Once an individual has decided which property to buy, the next step is to make an offer. Doing this is a big step and can be quite nerve-wracking. It is important that one remains sharp and patient at this stage as a wrong step might lead to wasteful financial expenses and in some circumstances, may even lead one to lose their dream house.
HOW TO PUT FORWARD AN OFFER?
Once an individual has decided what offer to make, the next step would be to contact the real estate agent, who will provide guidance as to what kind of bid is being accepted by the seller. It is recommended that whatever offer is made, it should be done in writing. The advantages of doing this are that it will make dealings more official and will avoid any misunderstandings. The estate agent will then have to present the offer to the seller. The estate agent is bound by law to forward every offer made to the seller, even if the offer is absurd.
The next steps will now depend on the seller. If the seller accepts the offer, then negotiations may not be necessary and contracts may be signed. If, however, the seller is interested in the offer but believes that a better offer can be discussed, then negotiations may commence. In negotiations, the real estate agent plays an important part. This can often prove to be disadvantageous for the purchaser. The reason is that the seller has a representative in the form of an agent who is looking out for both their interests, by ensuring that a high price is negotiated. The buyer, on the other hand, has no such representative. This disadvantageous position may be exacerbated by the fact that the buyer may not be aware of the intricacies of the property market and may not have a lot of experience in such dealings. The same, however, cannot be said for estate agents.
After the conclusion of negotiations, the seller may choose to continue with the negotiated offer. If this happens, the next step should be to discuss a timescale for concluding a successful deal and exchanging contracts. Sometimes a seller may not choose to go with the negotiated price. In such a scenario, the purchaser should not panic and consider his/her willingness to buy the property and make a higher offer.
FACTORS TO CONSIDER BEFORE MAKING AN OFFER
The following factors will ensure that the purchaser puts forward a fair offer and makes an informed decision:
- Budget: For this, a purchaser can either hire an independent advisor or a mortgage broker. It is also a good idea to downplay the budget with the estate agent.
- Research the market: Are properties, in general, being sold quickly and at high rates? What are the values of the properties located in the same area? For this, the purchaser can peruse the Land Registry website. Such research will ensure that the purchaser is not being scammed. For example, a seller may give an impression that a particular property located in Central London is of high value when in reality, it is not. It is also important to note that the value of a property may change dramatically within a year. Hence, it is better to keep in mind recent selling prices only.
- Research the property: The purchaser should be careful to not showcase his/her interest in the property as the seller might take advantage of this. The purchaser should also not be severely influenced by the aesthetics of the property as sellers often make an effort to make the property look more attractive than it is. Surveys and searches of the property should be conducted. Did the survey reveal any defects or other issues? Did the seller comply with relevant regulations and legislation? Has the property been on the market for a long or short time period? Did the seller reduce the selling price of the property at any time?
- Discuss the property with the real estate agent: The following questions should be asked; how long has the seller owned the property? Why did the seller decide to sell the property? Has the seller found another property to reside in? How many people have shown interest in buying the property and how has the seller reacted to this? Is the seller currently involved in any negotiations? What is the minimum price that the seller will consider?
- Other factors: The following factors can affect the value of a property and hence, will allow the purchaser to make a fair offer; criminal activity in the area, if the property is located in a flood zone and whether schools are located close to the property, etc.
WHEN WILL A LOW BID BE CONSIDERED AS AN ATTRACTIVE OFFER?
Sometimes a seller will be willing to accept an offer that is either below the asking price or is a low bid compared to other bids. The following factors will enable the seller to consider such an offer:
- The purchaser is chain-free (meaning that the purchaser is not waiting for his/her former home to be sold or is buying property for the first time)
- The seller wishes to sell the property quickly and he/she is in a chain
- The seller cannot attract any higher offers
- The property has not been sold for a while and is still on the market
- The seller has been forced to reduce the price of the property due to market conditions
- The offers being made to the seller are being made by individuals in a chain
- The purchaser is willing to put down a large deposit, effectively making a mortgage application appealing for lenders
- The purchaser has secured funds for the purchase
- The purchaser is using his/her own funds
- The purchaser has a good relationship with the seller
- The purchaser is flexible about a completion date and is looking to conclude dealings quickly
- The property has serious defects
- The seller has not complied with relevant regulations and the burden of compliance will fall upon the purchaser
- The real estate agent wants to conclude the sale quickly and receive a commission
- The seller has hired more than one real estate agent, making dealings between these agents more competitive. As a result, an estate agent would be willing to accept a low price and not waste time on negotiations as he/she would not want to miss out on a commission.
BIDDING PROCESS
The following are the different types of bidding:
- Open Negotiations:
This is a common process in which the seller invites bids and then considers commencing negotiations. Since the seller deliberately advertises a price that is above the actual value of the property, it is a good idea for the purchaser to offer a price below 5% – 10% the asking price. By doing this, the purchaser will make an offer equivalent to the actual value of the property. The real estate agent will inform the purchaser of any other bids and the purchaser can then choose to make a higher bid. However, the purchaser should be very careful and should keep the factors discussed above in mind.
- Sealed Bids:
The purchaser is required to write down his/her bid and seal it in an envelope. The estate agent will collect all bids and will submit them to the seller, who will then choose the highest bid. Because of the nature of this process, the purchasers often make high offers. It is adopted for areas that are in high demand and allows the seller an advantage as he/she usually receives an offer above the actual value of the property.
The purchaser should keep in mind his/her budget and should not go overboard. The purchaser should also not forget that the mortgage lender may not be willing to cover such high offers. Sealed bids are not completely disadvantageous for purchasers. Firstly, the purchaser does not have to waste time in negotiations. Secondly, the purchaser does not have to deal with any pressure from the seller or the agent.
If a purchaser’s bid is not accepted by the seller, the former can choose to make a revised offer as accepting does a bid does not conclude dealings. One way to avoid a bid being rejected is to consult with the agent and find out the bids being made by other purchasers. Another way is to offer a few more pounds instead of a round number. For example, instead of offering £500,000, offer £500,100. By doing this, the bid may seem higher compared to other bids and the seller would be more compelled to consider the latter offer.
- “Best and final” offers:
Sometimes agents will ask buyers to make their best and final offers. The process is similar to sealed bids. The only difference is that the purchasers do not have to submit their offers in sealed envelopes.
HOLDING DEPOSITS
Sellers will often ask buyers to deposit a small amount of money with the seller’s solicitor. This is done to ensure that the buyer is serious about an offer and is not simply wasting the seller’s time. Following are the types of holding deposits:
- A refundable deposit no matter who backs out
- A non-refundable deposit no matter who backs out
- A refundable deposit if the seller backs out (not if the purchaser withdraws)
DOES A PURCHASER NEED TO HIRE A SOLICITOR TO MAKE AN OFFER?
If a purchaser is making an offer on a property located in England and Wales, the purchaser need not hire a solicitor. Conversely, if the property is located in Scotland, the purchaser will have to hire a solicitor. The solicitor will then register a note of interest with the seller’s agent. He/she will handle the process and make dealings on behalf of the purchaser.
ACCEPTANCE, WITHDRAWAL OR CHANGING AN OFFER
An important question that arises is whether an offer is binding and if it can be withdrawn or changed?
In England and Wales, an offer is not binding unless the contracts have been signed. Hence, an offer can be withdrawn or changed before the signing of the contracts. This will allow the purchaser to negotiate a lower price if, for example, a survey reveals any defects in the property. This tactic is known as “gazundering”. Often a seller will backtrack and accept an offer made by someone else. This is called “gazumping.” The purchaser can react by counter-gazumping, which means making a higher offer.
In Scotland, if all the terms of an offer have been discussed and accepted, then the offer is binding. Hence, the purchaser cannot withdraw an offer or change it unless the seller agrees.
After the seller has accepted an offer, the purchaser should ask the seller to remove the property from the market and discuss the timescale for concluding the deal. You will then need instruct a conveyancing solicitor to carry out the legal process of transferring the title of your new dream house over to you.
Happy house hunting.
