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We are in the UK and interested in purchasing a house, but the highest offer we could make is substantially below the asking price by around 5%.

However, we have some advantages over other prospective buyers. Sales in our local area are slow and we're ready to proceed.

We are wondering how best to play this. For starters, if we do the "normal" route of making an initial low offer with the presumption it will be increased, it risks looking derisory. But if we offer the maximum right away, the vendor may presume it's a trick, and there's more to be had by holding out.

Furthermore, if we make an offer now, not only is it unlikely to be accepted but the agent will have a tool to leverage higher offers from other interested parties. If the house does not sell, the vendors are more likely to look favourably on a lower figure.

On the other hand, if we offer now, there's an outside chance it might be accepted, closing the risk of someone coming in higher.

Are we thinking about this logically? What's the best way to proceed?

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    Do you have any information about the history of this house on the market? Has it been on for ages at this price, has it recently been listed, has it changed price recently? These are important clues in determining how open the vendor is likely to be to your offer. – Vicky Oct 17 at 22:40
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    Instead of locking into a single desirable property, take extra effort to look for an alternative to reduce the scarcity of the bargain. A common property buying mistake is chasing a hot property than due to peer perspective. – mootmoot Oct 18 at 11:22
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    You say you have advantages over other prospective buyers - what are they? The fact that sales are slow isn't one - that does give you an edge on the seller, but not over anyone else who actually is trying to buy the house. – Nuclear Wang Oct 18 at 13:45
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    Are you sure that in the UK 5% is considered "substantially below the asking price" to the point it is a concern? In the US, asking more than 5% below is very common. When I bought my first house, seller accepted my initial offer that was approximately 15% below asking price, though it had been on the market for a long time. – Aaron Oct 18 at 15:37
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    @RayButterworth you don’t head there with a van of possessions until after the contracts are signed. There’s usually a week or two between “exchange of contracts” (both sides of have signed, neither can back out) and “completion” (you actually get the keys and move in). – Vicky Oct 20 at 21:59
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the highest offer we could make is substantially below the asking price by around 5%.

I wouldn't necessarily call that 'substantial', especially if the property has been on the market some time (I surmise this from "sales in our local area are slow"). That you are ready to proceed also makes you a strong contender, and reduces the window of opportunity for you to be gazumped.

If you really are at the very limit of your finances, then: explain you are chain-free, emphasise your desire for speedy completion, and tell the agent it is your best and final offer. This should eliminate the risk of "the vendor may presume it's a trick, and there's more to be had by holding out".

The worse that can happen is that they say no, but if you really were at the limit of your finances then you can reassure yourself there's nothing else you could have done.

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    Well some people just are proud of "having achieved a bargain". Therefore, offering -8% and then upping that to -5% could more likely lead to closure with some. I'm with you that this strategy is the best of all, but "nothing else you could have done" is wishful thinking. – FooBar Oct 18 at 12:27
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    @FooBar the intent behind 'best and final' is to convey that you as a buyer are not going to be playing that game, thus requiring the seller to evaluate just the offer as given, not what they think it might go up to. Of course, it only works if you mean it... – AakashM Oct 18 at 12:35
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    I understand that. I'm saying that sometimes people (you might say irrationally) care more about their gains, than their absolute wealth. Here, the seller might be (subconsciously) happier when he was able to rebargain, even if the final price he gets is the same. Your counterargument focusses only on "what is the final price the seller is expecting to get". If that really all the seller cares about, then yes: If you can credible convey that there's no point in rebargaining, that's all you need. – FooBar Oct 18 at 12:43
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    Add a time limit to the offer "We want an answer within a week. After that we go for another option." – d-b Oct 19 at 17:11
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Assuming it's under English law - Scotland is different - then offers are not binding. Similarly, acceptance of offers by the seller aren't binding either. It only becomes binding when the contracts are exchanged. If you are in Scotland, then check the local law.

This means that gazumping is possible, and there's nothing you can do to stop it, other than offering a really high bid (which you can't afford). "Gazumping" is where the seller initially accepts an offer, but then cancels the sale when somebody else makes a higher offer. It's perfectly legal under English law, and is common in a rising market.

It's quite possible to make an offer 10% below the asking price, then allow the estate agent to negotiate it up to a 5% discount. It worked for me. But any offer that's ridiculously low risks being rejected out of hand. 10% below is good as a starting bid.

If you're feeling particularly mercenary, then "gazundering" is also legal. It's when you initially offer one price, but then find an excuse to reduce the offer, just before contracts are exchanged. It might work, or the seller may tell you to go away, and refuse to deal with you any more.

  • What do you mean by "exchange contracts"? Is this different from the part where you submit an offer in writing and they accept it by countersigning it? – Michael Oct 18 at 16:54
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    @Michael Making a written offer usually doesn't happen in England. After a verbal offer is made and acepted, you then instruct a lawyer, get a survey done and secure a mortgage if needed. You generally don't sign anything until the formal duplicate contracts are prepared. – richardb Oct 19 at 7:48
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    @Michael If you don’t know what exchange of contracts is, you know nothing about the English house-buying system, and shouldn’t be commenting on it. It’s not like the American one; it protects buyers against unusual but disastrous risks at the cost of slowing transactions down for everyone. – Mike Scott Oct 20 at 20:41
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    @Michael When everything is agreed, two copies of the contract are drawn up. The seller signs one copy, the buyer signs the other. The lawyers then swap (exchange) the signed contracts. As soon as the contracts have been exchanged, the sale is final. – Simon B Oct 20 at 22:14
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    @gnasher729 That’s the same in the UK, except that it’s usually only a week or two between exchange of contracts and completion. Once you’ve exchanged and agreed a completion date, the vendor is liable for any costs you incur as a result of their failure to then complete on the agreed date — storage, temporary accommodation, and so on. – Mike Scott Oct 21 at 6:04
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If you want to buy a house for below market price, don't fall in love with the house.

Look at many houses, and focus on those which are short-sales or distressed properties. Alternatively look for properties which have been on the market for some time and have not had many viewings, and appear to be undervalued, but which also show potential. Keep an eye open for why the property is not selling, and make sure you're OK with the reason.

Remember to factor in your expected renovation costs + 25%.

When you make a lowball offer, keep it open for 24 hours to show interest and then keep moving. This signals interest to the real estate agent - he will notify you when the sellers are coming down. If the house is still on the market after another month, send another lowball offer.

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    Great advice : "don't fall in love with the house" – mootmoot Oct 18 at 14:46
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    This appears to be aimed at someone who wants to buy any house as long as they can get it for below market price. OP is actually asking about a situation where they've found a house they like but can't afford the asking price. – AndyT Oct 18 at 15:47
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    I agree. The problem is that the OP's question reveals that his goals are clearly misaligned, and the OP needs to correct them. Getting a better price on the house requires that he risk losing it. As a result, I gave this answer. How else do you correct the OP's blaring issue? Do you just ignore it and answer his question without elaboration? (i.e. - that he should lowball it and hope to luck into the house, but that he will likely fail?) – James Oct 18 at 16:02
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The thinking might be very logical; yet the usual problem is that you do not have the data to make the optimal decision: if there are other buyers and how much are they willing to offer; how quickly does the seller need the money...

The rule of thumb is that the lower your offer the more risk that it will not be accepted. Having said that:

But if we offer the maximum right away, the vendor may presume it's a trick, and there's more to be had by holding out.

If the vendor does not want to sell (or is dragging his feet) because your offer is too low, you will not improve that by offering an even lower price.

if we make an offer now, not only is it unlikely to be accepted but the agent will have a tool to leverage higher offers from other interested parties. If the house does not sell, the vendors are more likely to look favourably on a lower figure.

If I am another prospective buyer and I value the house at $100,000 and the seller tells me "But Matt is offering $110,000" then my answer would be "so let Matt have it".

OTOH, if I value it at $150,000 (and have the money available) I will end buying this house, because you cannot increase your offer and I still have plenty of room to get a good deal. In this case making your offer high or low does not affect the outcome, it only may force me to buy at a higher price to outbid you.

Of course, making your offer higher means that maybe you miss the opportunity to buy the house at a lower price, if there are no other buyers and the seller wants the money urgently.

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    You don't know what their bottom line is - if you make a higher offer that's still under their target they might still say no but you are now starting the negotiation at a much higher level. If you make a lower offer you can always increase it. – ventsyv Oct 17 at 22:08
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First see what information you can gather:

  1. Who are the people that are selling?
  2. Why are they selling?
  3. Is there non-monetary benefit you can give them (for example a quick sale, longer time to move out, etc)?

Decide your target price - make sure it's not a round number. If you can meet in person, or talk on the phone do that. You can try the the 65-85-95-100 percent rule - your initial offer is 65% of your final target price, then one large increment, followed by smaller increment, followed by even smaller increment, etc. Throw in that non-monetary concession with the final offer.

You can adjust the percentages but make sure each increment is about half the size of the previous one.

Obviously wait for them to reply to each offer. Be nice and try to relate to them - "We are young couple and don't have a lot of money - probably how you were when you were our age" or "I'm retired from the military and on fixed income"

See what concessions you can get. If they say no, they say no, nothing you can do about it, but going through the negotiation process allows you to see how much they are willing to move.

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    Are you in the UK? Offering 65% of the asking price of a house here would be insulting unless there are some really significant other circumstances the OP isn’t telling us about. As a vendor I would not even start a discussion with someone who came in that low as it would tell me they were out of touch. Even 85% of the asking price would be pretty difficult to stomach as an opening offer. – Vicky Oct 17 at 22:39
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    An offer of 65% (or even 85%) of the asking price would be laughably insulting in the US as well, especially for a house that's only been on the market for a day (as is the case here). People would probably assume you read the list price wrong, or you're crazy. Typical discounts nationwide right now are around 3 or 4%. I don't know what this "65-85-95-100 rule" is, but trying to apply it to real estate will probably not work. – dwizum Oct 18 at 12:41
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    It's called "Ackerman bargaining" - e.g. jonathanvieker.com/ackerman-bargaining – simonalexander2005 Oct 18 at 13:58
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    Agree with the sentiments in the comments. A 65% offer might get you blacklisted - "don't waste any more time on this person; they're not to be taken seriously". – MSalters Oct 18 at 14:33
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    If you offer 65% of the asking price for my home, the answer is "f___ you" and you will never, ever, ever get into that home. – gnasher729 Oct 19 at 12:20
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One question is how long the house has been on the market. When it is first listed, sellers are often in love with the asking price. After it is on the market a while, some will soften. If you wait a while your chance of getting a given offer accepted increases. If somebody comes in with an offer higher than you can pay, you should be OK with that. The downside is if somebody reads the seller's willingness better than you, makes an offer you could beat, and gets it accepted. Your realtor may be able to get some reading from the seller's agent. It may even be right.

Some sellers are more motivated than others by just getting the place sold. If your offer can look more likely to go through than average, your agent should emphasize this to the seller. That might make a lower offer get accepted.

Years ago a realtor wrote in our paper that people typically look over a range of 10% in house price. If a house has been on the market six weeks with active marketing, every buyer in that price range has seen the house. If it hasn't sold, it is overpriced and needs a 10% price reduction so it is offered to a new crop of buyers.

I usually see smaller price reductions than that, but if offering 90% and hoping to settle for 95% is unrealistic you need to be patient and let the seller find out what the house is worth. If it sells sooner, it is probably for more than you could spend.

  • UK sellers don't use realtors, they use estate agents. Given an offer under 95% of the asking price, any competent estate agent would ask around anybody who viewed the house if they wanted to make a better offer. – Martin Bonner supports Monica Oct 21 at 7:49
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Determine what's wrong with the house, and base your offer on that. When my fiance' and I were making an offer on a house we liked the realtor asked, "If you don't mind my asking, why is your offer so low?", with emphasis on "low" and a suitably horrified look as if we'd done something wrong. Because we'd talked this over I was able to rattle off half-a-dozen "problems" with the house - to which the realtor replied, "Well, I see you've done your homework" in an "I guess I'm not gonna get my full commission on this one" tone of voice.

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The best way to get an offer of 95% of the asking price accepted is to make lots of them. Someone will bite. Don’t fall in love with one particular house, because the chances that you will get that specific house for 5% off are not very good.

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