4 easy steps to work out the right opening offer for a property
Once you have set your eyes on a house you want to buy you need to decide on the right opening offer.
Offer too low and you could end up not only losing the property but also turning off the estate agent so that you don’t get to see the choicest properties in the future. The implication of offering too high are obviously paying high mortgage installment and/or losing money when selling the property.
Can I get a bargain property?
One thing to remember is that there are no bargains to be had in property market. If you can do the research online so can the seller and the price you can really buy the property on is the fair market value at the time of the sale. Remember also that under UK law the seller or buyer can withdraw from the sales any time without any penalty until a formal contract is exchanged. This means that even if you somehow ended up with a bargain at start the seller has about a month to reconsider.
Unless you are a cash buyer you have to pay the fair market price. You therefore want to open the negotiation process by offering a price somewhat below this to leave room for negotiation.
Here is how I would go about working out the fair market price for a property.
Find out last sold price for property you want to buy
Unless newly built (in which case your chance of negotiation on price are fairly low any way in this market) you need to find out the last sold price for the property you want to buy.
The best free way to do this is to use the Government website:
Click on all results button to display all relevant results if at first the property you are looking for does not appear in the list.
Find out recently sold properties and their prices in the area
Next step is to find out the recent sales prices for similar properties in your area.
While the above website also provides this information and there are a number of similar other websites, the one I suggest below is the only one which tells you the important details such as number of beds and second-last sales price as well immediately.
Find out the rate of change in the house price in the area
For a sense check you can also get the overall house price change by area index on the following website.
Find out if there is similar property on sale in the area and their asking prices
Two best websites for this purpose are:
Armed with this information you are going to determine the market value for the property in four different ways:
1. Find out the sale price of similar property as the one you want to buy which has had recent sales transaction. This is the best way in theory but in practice would generally work if there are recent sales transactions and property in question is somewhat similar. Here you need to adjust for the differences for example the flats which are on ground floor are the cheapest, each floor adds about 2 to 5 k GBP. Top floor is again slightly cheaper as it is less energy efficient and you won’t be in good shape if the elevator breaks down!
2. Take the last sold price for the property you want to buy. Work out what is the percentage change in the similar properties in the area over the time elapsed since the last sales date. Apply this rate of change to the last sold price.
3. Same as above but use the rate of change in the area prices over the period since last sales.
4. Take an average of the prices of other similar properties for sale adjusting for differences with the property you want to buy.
The above will give you a range of prices to consider. The fair market price you want to pay is likely to fall within this range and you would probably want to start by offering about 5% below the lowest price in the range.
This would provide you with a good starting point. Remember to be quick but disciplined when bidding.
A few factors to also consider when working out the right opening offer for the property are:
1. Asking price of the property would provide the upper limit but do consider the reputation of the agency involved. Most agencies would advise the seller a reasonable price but some for example Foxtons would be willing to list the property at any price in order to secure the business.
2. If estate agents takes you to see a few properties but shows you some horrible or overpriced properties at the start. Discount that. This is estate agent trying to make you desperate to buy anything which looks remotely decently priced. It is a cheap trick but one which is used very often.
3. If there are a lot of properties in the area for sale consider your opening bid at 10% below the low side of the range the calculated above. You have more options and seller might well be desperate.
4. It is much better to buy a fair priced property in a good area rather than a discounted property in a run-down area. Properties in good area not only appreciate more they are also much quicker to resale.
5. Finally don’t sweet small stuff. It is more important to buy at right time than to spend months trying to secure a reduction of £5 k. With property you are likely to either get it massively right or massively wrong so £ 5 k won’t matter than much in the end.