Five questions to ask before making an offer on property

We all want to buy our house or investment at the lowest price possible, or at least get good value for our money.

On the other hand the vendor wants the highest price he can get, yet you now know that the asking price quoted by the selling agent will usually be more than the owner is willing to take for their home.

It’s just part of the real estate game – vendors know the price will come down as part of the negotiation process.

So how much should you offer?

If you ask the selling agent what price you should offer, you’re asking the wrong person. Remember, the agent is paid by the seller to represent them and to get the best price possible. Despite this I would still ask them what they would consider was a ‘fair offer’ and then ask them to justify it with a list of comparable sales.

You are probably thinking that the agent just wants to make a sale, and in most cases you are right. In reality the agent doesn’t get paid unless a sale is made, so obviously he is keen to sell you the house. Most selling agents prefer an easy negotiation, knowing that sellers can easily get offended when they receive low offers on their homes. This means they will probably recommend you make an offer close to the asking price.

So unless you use a buyer’s agent to help you negotiate, you are really going to have to rely on your own research to work out what the property is worth.

By the time you end up at the negotiation table, you should have looked at many homes and gotten a pretty good idea of what similar homes in the area have sold for. Remember it’s the final sale price, not the asking price that you need to focus on when you’re doing your pre-negotiation homework.

In most markets (other than during boom times), houses sell for less than their asking price. There is no standard discount, but as everyone knows there will be some ‘argy bargy’ about the price as agents tend to ‘list the property for sale’ at an asking price usually about 5-10% more than the vendor will accept to sell their home.

So the asking price is just a starting point for the negotiations.

If you pay what the seller is asking you could be wasting money. The trick is to know how much less the seller will accept. Sometimes it’s only a few thousand dollars. In a buyer’s market like we experienced over the last few years, many vendors were prepared to drop their asking price considerably, but as our markets hotted up over the last few months, this has changed.

Before deciding on what price to offer – here are five questions you should consider asking:

1. How did the vendor come to the asking price for their home? Was it from the agent’s suggestion or because that’s how much they need to buy their next dream home? Some sellers are unrealistic and unlikely to come down from their asking price if they have to get a certain amount for a particular reason.

2. Have there been any other offers made? This lets you know if you have any competition and how serious the vendor is about selling their home for a reasonable price.

3. How long has the home been on the market? If it’s just been put up for sale, the seller may not be anxious to accept the first offer. If the home has been on the market for several months it’s more likely the seller would be ready to accept your offer.

4. Why is the vendor selling? Are they going through a divorce? Do they have to move interstate urgently? Have they already bought another home that would put them under pressure to sell their current home? This will let you know how motivated the seller is.

5. Has the asking price been reduced during the time the property has been on the market? This will tell you whether the seller is really keen to offload their home and also let you know that you might have a motivated seller on your hands and perhaps greater bargaining power.

Good luck with your negotiations!

Michael Yardney is the director of Metropole Property Strategists, a best selling author and one of Australia’s leading experts in wealth creation through property. For more information about Michael visit www.metropole.com.au and www.PropertyUpdate.com.au.