Property is only worth what someone is willing to pay for it. There isn’t an entity that decides how much a property is worth, it is completely driven by the general population. It’s important that you buy at a good price!
The idea is that you start negotiations and let the vendor join in. 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.
Making an offer is the start of entering into negotiations. This is something I have not mastered yet; negotiation is a skill, but I would like to share with you what I have learned so far.
Ways to be a better negotiator
You have already done your research and due diligence, so make sure you convey your knowledge. View several properties before making any offers and let them know you understand the local market. Asking well-informed questions is one way of displaying your knowledge.
Keep calm and don’t look too keen when viewing. Take time to think about your options after all your viewings, and don’t rush into making any offers.
It is important to remember that the estate agent works for the vendor and not you. They are professional negotiators and the higher the offer the vendor receives, the higher commission they receive. Be prepared for bargaining tactics and take what they say with a pinch of salt. You must remain calm and confident.
Buying as an investor means that you do not have anything to sell, and this can be very appealing to vendors if they have to move quickly due to work or a whole raft of other reasons. Speed in the sale can be more appealing than the highest price to some vendors. Make this clear to the agent or vendor when viewing. If you have your deposit funds and AIP, you are good to go! You can only be beaten buy a cash buyer in terms of speed.
If you want to develop your negotiation skills further, I can recommend Everything is Negotiable by Gavin Kennedy. It’s a book packed with advice on how to handle negotiations in the world of business.
Making an offer
Remember this important statement – you make your money when you buy a property, not when you sell!
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.
I prefer to make my offer in person so that I can read their reaction. I then back up my offer in writing which also confirms my terms and conditions.
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. Making your offer over the phone, backed up with an email with the offer letter, is fine.
Tip: If the vendor comes back to you with a counter offer, and you are happy to accept, it is worth requesting a condition before agreeing to that offer.
This happened to me when I was looking to purchase my first renovation project, and I agreed on the condition that I would be allowed access to the property between exchange of contracts and completion. This gave me 2 weeks to remove the old carpets, kitchen, bathroom suite etc, before I had to make any mortgage payments. Time is money!
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 estate 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.
I hope this article has helped. If you have any questions or any tips, please send me a message here. Thanks!