Finding A Home: Making An Offer on a House

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It’s important to note that Beagle Street’s Home Buyers’ Guide is impartial. This section is not intended as advice on whether you should buy or not, or on what kind of offer you should or shouldn’t make. And it won’t tell you things like whether or not you should raise the stakes.

However, making an offer is when things suddenly get real so it’s important that you know the options available to you. This section is all about explaining what these options are. Of course, once you’ve made an offer, you’re not legally obliged to follow through – this won’t be the case until contracts have been exchanged and deposits transferred. But if you’ve found a property you love, you’ll want to get the offer stage right. This section should help you do just that. Here we’ll cover:

  • Factors to consider before making an offer
  • Deciding how much to offer
  • How the offer process works
  • Auctions
  • Negotiation options and revised bids

If you haven’t got time to visit various areas, you could speed up the vetting process with street viewer on Google Maps.

Factors to consider before making an offer

When you’re buying your first home it’s hard not to get wrapped up in a property and get carried away with enthusiasm for the purchase. This could lead to mistakes which could prove expensive in the long run. Here are some key things to consider:

What is your budget, and could you stick to it?

It’s easy to fall at the first hurdle: price. Setting yourself a budget is one thing, keeping to it another. One way of dealing with this is to set yourself a budget 10% under what you could potentially afford – that way, you might be less tempted to go beyond your financial ‘comfort zone’. After all, a decision to buy over your pre-agreed limit might not just impact your financial situation short term but long term as well. In cases where a property needs work, you might also consider whether getting a higher-than-anticipated offer accepted is worth it if it means you don’t have any money left over to make repairs and improvements.

Is the price fair?

As well as comparing the price of the property you want against the current price of similar properties, you could also check how much people have recently paid for similar properties in the area on websites such as Zoopla.

Does the area have everything you need?

You’re going to be living not just in the house, but in the surrounding area, too. To find out if it has everything you need – from schools and shops to parks and restaurants – you could take a walk or drive around to check it out.

Are you in a favourable buying position?

Factors such as having no chain (perhaps because you’re a first time buyer), and having a mortgage in principle, could put you in a strong negotiating position, especially if the seller is in a chain. If either or both of these factors apply to you, the seller may be willing to accept a lower offer – especially if the property has been on the market for a long time. Sellers who are not in a hurry to move are more likely to hold out for a higher price.

What is a chain?

The owners of the house you’re buying may also be purchasing a property themselves. And the owners of that property might probably be moving on, too. And so on. This ‘chain’ of buyers and sellers is very fragile, and ‘long’ chains often break.

This is one reason that first time buyers are in a strong position – they have no buyer ‘below’ them, so are ‘chain free’.

Street talking to Beagle

Deciding how much to offer

Even when you’ve considered all the issues related to the property itself and the area it’s in, it’s not always easy to know what to offer. Should you ‘go in’ at the asking price, above or below it? Here are some pointers that may help you reach a decision:

Ask about other offers

Although the estate agent could tell you if there are other offers, they shouldn’t (legally) tell you how much they are for. However, they may indicate whether or not other offers are close to the asking price – this could help you fix your own offer.

Offering below the asking price

Some people think that you should offer below the asking price as a ‘matter of course’. However, this could be risky – especially if it really is your ‘Dream Home’ – as you could be outbid by someone else making a more realistic offer. On the other hand, there may be very good reasons for offering below the asking price, such as:

  • There’s a similar property in the area that recently sold at a lower price
  • You’ve identified repairs or improvements that are necessary for the house to meet your needs
  • The seller needs to move very quickly
  • The property has been on the market for a long time with no offers

Are there factors which could make you change your mind?

It’s possible that you’ll see a house that you like but can’t make an offer because it’s a little above your budget. All is not necessarily lost, though. There may be problems with the property that you could use to negotiate with.

Offering the asking price (or more)

If there are other offers, you could consider putting in an offer above the asking price, particularly if there are no similar properties in the area currently for sale. In fact, competition is probably the main reason buyers pay over asking price.

A 2015 survey of movers found that 73% of buyers initially offered below the asking price and 66% ended up paying below it. Only 5% of buyers paid above the asking price.

Source: Which?

How the offer process works

So, you’ve decided that the property ticks all your boxes and you want to make an offer. Great! What’s next? Here we’ll look the different ways that you could formally register your interest at a price you’re willing to pay.

Making the offer

The most common way of making an offer to the seller is to make it through the agent. If you put your offer in writing, and make it clear that the agreed price is subject to a survey, you could still have the opportunity to change the offer if the survey reveals problems. Many people also make their offer subject to the property being taken off the market – this helps to reduce the risk of being ‘gazumped’. Read more about gazumping below.

A note on sealed bids

If a property is in demand, the agent may ask interested parties to submit their bid in a sealed envelope by a set deadline. Although these closed bids may seem different from ‘ordinary’ offers, they’re really the same in legal terms – a sealed bid isn’t legally binding, and either the buyer or seller could withdraw from the process at any time before contracts are exchanged.

Deciding how much to offer in a sealed bid is tricky. If your offer is too low, you may lose out to another bidder, while if it’s too high, there’s the risk that you’ll pay more than its market worth. This means you might not get your money back when you come to sell the property. There’s also the possibility that your mortgage lender could value the property at less than your bid, meaning that you have to find the extra money (or withdraw altogether).

To help maximise your chances of being the successful bidder, you could consider using your bid letter to:

  • Demonstrate that you could afford to buy the property by enclosing your mortgage agreement in principle.
  • Emphasise anything that might give you an advantage over other buyers (for example, being chain-free or a cash buyer).
  • Show that you’re ready to move things forward by including details of your solicitor.

When making a sealed bid, you could avoid offering the same as someone else by not using round numbers. So, for example, you could offer £225,580 instead of £225,500.

Auctions

Over the past few years, more and more houses have been bought at auctions [1]. There’s no doubt that they might have real advantages for both buyers and sellers, but there are risks, too. Here, we’ll take a brief look at some of the possible benefits and risks of buying a property at an auction.

Why buy at auction?

  • They’re a great way to avoid the traditional house buying chain. One benefit of this is that, as soon as the hammer falls, the sale is binding. This means there’s no risk of everything falling through at the last minute.
  • Sellers are usually looking to sell up quickly – so prices tend to be lower than the open market. You could pick up some real bargains.
  • The auction is a transparent process – you see all other bids, so there’s no possibility of being gazumped.

Before buying at an auction?

  • Know what you’re buying. Unless you’re aware of any problems with the property, it could end up costing you a lot more than you bargained for. It’s worth considering a home buyer’s report and a structural survey. If the auctioneer has a legal pack for the property, make sure you scrutinise it. You could also ask a solicitor to look through it for any hidden covenants or loopholes.
  • Make sure your finances are in order. If you need a mortgage, make sure it’s arranged before the auction. This is because, as soon as the hammer falls, you’ll have to pay a deposit (usually 10%) then you’ll only have a month to pay the balance – if you can’t you could lose your deposit, as well as the chance of buying the house. You may also have to cover the costs of re-selling the property.

Ask a builder or an architect to accompany you to viewings, so you have a better idea of how much it could cost if you end up owning the property.

What’s the cost of buying at auction?

You’ll have to pay:

  • The auction house administration fee (typically between £200 and £3002
  • Your solicitor or conveyancer
  • Stamp duty
  • Insurance (payable on signing the contract)

Gazumping is falling in Britain. In 2014, nearly 25% of new homeowners had been gazumped, but this figure had fallen by 13% in 2015 – a reduction of over half. [3]

Original source: eMoov

A note on gazumping

In English law, no offer you make is legally binding until contracts are exchanged with the seller. This leaves the way open for a vendor to accept your offer, only to reject it later, in favour of a higher bid. If this happens to you, then you’ve been gazumped.

It’s an annoying and frustrating position to be in. So, what could you do about it? The answer, unfortunately, is not much. If it happens, you might be able to persuade the seller that you’re in a better position (that you’re chain-free etc.) than the gazumper, but if you can’t, all you could really do is put it down to experience. However, there are some things you could do reduce the chances of it happening again, when you next make an offer. These include:

  • Once your offer is verbally accepted, insist the property is taken off the market and no more viewings take place
  • Make sure you’re in a strong position to exchange quickly
  • Press for a fast exchange of contracts

Negotiation options and revised bids:

What happens if you’ve made an offer and your survey reveals problems with the property that you hadn’t previously spotted? Or if your lender’s valuation is lower than your offer? Is it best to withdraw your offer, or amend it?

This completely depends on how much you want the property – you are under no obligation to take either course. If you walk away, though, you’ve lost the cost of the survey, so it might be worth your while to get quotes (the norm is to obtain at least two) for putting things right and use these figures to renegotiate. If the seller also wants to do a deal, it’s often possible to find a mutually acceptable price.

If you suspect a serious issue with the house, the seller might be prepared to pay for a structural engineer’s report. This may help you make an informed decision. Remember, though, that in this case you might not be able to sue the engineer if the report was subsequently found to be incorrect.

Next steps

So, you’ve made an offer. Great! If it’s accepted, you have an exciting time ahead of you. And possibly, if you’ve never been through the property buying process before, a slightly scary time – there are just so many things to think about, and to do!

But don’t worry – as long as you’re prepared for what comes next, it’s likely to go smoothly. And that’s the point of the next section of this guide – to prepare you for what comes next. We’ll look at the purchase process in some detail (so you’re fully aware of how you could help ensure things do go well) – and the kind of things that might go wrong. Go to the Purchase Process now!

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Finding A Home – What To Look Out For

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Buying – The Purchase Process

Appendix

  1. Property Auction Action – Selling property at auction
  2. RICS – How to Buy a House at Auction – 5th January 2016
  3. The Telegraph – Britain’s new gazumping capital – 22nd August 2015

Sources