Should I ask the seller of a house for a price reduction given a recession is almost certain?

Question

I've gone sale agreed (note: "sale agreed" means the sale has been agreed in principle - no contracts have been signed, no non-refundable deposits have been made etc.) on a house. The market I'm currently in was extremely competitive, houses were all generally going for significantly more than their asking price, as mine did.

I have nearly everything ready - loan arranged, survey of the house completed, solicitor ready to sign everything.

Now with Covid, a recession is more than likely coming our way.

Furthermore, with lock-downs in place - the seller is extremely unlikely to find an alternative buyer in the near future (it's an executor sale if that makes any difference).

I was thinking of trying to put some pressure onto the seller to lower the agreed price.

While I don't want to lose the house (and the money we have spent so far on legal etc.), I would also like to take advantage of potentially lower mortgage repayments.

Is it a bad idea to put this to the estate agent and be forthright about exactly why I'm asking to lower the price? Is there a "reasonable" amount to lower the purchase price by?

Edit

My intention here isn't to "screw" the seller as several commentators assume that I am trying to do.

At the end of the day, I'm a first time buyer who has effectively agreed to buy a house at "peak" economic health. Within a couple of weeks of this agreement, economic impacts of covid-19 were already being felt and the short / medium term prospects are not good.

At the end of this year, if covid hasn't wreaked enough havoc, there is a very real risk that Brexit could have an extremely negative impact on my country.

So while the honorable thing to do might be to commit to the agreed purchase price, this might be an extremely unwise decision from a personal finance point of view.

"Why don't you just pull out of the sale then?"

I could do that, that leaves the seller in a very bad position as well - it will be extremely unlikely they will be able to find another buyer in the short / medium term - so giving them an opportunity to consider my concerns might be better than simply walking away.

Outcome Edit

The bank valued the property about 6% lower than the agreed purchase price (mostly due to Covid). This effectively meant that the maximum amount the bank would lend was 6% less than what we had originally sought. We weren't willing to try and pay a larger deposit to fill the gap and informed the seller + estate agent (providing the banks valuation of the property). The seller agreed almost immediately to the reduction and we closed within a couple of weeks thereafter.

Answer 1

You could ask, but you risk the seller deciding to just cancel and put the property back on the market once restrictions lift, shutting you out. Depending on the exact neighborhood and local market, there is no guarantee that a recession will even affect the chosen neighborhood. You described it as a very competitive, presumably it will still be a desirable neighborhood even in a recession and you didn't mention how vulnerable the local economy is to a recession.

Answer 2

With the caveat that I'm assuming your verbal agreement isn't legally binding (AIG says it isn't), I would pull out of the deal completely if I were in your shoes. By negotiating, you're essentially trying to price an unprecedented global financial/economic meltdown. What is the right haircut to the existing price? 5%? 10%? 50%? Are you looking for a reduction to make you feel better, or attempting to re-price the house accurately. Unless there was a reason why you absolutely had to move, I would walk away from the deal and stay put until things cleared.

A risk you didn't mention is after buying this house and having to start mortgage payments, when will you be able to move in given lockdowns? I have friends sitting on two mortgages who can't sell their existing homes, or work on/move into the new one given lockdowns in our city. They would probably love to rewind the clock and abandon their deposit.

I would ignore everyone here talking about honor and screwing people. The fact is you are not in a legally binding contract, and even those (of every financial magnitude) are being challenged and re-negotiated globally because of the financial ruin associated with honoring binding terms that did not envision circumstances like we're in today (your case is non-binding). Everything is significantly different enough from even 2 weeks ago, or even last week (depending on where you live), that if I were selling a house in this environment, I would be surprised if the buyer went through with it.

Answer 3

If you've already signed a contract, it's too late. Well, barring legal shenanigans.

If you haven't signed a contract, then sure, you can ask. That's how negotiations work. The buyer comes up with reasons why he should pay less, the seller gives reasons why he should pay more.

I wouldn't expect asking for a lower price to derail the sale. The seller could say no, I don't think there will be a recession, or I don't think this area will be affected by it, or it doesn't matter if there is or not because I can't afford to sell for any less than this, or whatever. Then you have to decide whether to pay a higher price or you call off the sale. If you're really rude and obnoxious about it I suppose a seller might decide that they don't want to deal with you and call it off.

Answer 4

My wife and I run a real estate brokerage in Florida. The transaction process is different here but principles are similar. I think there's a good chance the deal will fall apart if you try to renegotiate the price at this stage.

Buyers and sellers in residential real estate transactions often make emotional decisions. Don't be surprised if the seller pulls out rather than coming back with a counter offer. They may be feeling nervous themselves and decide not to move at all, particularly if they were planning to move to a more expensive house. Either way you are likely to delay the transaction. Bank underwriting standards may change while you are negotiating the discount. They may decide you no longer qualify.

Answer 5

Recession (and the related risks and uncertainties) goes both ways.

If the real estate marked drops significantly and doesn't recover quickly, you will have overpaid if you buy at the agreed price. It would indeed be reasonable to ask for a price reduction and cancel the deal if you don't get one.

If the government decides to counter the economic recession by emitting more money (thanks for the link, @Underminer), real estate prices will keep raising due to inflation. It would then be reasonable for the seller to raise the price now, and cancel the deal if you don't agree.

Unless the future is known right now with a reasonable degree of certainty, changing the price either way is groundless. Indeed, if the price of the property has already changed (as the property valuation from your bank shows), it's only fair to review the deal to the actual price.

Answer 6

If you can still walk away from the deal, particularly without having paid any deposit, your leverage is a willingness to cancel the deal. In the US you usually only risk deposit money until you have a deed and mortgage. Are you sincerely concerned enough about the housing market changing that you will cancel the deal?

Supposing you are actually seriously considering walking away and would feel more comfortable doing so without a price change, it is reasonable to attempt negotiation before canceling. Both potential outcomes are favorable, either lower price or canceled deal. Searching for comps with decreased prices or having some market data would help!

Alternatively, if you are not willing to walk away, threatening to do so is a bluff. They might believe you, or cut the price just to make the deal happen, but they also might not. In this scenario you are not guaranteed a favorable outcome, they might rescind whatever deal they have already made with you and search for a new buyer... a pretty big gamble if you seriously want the property.

Answer 7

Since you are buying a house, you will have been watching closely the housing market recently. Go back and look at some of the other properties you considered that are still unsold. Has their asking price gone up or down?

The housing market is entirely capitalist so have no shame in following the fundamental capitalist ethos of supply and demand. If demand drops, so must prices. Drop your price to the lowest the seller will accept.

This may seem harsh on the seller, but that is just his luck. If gold had been discovered in the hills behind the house, he would be putting up the price accordingly. So what if he might get a few thousand less than he hoped for; you have your own family and finances to worry about and that is your first priority.

Answer 8

Providing the deal isn't legally binding, there's nothing to be lost by asking, and plenty to be gained. It may well be that the seller will say no, but at this late stage, having gone through the hoops etc. already, he may well be available for some negotiation.If not, then the price should stand, and if you're still happy, continue with the deal.

That deal could collapse at any time prior to final signing - I pulled out of one (selling) deal on the day of signing, having realised the house I was buying was owned by a bankrupt. Not a nice move, but perfectly legal.

Answer 9

It would be foolish to purchase the house at the price agreed at the height of the market as you might lose £100,000 or more. It's difficult to see the seller agreeing to a £100,000 discount as the future is hard to see, so why not offer £50,000 less and go ahead?

Another thing is, are you likely still to have a job in a few months and be able to afford mortgage payments? With Brexit and now the virus, the best thing would be to invest in a shack in the woods, lots of cans of baked beans and a shotgun.

Answer 10

The thing you're not telling us is: how much do you need or want to do this transaction?

People who need to move are (always) in a far weaker position than those who aren't particularly bothered, who are cool, laid back, etc. There can be reasons for being laid back. Sometimes the reasons can be wrong.

The same argument applies to sellers: do you know whether this seller really needs to sell soon, or not? Selling property is one of the most stressful experiences known to humankind, unless you happen to be someone who is sitting on a vast portfolio of properties, or is otherwise minted big time.

To summarise: you're really asking "how long is a piece of string". I don't know.

Think about this: Coronavirus could well be "over" in 8 weeks. By this, I mean that everyone everywhere will be wearing masks wherever they go, older and vulnerable people the world over will be subject to extreme protective and isolating measures until such time as a vaccine is developed. What every country in the Developed world is waiting for is for the peak to flatten, so that its health service doesn't become overwhelmed with thousands dying horrible deaths in hospital corridors.

Nothing about the present situation implies necessarily that house prices, in Ireland or anywhere else, will drop. Even a bit. It would be foolish in the extreme to assume that. Particularly if you yourself want or need to move.

Answer 11

You are talking about a recession due to extraordinary circumstances where the financial institutions feel it appropriate to counter the recession by printing more money, while the production at a stillstand will not provide an equivalent in available goods.

That means the money will go down in value compared to real estate.

If you threaten to drop out of the deal right now, chances are that exactly that will happen and you'll be left with money that will lose value way faster than the usual inflation rate, and most certainly faster than the real estate you are talking about.