What's a good strategy for offering low on a house?

Question

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?

Answer 1

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.

Answer 2

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.

Answer 3

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.

Answer 4

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.

Answer 5

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.

Answer 6

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.

Answer 7

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.

Answer 8

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.