Step by step guide to your first offer
At some point in your property purchasing journey you’re going to need to put your first offer on a property. This can be a nerve wracking experience, however if you’re buying by private treaty and not at auction then making an offer successfully is crucial for those looking to buy well.
The very first offer you make will not always be accepted, however this doesn’t mean it isn’t worthwhile. In fact, the first offer is often just your base to start the negotiations with the seller. Be prepared for both an acceptance or to be knocked back.
Determining how much to offer
Firstly, ensure you have done all the necessary research and have a price in mind that you would like to purchase the home for. Effectively you need to know your absolute upper limit that you would pay to secure the property – usually this is close to what your market research suggests the dwelling is worth.
This upper limit isn’t necessarily where you start with your first offer. Most people will start a little lower than their limit as it is not unusual for the seller to attempt to negotiate your price upwards and it can sometimes be worth trying to get a bargain. Remember, however, that it isn’t necessarily the best approach to make an insultingly low offer even in a slow market where you have more bargaining power.
If the market is hot and there is a lot of competition it may make sense in some scenarios to put down your best offer initially. If another buyer has offered more, the seller may choose to just take their offer rather than come back to you, which sees an emphasis on you to ensure you make a good offer upfront. This is where market research can be particularly useful in figuring out the best strategy to consider.
Consider asking the real estate agent if there have been any bids so far, and when they were made. Ensure to ask why they were each rejected. This will quickly allow you to determine the interest in the property and the price point and conditions where the seller knocked them back. Bear in mind how long the property has been on the market for and any discounting to the current price.
Speak to your solicitor
Every offer that you make has the potential to be legally binding, particularly if you make it in writing in the form of a signed contract of sale. If the seller agrees to the contract that you have proposed, and signs it, then the property has been sold. For this reason it’s time to get your solicitor or conveyance involved in the process.
Having your legal advice on hand allows you to not only add in the necessary clauses, but also alter the document to ensure that you provide the settlement terms (and length of time for settlement) that will best suit your ends.
The contract will also allow you to detail any furnishings, or chattels, that you expect to receive upon settlement. Without this inclusion there may be some confusion around whether you expected to keep the dishwasher, blinds or fancy light fittings in the home. Ensure to list each item that you also expect to be included in the home. You can also put in your reasonable expectations around the state of the property for when you move in – such as for the garden not to be overgrown.
Must know: Conditional vs Unconditional offers
Conditional offers are those that include conditions for the sale of the home to go ahead. This could include the sale being subject to finance or to a satisfactory building and pest inspection. You may also opt to include conditions around whether certain structures have been council approved (such as a granny flat or shed), or make the sale subject to your own home’s sale.
Unconditional offers are those that include none of these requirements. Effectively, once signed the deal is done. This is the case for auction sales. This leaves little wiggle room if something turns out unexpectedly, however can see more attractive to the seller.
Remember, price isn’t everything when it comes to a property. If your terms are not favourable to the seller then they may choose not to agree to your offer regardless of the price you have suggested. Ensure you have asked the real estate agent about any specifics regarding the seller’s preferred settlement times and for some information about their situation. This may help you tailor the contract into something more attractive for a seller.
Once you have created the formal first offer, the real estate agent will be responsible for taking it to the seller and communicating your terms. It is wise to include a time limit on the offer. This protects you from stalling from the seller, so you can go and make offers on other properties past this time, and also provides a sense of urgency to the seller to make a decision.
Verbal offers may occur after the initial written offer, however when put in writing real estate agents are usually obliged to present this to the seller.
Get your finance in order
Ensure you are ready to pay the deposit on acceptance of the contract. Have a cheque filled out, to be kept in the real estate agent’s trust account if the offer is accepted. You will want to have attained at least pre-approval if not full finance approval with your lender prior to making the offer. If not, and you haven’t made the offer conditional upon achieving finance, then you will face penalties. A smaller temporary deposit, or a ‘holding’ deposit, may be payable instead of the full amount.
You may, for instance, first offer a shorter settlement that you would be more happy with but with a slightly higher price. If the seller is looking for a longer settlement yet you are keen to get into the property as soon as possible, try offering a longer settlement with a lower price. Ensure you are happy to accept any of the offers you have made, reneging can be costly often causing you to forfeit your deposit and you must be prepared for the seller to sign on any offer.
Be wary of making multiple offers on multiple homes simultaneously. If you do so and they all accept then you will be expected to purchase all of the homes or face paying penalties.
When both you and the seller have signed the contract, the deal is complete. Until then, sit back, wait and see.
- Know what price is your absolute upper limit for the home
- Decide where to start offering from
- Have a solicitor look over the contract first
- Know the difference between a conditional and unconditional offer
- Ensure you have your finance lined up
- You can make multiple offers
- It’s not all about the price