In the world of home buying, low numbers are not usually a topic of conversation. The art of real estate involves facilitating the complex equation whereby a seller is satisfied by achieving a higher price and a buyer is thrilled with the bargain they have snapped up. The grey area in the middle that makes this equation work involves your real estate agent striking a delicate balance between timing and management of expectations.
From the buyer’s perspective, there are times when making a low offer is an acceptable approach. The term ‘renovators delight’ immediately comes to mind, however making a low offer can also be a good strategy in a buyer’s market, or in situations where you know the vendor needs to sell, such as a divorce or a deceased estate. If a house has been on the market for a while, or in fact numerous times in recent years, there may be value in further investigation – your low offer might end up being the best offer they’ve gotten in quite a while.
The question of why you would make a low offer, or how to make your offer more attractive when you’re stretched to the limit, is important as it will inform about how you make that offer strategically. Whether selling at auction or through private treaty (For Sale), the ultimate goal of the vendor is to sell the house, and there is usually more grey area in their intentions than the purchaser may realise.
Not all auctions are the same and although a vendor may have committed to the auction process, circumstances can and do impact on which way they proceed. If they have already bought their future home, getting rid of the previous one becomes more urgent as settlement dates loom - financial pressure can undo even the best laid plans.
In some parts of Australia, vendors may not be experiencing financial pressure but are grappling with the unfortunate realities of a buyer’s market. If there is uncertainty around interest levels from buyers and the market, the agent and the vendor may be much more open than you think to negotiate on their asking price, or to accept an offer prior to auction. Equally though, in the parts of Australia where it is currently a seller’s market, nervousness about the progress of an auction campaign can make a vendor keen to lock down a result, and reduce their financial pressure by accepting an offer prior to auction.
So, in the situations where you would make a low offer, how can you do so strategically and in a way that is appealing to the vendor and the agent?
1. Put yourself in the vendor’s shoes
The first and most important thing to do is to put yourself in their shoes. Making a low offer benefits you, but it has to be realistic to be even considered at their end. Secondly, give them confidence in your offer by providing proof of financing. Providing a letter that confirms you have been preapproved for financing legitimises your offer and reassures them that you are a genuine contender. Letting them know you can be flexible on settlement can help too. If a vendor is moving out of the family home, they may appreciate a longer settlement term giving them time to pack and move without pressure. Conversely they may be anxious to get into their new property and prepared to take a reduction in their selling price for the convenience of being able to close the deal and settle faster. If you want to offer a faster settlement than six weeks and there’s finance involved, make sure you check that your bank can move fast enough before signing a contract.
2. Consider releasing the deposit
There are a few options around the deposit that can also help improve the appeal of your offer. That 10% deposit will just sit in the agent’s trust account through to settlement, so why not be strategic and offer some flexibility that gets cash in the vendor’s hands sooner rather than later? Having access to a potential $75,000 - $100,000 of cash within days of contracts being exchanged can certainly help many vendors with current costs and expenses, so offering to release the deposit can sweeten the taste of the full price that you’re offering being a little less than they expected.
3. Put the cash on the table
Alternatively, you could present your offer on a signed contract with a deposit cheque attached. This is a sure fire way to let them know you’re serious. Both of these options are like putting a bag of cash on the table and regardless of whether you understand the vendor’s motivations to sell or not, they will at least know through your actions that you are ready to come to the party. Plus, the agent has good reason to be supportive of your offer – a bird in the hand is worth two in the bush. When the agent presents your signed offer on a contract to the homeowner, a deal can be struck immediately, if they sign the contract’s counterpart.
Releasing the deposit, of course, should be approached with care. Make sure you understand the ramifications of the deposit being released early and what could happen if things go wrong. A solicitor will be required to authorise the release of the deposit to the vendor, instructing the agent to transfer the funds to the vendor’s bank, so make sure whatever you have negotiated is clear and agreed upon by all parties first.
A low offer can thrive in times of uncertainty. Be sure to read the situation well and trust your instincts. In many cases you may find an open and honest chat with the agent may reveal a small piece of information that will make all the difference to the process. Remember, everyone is aiming for the same goal – agreeing a price and formalising the contractual agreement as quickly as possible. A friendly and reasonable approach may deliver a result that suits everybody in the end.