be worth more to somebody else, than it is to you.
Let’s say that another person is also looking to purchase the same property. They currently live 80 miles away and they have recently started a new job in the local area to your potential purchase. If they purchased this property, they will save themselves thousands of pounds a year on fuel costs and also save themselves a lot of time that they have previously spent travelling.
If you understand and remember this, you can avoid entering into a bidding war. Making offers can be an emotional experience, so make sure you stick to your budget. If your final offer isn’t accepted, then leave it and walk away. Trust me, you’ll soon find another good property, if not, even better.
The idea, is that you get the property for the best price, and there is something important that I want you to remember – you make your money when you buy, not when you sell!
Here are 7 ways that can help you convince a seller to accept your offer:
1. Establish Your Credibility And Promote Yourself
Prove that you are a serious buyer by being organised. Before contacting sellers or selling agents, you must get your finances in place first. This includes obtaining approval from a lender with an Application In Principle (AIP), if you are purchasing with a mortgage, and/or providing a bank statement to prove that you have the deposit or the full amount if you are purchasing with cash.
Make it clear that you are an investor and that you do not have anything to sell and that you will not be in a chain. You’re in a strong position and can move fast and complete the purchase much quicker than most people.
If you are purchasing with a mortgage, you can only be beaten by a cash buyer in terms of speed, and speed of the sale can be more important to some sellers than the price.
As you have already completed your research, don’t be coy about explaining your reasons for having an interest in the property.
Engaging in conversation about why you are interested in the property, is another way to display your credibility and promote yourself as a professional investor. It highlights that you have taken the time to understand the demand and the local area of the property market. It is far more productive than talking about the weather!
If you are talking to a selling agent, they may have other properties in the background which they are waiting to receive instructions on to sell. There is a good chance that you will be at the front of their mind once they receive the go ahead.
By building a good rapport with a selling agent and completing your purchase as planned, you will be considered as a good solid investor who doesn’t waste anyones time. As a result, you may well hear from them again when they have another property that could potentially fit your criteria.
2. Find Out Why The Current Owner Is Selling
Getting a clear idea on the reason for the sale can help you work with the seller or selling agent more closely. Perhaps the vendor is selling too upsize or relocate for a new job, or maybe they have already moved and the property is standing empty.
There are many reasons why people sell, and getting a clear idea as to why the property is for sale, will give you an indication as to how motivated and how quickly the vendor would like to proceed with the sale.
If the property is unoccupied, find out why and for how long. It’s possible that the seller has inherited the property and they could be burdened with tax bills if they do not sell within a set timeframe. If you understand why the vendor is selling you can work with them.
Find out how long the property has been on the market. If it has been on the market a while, ask for their opinion on why it hasn’t sold yet. Again, the reason could be something you could help with, or it could be an issue that has recently been discovered during the conveyancing process which hasn’t been highlighted in the marketing yet.
Ask if any offers have been received and how much those offers were for. They may have rejected a previously low offer, but if the person who submitted that offer wasn’t as well organised as yourself, it doesn’t mean they would reject the same offer from yourself if you provide detailed reasons along with your credibility.
If the seller is at the property during the viewing, it is important to be friendly and polite. You want them to like you as it will make negotiations much easier if you decide to make an offer. It’s a good idea to compliment them on areas of the property and never criticise.
If there are things you don’t like about the property, keep them to yourself and make a note so that you can address them if the purchase goes through.
3. Find Out How Much The Seller Paid For The Property
Knowing how much the vendor paid for the property will give you some idea of the likelihood as to whether they will accept your offer.
If the current owner is in a position of negative equity; they are selling for less than they paid for it, or are trying to sell for a similar price that they paid themselves, then it is highly unlikely that they will accept an offer that is lower than that.
There are several websites that you can use to find out how much a property previously sold for:
|HM Land Registry||https://www.gov.uk/search-house-prices||England & Wales|
4. Do Not Round Up Your Numbers
Making an offer of £144,300 looks far more professional than making an offer of £145,000. This is because it conveys that you have taken the time to calculate what the property is worth to you. Maybe you need to spend £700 on a new fuse box which will take the property value to £145,000 once the work has been completed.
It seems to be common practice that people round up or round down their offers when they submit them. Ensure you take the time to investigate and calculate how much you would need to spend to get the property ready for your tenants to move in, before making your offer.
Here are some reasons why you would typically make an offer of 15-20% lower than the asking price:
- A similar property recently sold at a lower price and the market hasn’t changed.
- There are some repairs and/or improvements that would need to be carried out.
- The property has been on the market for a while and hasn’t sold.
Do not round up your numbers when making an offer and separate yourself from everyone else!
5. Be Prepared For A Counter Offer
You want your first offer to be rejected. If your first offer is accepted, it means that you have likely paid too much and you will never know whether the vendor would have accepted an offer of a few thousand pounds less.
With that in mind, you want to take the time to work out what number would make a good starting point to enter into negotiations.
I am not an expert at this, and every property is different and I don’t believe there is a rule of thumb here. If I hear of one, I will be sure to update this article. My only advice, is that you don’t submit a ridiculously low offer that will irritate the vendor and risk the chances of you not hearing from them again.
If you do this right, there is a good chance you will receive a counter offer. If the counter offer matches, or comes near, to the price you would be willing to pay, it is still a good idea to take some time out to think before giving an answer.
Don’t accept the counter offer as the sellers final decision, even if that is the message you receive from the vendor or the selling agent. There is always room for negotiation even if it only amounts to a few hundred pounds.
In addition, you will have an opportunity to negotiate requests separate from the purchase price. Your potential acquisition doesn’t have to be just about price. There are a number of things you could request to help make the purchase much better for you, with no cost, or little cost, to the vendor.
Here are some examples of concessions you could request, and it will help you if you identify these options before you submit your first offer:
1. If the property is empty and you plan to carryout some renovations works, ask for permission to have access to the property between exchange of contracts and completion.
When you exchange contracts you are committed to buying and your deposit is non refundable. The seller knows that there is very little risk that you will pull out from the sale and granting you access to the property will not be a huge concern to them.
This could be a big advantage to you as it would allow you to start your renovation works before you have to make your first mortgage payment. There isn’t a set time frame between exchange of contracts and completion, but they are typically anywhere between one and four weeks apart.
Having just two weeks access could allow you to remove any old bathrooms, kitchens, carpets or anything else that you would like to replace.
2. If you are planning to let your property furnished once you have possession, consider whether there are any items that you identified on the viewing that could be left behind to save you from having to purchase brand new.
Maybe the oven, fridge freezer, dishwasher, washing machine, sofa, dining table and chairs are all in great condition and could be left behind and included in the vendors final offer price.
The vendor may already have plans to replace some or all of these items in their new home and they haven’t yet considered what they are going to do with them. Help them by giving them options during the sale of the property.
6. Submit Your Offer In Writing
I prefer to make my offer in person so that I can see their reaction, but this is not always possible. Whether I make my offer in person or from a distance, I always give my reasons for arriving at my offer price.
I also always put my offer in writing. If I have been able to make an offer in person, I then forward my offer in writing with an email as soon as possible, and always the same day.
There are a couple of reasons for this. Firstly, the seller or selling agent may not remember all the reasons for your offer, and secondly, if you are communicating with a selling agent, they can easily forward your written offer to the vendor for consideration which saves the selling agent a job and eliminates the risk of any details being left out or forgotten.
It is also worth including some examples of other properties in the area, that have either sold or are currently on the market, to back up your offer price.
Here is a copy of my offer letter which you can use or alter to fit your circumstances. You will see that it also emphasises that I am in a good strong position to buy with a predetermined timeline for completion of the sale.
7. Protect Your Offer Once Accepted
Once you have agreed a purchase price with the vendor, request that the property is immediately taken off the market. This will minimise the risk of additional offers being received which could exceed your offer. An update to the listing ‘Sold Subject To Contract’ is acceptable.
Move Quickly Once Your Offer Has Been Accepted
Once your offer has been accepted, you need to understand that it’s not legally binding (in England and Wales; there are different rules in Scotland) until the exchange of contracts.
Both you and the vendor can pull out. It is important that your solicitor moves quickly once you have paid for any survey and valuation fees, as these cost hundreds of pounds and are non refundable if the vendor pulls out. It is not too common, but it has been known to happen.
The main reason a vendor would pull out, would be because they have received a higher offer. This is called “gazumping”. If you are “gazumped”, you can either drop out or counter-gazump. This is why it’s important to insist the vendor agrees to take the property off the market once your offer has been accepted.
Some selling agents will let you put down a non-refundable deposit to “lock-in” the sale for a certain period of time. This protects you against gazumpers, but not all agents will agree to this.
This is something I have recently learnt but have not yet tried. If you do this, make sure the terms state that you will receive your deposit back if the vendor pulls out for any other reason.
Essential Things To Remember When Making An Offer On An Investment Property
Do not forget this important statement – you make your money when you buy a property, not when you sell!
You can do this by locking in some equity from start. If the current market value dictates that the property is worth £150,000 and you complete the purchase for £141,300, then you have already locked in £8,700 in equity.
Alternatively, you may spend and additional £6,300 on some light renovation works which increases the market value to £160,000. That means you have locked in £12,700 in equity.
It is also important to remember that the selling agent works for the vendor and not you. They are professional negotiators and the higher the offer the vendor receives, the higher commission they will receive. Be prepared for bargaining tactics and take what they say with a pinch of salt.
Remain calm, confident and don’t appear too keen on your viewings and you will do just fine.