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We are in the UK and interested in purchasing a house, but the highest offer we could make is substantially below the asking price by around 5%.

However, we have some advantages over other prospective buyers. Sales in our local area are slow and we're ready to proceed.

We are wondering how best to play this. For starters, if we do the "normal" route of making an initial low offer with the presumption it will be increased, it risks looking derisory. But if we offer the maximum right away, the vendor may presume it's a trick, and there's more to be had by holding out.

Furthermore, if we make an offer now, not only is it unlikely to be accepted but the agent will have a tool to leverage higher offers from other interested parties. If the house does not sell, the vendors are more likely to look favourably on a lower figure.

On the other hand, if we offer now, there's an outside chance it might be accepted, closing the risk of someone coming in higher.

Are we thinking about this logically? What's the best way to proceed?

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Bob Tway
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    Do you have any information about the history of this house on the market? Has it been on for ages at this price, has it recently been listed, has it changed price recently? These are important clues in determining how open the vendor is likely to be to your offer. – Vicky Oct 17 '19 at 22:40
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    Instead of locking into a single desirable property, take extra effort to look for an alternative to reduce the scarcity of the bargain. A common property buying mistake is chasing a hot property than due to peer perspective. – mootmoot Oct 18 '19 at 11:22
  • @mootmoot We've been looking for weeks. This is the best one we've seen. – Bob Tway Oct 18 '19 at 11:27
  • @Vicky It's only just gone on the market: we were the first people to see it. The advice is now moot as despite the weak market it's proved insanely popular and attracted an offer the very next day. But the question may still offer advice for others. – Bob Tway Oct 18 '19 at 11:29
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    This is a situation where the US concept of buyer agency would be helpful, since you'd have someone who knows the local market and is looking out for your interests to help you decide how to frame the offer. – dwizum Oct 18 '19 at 12:33
  • With limited time and resources, people tend to narrow down options. What I means is also looking for property within your budget and expand to broader distance. E.g. If one only desired to commute or drive for 15km, they might miss a pleasant property that within 16km; or a property 20km away but with a commuter station nearby. Those property search portal and even property agent sometime are not as smart as you think. – mootmoot Oct 18 '19 at 13:03
  • Is your offer conditional or unconditional? That can also have a significant affect on whether or not it is accepted. We sold a house this summer and accepted the lower of two offers, both because it had fewer conditions and because we could know much sooner whether those conditions would be met. We preferred to give up some of the sale price simply to be able to know for sure that it was sold rather than having to wait another month. In our case we gave up money to get an early final acceptance, but other sellers could have other reasons for how they view conditional offers. – Ray Butterworth Oct 18 '19 at 13:25
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    You say you have advantages over other prospective buyers - what are they? The fact that sales are slow isn't one - that does give you an edge on the seller, but not over anyone else who actually is trying to buy the house. – Nuclear Hoagie Oct 18 '19 at 13:45
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    Are you sure that in the UK 5% is considered "substantially below the asking price" to the point it is a concern? In the US, asking more than 5% below is very common. When I bought my first house, seller accepted my initial offer that was approximately 15% below asking price, though it had been on the market for a long time. – Aaron Oct 18 '19 at 15:37
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    Some family friends just sold their house for $900K (USD) after having had it listed for $1.2M for about 6 months. Did the buyer get a "substantially" good deal? Actually, no, they didn't. The sellers were naive to how much their house was worth, ignoring their realtor's more modest suggestions. In reality, with the interior and size of the home compared to the affluent neighborhood's market, I'd say the buyer substantially overpaid. An asking price is just that - it doesn't necessarily mean it's an accurate one. – 8protons Oct 18 '19 at 18:08
  • Will you be making the offer in cash? They would probably take even 10% less than asking in cash since they won't run the risk of your mortgage getting rejected. You should definitely take a look at https://money.stackexchange.com/q/115068/25694 because I would never borrow the full amount of my approval. – MonkeyZeus Oct 18 '19 at 19:28
  • IIRC the average selling price is 92% of the asking price - or in other words, the agent puts it on the market 10% higher that it should be. – gbjbaanb Oct 18 '19 at 21:09
  • @Aaron On average, houses in the UK go for 97% to 98% of the asking price. 95% would be on the low side, but by no means unheard of. – Mike Scott Oct 20 '19 at 20:45
  • @RayButterworth There’s no such thing as an unconditional offer in England. All offers are subject to contract, i.e. they can be withdrawn at any time for any reason. – Mike Scott Oct 20 '19 at 20:47
  • @MikeScott, yes, I'd heard that before. It sounds unbelievable though. I can't image what it's like heading to one's new house with a moving van full of possessions only to be told "sorry, I changed my mind". And then you have to say the same thing to the people that just bought your house. – Ray Butterworth Oct 20 '19 at 21:32
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    @RayButterworth you don’t head there with a van of possessions until after the contracts are signed. There’s usually a week or two between “exchange of contracts” (both sides of have signed, neither can back out) and “completion” (you actually get the keys and move in). – Vicky Oct 20 '19 at 21:59
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    @RayButterworth You don’t fill up a van with possessions and head for your new house based on an offer. You do so a week or two after you’ve signed a contract, which is binding, and typically happens three or four months after the offer has been agreed in principle. – Mike Scott Oct 21 '19 at 05:57
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    @RayButterworth How can you make an unconditional offer on a house before your mortgage lender has agreed to give you a mortgage on that specific house? Before you’ve had it surveyed? Before your lawyer has checked for encumbrances on the title, nearby subsidence, planned road-building, whether there’s legal access to the house for vehicles, electricity, water, etc., and so on? – Mike Scott Oct 21 '19 at 05:59
  • @MikeScott, there's typically a quick back-and-forth of negotiated offers through the realtors, each expiring in say 24 hours, resulting in a binding but conditional accepted offer. As the conditions are met, the contract is modified to drop the condition, and eventually the result is an unconditional offer. The initial negotiating can take a few days, and the removals a few weeks. But that final unconditional contract normally happens months in advance of the closing date. Both buyer and seller then have a long period of certainty and peace of mind while preparing for the closing. – Ray Butterworth Oct 21 '19 at 13:47
  • @RayButterworth Why do you need months between the unconditional offer and closing? What’s left to do? – Mike Scott Oct 21 '19 at 19:16
  • @mike, suppose I get possession September 1, but won't move in right away because I want to renovate the kitchen etc. If I don't know until a week or two before, I can't make arrangements for contractors. I might want to order custom curtains, furniture, etc., and again I can't commit to that until I know for sure that I will have possession. Even moving vans often require more than a week's notice., or registering children at a new school. It would be expensive and inconvenient if I arranged for everything and then had to cancel it all because someone changed their mind a week before. – Ray Butterworth Oct 21 '19 at 19:28

8 Answers8

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the highest offer we could make is substantially below the asking price by around 5%.

I wouldn't necessarily call that 'substantial', especially if the property has been on the market some time (I surmise this from "sales in our local area are slow"). That you are ready to proceed also makes you a strong contender, and reduces the window of opportunity for you to be gazumped.

If you really are at the very limit of your finances, then: explain you are chain-free, emphasise your desire for speedy completion, and tell the agent it is your best and final offer. This should eliminate the risk of "the vendor may presume it's a trick, and there's more to be had by holding out".

The worse that can happen is that they say no, but if you really were at the limit of your finances then you can reassure yourself there's nothing else you could have done.

AakashM
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    Well some people just are proud of "having achieved a bargain". Therefore, offering -8% and then upping that to -5% could more likely lead to closure with some. I'm with you that this strategy is the best of all, but "nothing else you could have done" is wishful thinking. – FooBar Oct 18 '19 at 12:27
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    @FooBar the intent behind 'best and final' is to convey that you as a buyer are not going to be playing that game, thus requiring the seller to evaluate just the offer as given, not what they think it might go up to. Of course, it only works if you mean it... – AakashM Oct 18 '19 at 12:35
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    I understand that. I'm saying that sometimes people (you might say irrationally) care more about their gains, than their absolute wealth. Here, the seller might be (subconsciously) happier when he was able to rebargain, even if the final price he gets is the same. Your counterargument focusses only on "what is the final price the seller is expecting to get". If that really all the seller cares about, then yes: If you can credible convey that there's no point in rebargaining, that's all you need. – FooBar Oct 18 '19 at 12:43
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    Add a time limit to the offer "We want an answer within a week. After that we go for another option." – d-b Oct 19 '19 at 17:11
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Assuming it's under English law - Scotland is different - then offers are not binding. Similarly, acceptance of offers by the seller aren't binding either. It only becomes binding when the contracts are exchanged. If you are in Scotland, then check the local law.

This means that gazumping is possible, and there's nothing you can do to stop it, other than offering a really high bid (which you can't afford). "Gazumping" is where the seller initially accepts an offer, but then cancels the sale when somebody else makes a higher offer. It's perfectly legal under English law, and is common in a rising market.

It's quite possible to make an offer 10% below the asking price, then allow the estate agent to negotiate it up to a 5% discount. It worked for me. But any offer that's ridiculously low risks being rejected out of hand. 10% below is good as a starting bid.

If you're feeling particularly mercenary, then "gazundering" is also legal. It's when you initially offer one price, but then find an excuse to reduce the offer, just before contracts are exchanged. It might work, or the seller may tell you to go away, and refuse to deal with you any more.

Simon B
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  • What do you mean by "exchange contracts"? Is this different from the part where you submit an offer in writing and they accept it by countersigning it? –  Oct 18 '19 at 16:54
  • It sounds like the offers and acceptance aren't legally binding until the actual sale contract is signed. – Michael Richardson Oct 18 '19 at 19:21
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    @Michael Making a written offer usually doesn't happen in England. After a verbal offer is made and acepted, you then instruct a lawyer, get a survey done and secure a mortgage if needed. You generally don't sign anything until the formal duplicate contracts are prepared. – richardb Oct 19 '19 at 07:48
  • @MichaelRichardson In addition, if your furniture arrives at the new home and the owner refuses to move out (in England), things get interesting. In Germany, contacts are signed usually 6-7 weeks before moving and before paying, and if one side breas the contract, they are responsible for all damages. – gnasher729 Oct 19 '19 at 12:18
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    @Michael If you don’t know what exchange of contracts is, you know nothing about the English house-buying system, and shouldn’t be commenting on it. It’s not like the American one; it protects buyers against unusual but disastrous risks at the cost of slowing transactions down for everyone. – Mike Scott Oct 20 '19 at 20:41
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    @Michael When everything is agreed, two copies of the contract are drawn up. The seller signs one copy, the buyer signs the other. The lawyers then swap (exchange) the signed contracts. As soon as the contracts have been exchanged, the sale is final. – Simon B Oct 20 '19 at 22:14
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    @gnasher729 That’s the same in the UK, except that it’s usually only a week or two between exchange of contracts and completion. Once you’ve exchanged and agreed a completion date, the vendor is liable for any costs you incur as a result of their failure to then complete on the agreed date — storage, temporary accommodation, and so on. – Mike Scott Oct 21 '19 at 06:04
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If you want to buy a house for below market price, don't fall in love with the house.

Look at many houses, and focus on those which are short-sales or distressed properties. Alternatively look for properties which have been on the market for some time and have not had many viewings, and appear to be undervalued, but which also show potential. Keep an eye open for why the property is not selling, and make sure you're OK with the reason.

Remember to factor in your expected renovation costs + 25%.

When you make a lowball offer, keep it open for 24 hours to show interest and then keep moving. This signals interest to the real estate agent - he will notify you when the sellers are coming down. If the house is still on the market after another month, send another lowball offer.

James
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    Great advice : "don't fall in love with the house" – mootmoot Oct 18 '19 at 14:46
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    This appears to be aimed at someone who wants to buy any house as long as they can get it for below market price. OP is actually asking about a situation where they've found a house they like but can't afford the asking price. – AndyT Oct 18 '19 at 15:47
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    I agree. The problem is that the OP's question reveals that his goals are clearly misaligned, and the OP needs to correct them. Getting a better price on the house requires that he risk losing it. As a result, I gave this answer. How else do you correct the OP's blaring issue? Do you just ignore it and answer his question without elaboration? (i.e. - that he should lowball it and hope to luck into the house, but that he will likely fail?) – James Oct 18 '19 at 16:02
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The thinking might be very logical; yet the usual problem is that you do not have the data to make the optimal decision: if there are other buyers and how much are they willing to offer; how quickly does the seller need the money...

The rule of thumb is that the lower your offer the more risk that it will not be accepted. Having said that:

But if we offer the maximum right away, the vendor may presume it's a trick, and there's more to be had by holding out.

If the vendor does not want to sell (or is dragging his feet) because your offer is too low, you will not improve that by offering an even lower price.

if we make an offer now, not only is it unlikely to be accepted but the agent will have a tool to leverage higher offers from other interested parties. If the house does not sell, the vendors are more likely to look favourably on a lower figure.

If I am another prospective buyer and I value the house at $100,000 and the seller tells me "But Matt is offering $110,000" then my answer would be "so let Matt have it".

OTOH, if I value it at $150,000 (and have the money available) I will end buying this house, because you cannot increase your offer and I still have plenty of room to get a good deal. In this case making your offer high or low does not affect the outcome, it only may force me to buy at a higher price to outbid you.

Of course, making your offer higher means that maybe you miss the opportunity to buy the house at a lower price, if there are no other buyers and the seller wants the money urgently.

SJuan76
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    You don't know what their bottom line is - if you make a higher offer that's still under their target they might still say no but you are now starting the negotiation at a much higher level. If you make a lower offer you can always increase it. – ventsyv Oct 17 '19 at 22:08
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First see what information you can gather:

  1. Who are the people that are selling?
  2. Why are they selling?
  3. Is there non-monetary benefit you can give them (for example a quick sale, longer time to move out, etc)?

Decide your target price - make sure it's not a round number. If you can meet in person, or talk on the phone do that. You can try the the 65-85-95-100 percent rule - your initial offer is 65% of your final target price, then one large increment, followed by smaller increment, followed by even smaller increment, etc. Throw in that non-monetary concession with the final offer.

You can adjust the percentages but make sure each increment is about half the size of the previous one.

Obviously wait for them to reply to each offer. Be nice and try to relate to them - "We are young couple and don't have a lot of money - probably how you were when you were our age" or "I'm retired from the military and on fixed income"

See what concessions you can get. If they say no, they say no, nothing you can do about it, but going through the negotiation process allows you to see how much they are willing to move.

ventsyv
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    Are you in the UK? Offering 65% of the asking price of a house here would be insulting unless there are some really significant other circumstances the OP isn’t telling us about. As a vendor I would not even start a discussion with someone who came in that low as it would tell me they were out of touch. Even 85% of the asking price would be pretty difficult to stomach as an opening offer. – Vicky Oct 17 '19 at 22:39
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    An offer of 65% (or even 85%) of the asking price would be laughably insulting in the US as well, especially for a house that's only been on the market for a day (as is the case here). People would probably assume you read the list price wrong, or you're crazy. Typical discounts nationwide right now are around 3 or 4%. I don't know what this "65-85-95-100 rule" is, but trying to apply it to real estate will probably not work. – dwizum Oct 18 '19 at 12:41
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    It's called "Ackerman bargaining" - e.g. https://jonathanvieker.com/ackerman-bargaining/ – simonalexander2005 Oct 18 '19 at 13:58
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    Agree with the sentiments in the comments. A 65% offer might get you blacklisted - "don't waste any more time on this person; they're not to be taken seriously". – MSalters Oct 18 '19 at 14:33
  • It's not so much the percentage as it's by how much you improve your offer. Also, it's possible the house (or the market) is overpriced as it was in the US a few years ago - without knowing the specifics it's impossible to say what's an appropriate opening offer. The takeaway here is to put in a low opening bit and negotiate from there and not make a max offer right away. – ventsyv Oct 18 '19 at 15:01
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    If you offer 65% of the asking price for my home, the answer is "f___ you" and you will never, ever, ever get into that home. – gnasher729 Oct 19 '19 at 12:20
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    My answer to a 65% offer would be politer than gnasher's - but I would tell my agent: "do not pass on any further offer from ventsyv; I will not sell to them". An offer of 65% on UK property is a really, really, bad idea. – Martin Bonner supports Monica Oct 21 '19 at 07:47
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One question is how long the house has been on the market. When it is first listed, sellers are often in love with the asking price. After it is on the market a while, some will soften. If you wait a while your chance of getting a given offer accepted increases. If somebody comes in with an offer higher than you can pay, you should be OK with that. The downside is if somebody reads the seller's willingness better than you, makes an offer you could beat, and gets it accepted. Your realtor may be able to get some reading from the seller's agent. It may even be right.

Some sellers are more motivated than others by just getting the place sold. If your offer can look more likely to go through than average, your agent should emphasize this to the seller. That might make a lower offer get accepted.

Years ago a realtor wrote in our paper that people typically look over a range of 10% in house price. If a house has been on the market six weeks with active marketing, every buyer in that price range has seen the house. If it hasn't sold, it is overpriced and needs a 10% price reduction so it is offered to a new crop of buyers.

I usually see smaller price reductions than that, but if offering 90% and hoping to settle for 95% is unrealistic you need to be patient and let the seller find out what the house is worth. If it sells sooner, it is probably for more than you could spend.

Ross Millikan
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  • UK sellers don't use realtors, they use estate agents. Given an offer under 95% of the asking price, any competent estate agent would ask around anybody who viewed the house if they wanted to make a better offer. – Martin Bonner supports Monica Oct 21 '19 at 07:49
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Determine what's wrong with the house, and base your offer on that. When my fiance' and I were making an offer on a house we liked the realtor asked, "If you don't mind my asking, why is your offer so low?", with emphasis on "low" and a suitably horrified look as if we'd done something wrong. Because we'd talked this over I was able to rattle off half-a-dozen "problems" with the house - to which the realtor replied, "Well, I see you've done your homework" in an "I guess I'm not gonna get my full commission on this one" tone of voice.

Bob Jarvis - Слава Україні
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The best way to get an offer of 95% of the asking price accepted is to make lots of them. Someone will bite. Don’t fall in love with one particular house, because the chances that you will get that specific house for 5% off are not very good.

Mike Scott
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