Should I pay the asking price for a house or flat?
OK, this is a tricky one. You've seen a property that you want to buy, should you offer the asking price to make sure you get it or are you overpaying? Well actually that's no guarantee that you will get the house or flat. I'll explain when you should and when you shouldn't pay the asking price.
What's your motivation
Let me start with a couple of true stories. The first was a house that was on the market for £1.1 million. Two people made offers on the property so it went to sealed bids. The highest bid was £2.1 million.
I asked the guy who made the bid why he had gone so high. There was no house in the area that was worth anything near that figure. He said this:
"That is the house where I want to raise my family over the next twenty years".
His motivation, and considerable wealth, was to get that house no matter what. Pay the asking price? Hell no, pay twice the asking price.
The second story is about a friend of mine who asked me to look at a one bedroom flat he was thinking of offering on as a Buy to Let investment. He asked me if he should offer £5,000 less than the asking price.
The market was buoyant at the time and I was convinced the area was up and coming, for reasons which I explain in my book. I also knew my friend was looking to hold onto the property over the long term. This was my advice:
"Make your initial offer £5,000 below the asking price but be prepared to move up to the asking price quickly while at the same time demanding that if you do pay the asking price the estate agent will stop showing other buyers the property. If you don't you will probably be gazumped and anything you have paid for solicitors and surveys will be lost. In 10 years time when this property has doubled in value that £5,000 will be neither he nor there."
10 years later the property had doubled in value and he often quotes that advice back to me as something he never forgot.
OK - now I just want to be really clear about this. Not every property will double in value. You have to know the market in an area and I explain how you can do that in my book.
My point here is - what is your motivation?
If the property is something you could take or leave - depends if you can get it for the right price and the right price is below the asking price then don't pay it. If you just simply want that property then pay it but get something in return.
Paying the asking price to get your way
This is how I normally do things if I can see the property is worth the asking price or even if the asking price is a little but over what I think its worth. Remember I buy with a ten year plan so overpaying a little doesn't make a huge difference in the great scheme of things if I've got my general predictions right.
But ... I'll never offer the asking price initially. I'll go in a few percent lower with an offer I'm almost convinced will be rejected.
Then I'll go back with a higher offer, possibly the asking price, but with demands attached. Demands the vendor probably always thought he was going to offer anyway:
- The property gets taken off the market for six weeks, the seller must tell the vendor he doesn't want any viewings during this time.
- What I expect to be included - carpets, kitchen, bathroom fittings
I might also include something else as well. Perhaps I'm buying to rent and I saw the property had 2 decent double beds as well so I'll ask for those to be included if I'm paying the asking price. You'll have to use your judgment and maybe be prepared to get knocked back on a couple of things but getting the house off the market is crucial to minimize the chances of getting gazumped.
Now the vendor probably thought he was going to do all or most of these things. They probably thought they were not going to have more viewings (although this shouldn't be the case). He or she probably was going to leave the kitchen and carpets and bathroom fittings so he or she will probably feel quite pleased with themselves that they got the asking price by agreeing to what they would agree to anyway.
Not paying the asking price
There are times when I won't pay the asking price. When you're out viewing you really want to get a vibe for what the vendors situation is and estate agents often say far more than they should. I'll also be looking for clues as to how the local market is at the moment. Estate agents will always try and talk things up but if you really get chatting to them they let things slip.
Thats why I try to meet estate agents at their office and then go with them in their car rather than meet at the property. Lots of time to chat and get the vibe.
If the seller has found a property and made an offer themselves they'll be motivated and if the market isn't frantic that's a good sign that there is a deal to be done. They might want £100,000 but if my £90,000 is the only offer on the table and with every day that passes they might lose the house of flat they want then they'll find a way to cover that missing £10,000.
They might get a slightly larger mortgage or renegotiate their offer up the chain. Either way I've got a good deal.
I'll still have made an initial offer I know won't be accepted and I'll be making the same demands about halting viewings when I come up but thanks to things the estate agent let slip I won't be paying the asking price.
Sell yourself big time
If you're offering the asking price the vendor is generally happy about things and won't be looking at you too closely. But if you're paying under the asking price you'll get a better deal agreed if you sell yourself as a buyer.
So when you make the initial offer make yourself sparkle. Explain how you are going to finance the purchase and provide evidence - a bank account statement and, if you need it, an agreement in principle from a lender.
For a seller who is motivating to sell it will help them talk themselves into accepting your offer - "Well its not as much as I hoped for but their prepared and able to buy now so maybe....."
Estate agents should ask your for these documents but many don't. If they don't present them and make it clear you want the seller to know they have been provided. Subconsciously it usually even gets the estate agent to talk about you more positively generally.
It blows my mind when I hear estate agents asking for bank statements and Agreements in Principle and the buyer gets all defensive. If you don't want to show all the cash you have in the bank just open a another bank account and transfer the funds you do want to show in there. It takes minutes and if the bank has annual costs for maintaining that account well just close it down after the property purchase.
So, pay the asking price?
Its all down to your motivation, the current market and the vendors situation. Weigh these three things up and you'll come to your answer.
For the full low down see Chapter 15, How to Really Make an Offer on a Property.