After what seems like years of searching, you’ve found your dream home. It’s in an area you like, has enough bedrooms and despite the questionable décor, is something you can work with. The problem is the price! If only you could shave a few thousand, or even tens of thousands, off the asking price.
How do you go about making a credible offer, one that is not going to make the vendor or agent immediately dismiss you as a timewaster? How can you maximise the chances of securing the deal, at the best price, even if the idea of haggling makes you squirm? Here are the things you need to think about to negotiate the best price when buying a house.
How much can you afford and what is your maximum offer?
The first and most important factor in any negotiation, is working out both what you can afford, and what your maximum offer would be. These are two subtly different questions. What you can afford is the sum of your deposit, mortgage offer (or agreement-in-principle) plus any savings you might have. The problem with paying this figure for a house is there will be nothing left for decoration, furnishing, repairs and unforeseen expenses, which will inevitably come.
First do a rough calculation of how much money you will need for those other items, decorating, furnishing, moving and legal costs etc, and then add a bit extra, so you have a safety net. This gives you the maximum amount you could offer to buy the actual house. This second figure will vary from house to house, depending on condition and what is included in the sale. Working through both these figures in a realistic manner will give you a great start for some serious negotiating. However, the maximum you could offer is not the same as how much you should offer!
How much is the house worth?
Next, you need to figure out how much the house is worth. Looking at the recent sale price of similar properties, or houses in the same neighbourhood is a good start. You need to think about the overall housing market at the time, is it booming (prices going up) or starting to cool down (houses are beginning to take longer to sell)?
The question should really be “what is the house worth to you”, as there is no absolute valuation. You may adore the recently redecorated orange lounge and retro kitchen vibe, in which case the value of the house (to you) will be higher, as you have less redecoration to do. On the other hand, the brand-new decking, which the vendor thinks adds thousands to the value of the house, might be the first thing you would rip out.
If you suspect there might be structural issues with a house, or obvious repairs that need doing, make a list of these, together with a rough cost to remedy them. This might come in useful later in the process, when you explain the rationale of an offer.
What is the seller looking for in a buyer?
This is a step often missed out, however it is key to successful negotiating. What does the seller want to see in an offer? It could be they want or need a quick sale, as they are in the middle of a chain they don’t want to collapse. The house might have some sentimental value, and they would like to see a ‘nice young family’ move in. Equally the vendors might just be holding out for the highest offer they can get and don’t care how long it takes. Often, the estate agent can help answer some of these questions, which is why it’s worth making friends with them and demonstrating you are both keen and serious.
What advantages do you have as a buyer?
Knowing your strengths (and weaknesses) as a buyer comes next. Do you have a mortgage lined up, ready to deploy? Do you have a house to sell or are you a first-time buyer? Are you happy to fit your moving schedules in line with those of the vendor? If the vendor says ‘yes’ how quickly could you get everything ready to go?
Making sure you have a mortgage agreement-in-principle (also known as a decision-in-principle, ahead of making a purchase price offer to the vendor, is vital. Without one, it is unlikely your offer will be taken seriously as there is too much risk involved. Make sure you have a good mortgage broker on your side too!
One often overlooked advantage you might have in negotiating, is if you are genuinely happy to walk away and look for something else. This can put pressure on the vendor to take your offer more seriously, knowing that you have the ability to take it off the table if it is rejected, rather than increasing your offer.
How to make the initial offer
This is where clarity of communication comes into play. The offer is more than stating an initial amount you are willing to pay. You should include who you are, what your timeframe is, what you have in place (mortgage agreement-in-principle, solicitor, deposit etc), whether you have a house to sell (in which case do you have an offer on that already), the conclusion you have come to about the property (work needed, state of the market) and if your offer is contingent on anything, such as a survey.
The best way to communicate this is via an email, so all the facts are in one place and clear to both sides. Get someone else to read through it first, to make sure it is both clear and reflects the facts. You might want to let the estate agent know the email is coming in.
The price of your initial offer is often lower than the maximum amount you would be prepared to pay. If you have a really strong ‘hand’, for example you are cash buyers who could move in immediately, then there is very little to be lost in making your initial offer significantly lower than the asking price. If, however, the asking price is in-line with that of similar properties, and you have an existing house to sell, a very low offer might be seen as not credible, or that you are not serious. An offer of around 5-10% below the asking price is often the sweet spot for an initial bid but this will depend on how strong the market is – lower offers are much more likely to be declined if house prices are rising sharply.
How to negotiate to get the best price
Don’t be discouraged if the first offer isn’t accepted, they very rarely are. A rejection is a good opportunity to go back to the estate agent and find out why the offer was rejected. Reasons might include that a better offer has already been received, or the vendor is looking for a faster sale, etc. Ask questions such as “would the vendor accept the offer if we had already sold our house?” Once you know the real reason for the rejection, you can decide how best to proceed and put in a second offer.
If a second offer also gets rejected, one option is to ask the vendor to come up with a counter offer. You don’t have to accept it, but it may help break the deadlock. Remember that good negotiation is not about being aggressive or ‘winning’, it’s about getting a deal that both sides are happy with. If no agreement can be reached, politely walk away, and use what you have learned to help with the next house you look at. And remember, if the house you wanted does not sell, you can always come back in a few months and start the process again, knowing that the vendor will have learned something too!
How can Key Solutions help?
Here at Key Solutions, we believe taking out a mortgage should be easy. Our dedicated team is here to help take the stress out of buying a home, and helping you turn your dreams into reality. We believe everyone deserves the highest quality financial advice, no matter what their circumstances.
To find out more about how Key Solutions can help you get the home of your dreams, please get in touch. We would love to hear from you.
