Making an Offer

Making an Offer

July 22, 2016

Making an Offer; Everything You Need to Know

Buying a house can be a long, drawn-out process, and even if things go smoothly you’re likely to spend many hours poring over different locations, viewing different properties and chatting to estate agents (not to mention applying for a mortgage). Once you’ve found the right house, though, making a purchase is not quite so straightforward as stumping up the asking price.

The crucial difference is that a house price is an asking price, not a guaranteed purchase price – the seller is always looking to make as much money as possible, while the buyer is looking to part with the minimum amount of cash, so if either party thinks they can get a better deal they’ll need to negotiate to reach an arrangement. Knowing what to offer, what happens afterwards and what you can do to increase your chances of being accepted are vital to make sure your house purchase goes smoothly! Our step-by-step guide will take you through the key points of making an offer to completing the sale.

Before making your initial offer:

A lot rests on the initial offer: incorrectly judging the seller’s position can lead to you losing out on a great house by under-bidding unnecessarily, or paying over the odds for a house that could have been secured more cheaply. The more information you can gather to help support your initial offer the better, as it’ll help you to make an offer that’s neither too high nor too low, so having a real estate agent on your side is very helpful at this stage.

The best way to gather information on the property you’re buying is at a viewing. You can learn a lot about a property by talking to the seller (or their agent) and finding out why they’re leaving, whether there are any potential problems with the property or expensive repairs that will need to be carried out. We’ve made a list of some of the most important questions you should ask in our “What to Consider When Viewing a Property?” article to help you get the most out of each viewing.

Taking the seller’s asking price as a starting point, you should consider reducing your initial offer if any of the following points apply to their property:

It’s been on the market for a long time: Most sellers are keen to sell their house within a few months, so if their property’s been on the market for longer than that, they may be willing to accept a lower price simply to be done with it.

The seller needs to leave soon: Similarly, if the seller has a short timescale in which to sell their property they might be happy just to take what they can get. Talking to the owners or their estate agent at a viewing can give you vital clues as to why the seller is leaving, so be sure to pay attention and ask questions!

If the property market is sluggish: If the seller set their asking price at an optimistic level, hoping that house prices would rise, you could realistically expect them to accept a lower offer if the local real estate market isn’t growing. Check around in your local area to see how much similar properties are selling for, and consult your estate agent for their advice.

If the agent is keen to sell: Though it isn’t strictly in their client’s best interests, the seller’s estate agent may advise them to accept a lower offer if they’re keen to complete the sale and move on to a new client. When talking to the seller’s agent, keep an ear out for key phrases that might suggest they’re looking to complete the sale quickly. This is also a good tactic to use if the seller is using multiple agents, as the agent will be motivated to clinch the sale before another agent does!

If the seller has inflated the asking price: It’s common practise for buyers to under-offer by 5%-10%, and many sellers compensate for this by inflating their asking price. If a house appears to be slightly more expensive than the market suggests it should be, this may be a ploy by the seller to compensate for buyers’ low offers – the real amount they’d accept may be lower than the asking price!

If the leasehold is running out: Leasehold properties (like the majority of flats), have a long-term lease that becomes significantly more expensive to renew the shorter it gets. If the property has a lease with fewer than 90 years left on it, you should expect to see the asking price discounted to reflect that. If the lease has fewer than 80 years left on it, it becomes significantly more expensive to renew as an additional charge known as “marriage value” becomes payable, so be very wary of leases that are approaching this length. In any case, if you’re buying a leasehold property you must make sure you fully understand the laws regarding them; for more information on leasehold properties, refer to our guide for “Leasehold Properties”.

If there are no white goods included: It’s often less hassle for the seller to leave their white goods behind than to move or sell them; second-hand fridges don’t sell for much, and are too bulky to move easily. Most sellers will be happy to let you keep their old goods (if you want them), but if not you should factor the cost of replacing them in to your initial offer, or negotiate with the seller to leave them behind for you. Of course, if you’d rather they removed their white goods so you can install your own, you could take the opposite tack and ask that they pay for removing them!

You can also leverage some advantages you have as a buyer; if you’ve sold your house and are a “cash buyer”, sellers will often prefer your offers as they won’t need to wait for you to sell your own house in order to complete the transaction – selling one house as you buy another is known as being in the “property chain”, and buyers who have “no chain” are preferable to those who do. If you’re also able to accommodate the seller’s own needs, such as being able to complete by a certain date, they may prioritise your offer over others who make similar or higher offers!

The most crucial part of making an offer is to know what your maximum budget is, and stick to it. An extra £10,000 on a £280,000 purchase may not seem like a lot, but paying back that additional mortgage plus interest over the next 20 years will add up to much more – know what you’d be happy to spend, and what you could conceivably stretch to. Don’t forget the additional costs of buying a house, like survey fees, Stamp Duty and conveyancer’s fees.

The initial offer and bidding process

Once you’ve decided on the right amount to bid, contact the seller’s estate agent with your offer. It’s very important to be clear about the amount you’re offering, so make sure you provide a written bid as well as contacting them over the phone. The seller’s estate agent must pass on every offer to their client, so whether they think your offer is acceptable or not the seller will still receive your bid. If they’re interested, they’ll reply through their agent and you can begin negotiations for the purchase of the property.

If your bid is too low, you may still have a chance to buy the property, especially if you’ve only been out-bid by a small amount. Being able to re-bid is useful if you’ve tried offering a low price, but be wary of over-stretching your budget to try and secure the property; it’s very easy to get sucked in to adding a few extra thousand to your bid to out-do the competition, but if you exceed your budget you may find that your mortgage provider won’t cover you!

Bidding wars are sometimes avoided by the use of “sealed bids”, where no buyer is aware of how much is being offered by other parties. This benefits sellers by encouraging buyers to make their maximum offer straight away, rather than hesitate and risk losing out to another offer, but it also makes it easier for buyers to calculate their maximum offer with a cool head, rather than rushing into making an offer that’s too high.

When the offer is accepted

Should your offer be accepted, the seller’s estate agent will contact you and let you know. Your first move should be to ask the seller to remove their house from the market; though they’re technically not obliged to do so, this is a show of good faith that demonstrates their commitment to the deal. Remember, until the final contracts are exchanged there is no legally binding deal between buyer and seller, and either party is free to walk away at any time; if the seller is reluctant to take their property off the market they could end up accepting a higher offer, leaving you with costly fees and no house!

The practise of making a higher bid to a seller who’s already accepted an offer is known as “gazumping”, and it’s been reported that as many as one in ten property transactions is “gazumped”! You can minimise the risks of this by building up a rapport with the seller, but be aware that if they’ve accepted a much lower bid than their asking price there is a strong incentive for them to accept a higher offer, should it come along.

The seller may also require that you pay a holding deposit before they take the house off the market, which may or may not be refundable if the deal falls through. Before making any payment, make sure that you’re able to reclaim your money if the seller should decide to accept another offer; it’s rare, but some holding deposits aren’t repayable if the seller chooses to pull out of the deal. You should always pay a deposit to the seller’s solicitor rather than directly to them, as the money will be held in escrow whilst the transaction is completed. Holding deposits are unusual for most sales, as they prolong the transaction, but for high-end properties they’re a good way of weeding out frivolous buyers.

Completing the transaction

At this point, you’ll also need to begin drawing up contracts for the transfer of the property. For this, you’ll need the services of a legal specialist, either a conveyancer or a solicitor. Solicitors are lawyers who specialise in property law, and are able to advise on a wide variety of matters; their experience makes them an excellent resource for complex property work, but their skills are correspondingly more expensive. Conveyancers specialise solely in carrying out property transactions and are perfectly capable of carrying out most real estate sales – for complicated sales, however, such as those of listed buildings, the specialised skills of a solicitor may be worth the additional expense.

It’s your conveyancer’s job to complete all the necessary surveys of the property, making sure that there are no hidden structural faults or problems with the land. They’ll also check with the local council authority whether there are plans to develop on or near the property, and will draw up contracts for both you and the seller to sign. This process can take several weeks, so agreeing upon a completion date with the seller is a good idea to ensure things don’t drag on for too long. Having a set date to move in also allows you to plan your move-in day, booking a removal company and arranging for the transfer of utilities.

Once the contracts are signed and exchanged, your conveyancer arranges for the mortgage provider to transfer the funds to the seller and you become the legal owner of the property. Congratulations! Once the sale is complete, you’ll need to pay the conveyancer for the work they’ve carried out. You’ll also need to arrange for payment of Stamp Duty Land Tax once the transaction is complete, if your property is worth more than £125,000.