How to make an offer, a first time buyer’s guide
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If you’re buying a property in London for the first time, welcome to the British outpost of the Wild West. Luckily, we’ve enlisted buying agent Henry Pryor, one of the most experienced sheriffs in town, to help guide you through the process of putting an offer on a property and, more importantly, getting it accepted.
Before you offer
1. We’re now in a buyers’ market
First for the good news. The balance of power in the London property market is now in the buyer’s favour. Rightmove lists 1,925 properties for sale in Camden this month. But Land Registry figures show an average of 166 homes per month sold in the borough last year – less than a tenth of the properties for sale. Gone are the days where agents offered viewings for one hour on a Saturday and you went round with 30 people. You have the ability to debate terms.
2. Mind the price gap
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In November 2016, the most recent month with all data available, the average asking price for a home in Camden was £1,174,095, while the average sold price was £872,390. That’s just over £300,000, or 29 per cent difference between what sellers wanted and what buyers actually paid. This shows that a home is worth what a buyer is prepared to pay for it, not what the seller wants to get. The asking price is a combination of the owner’s greed and/or the estate agent’s enthusiasm to get the business, it is not a benchmark of what a house is worth.
3. Be prepared to haggle
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Brits find it very embarrassing to haggle but estate agents do it all day long. Man up, otherwise you’re going to pay for the privilege of being embarrassed to negotiate. The National Association of Estate Agents said that 84 per cent of homes sold in December 2016 sold for less than the guide price. If you’re paying the guide price or more in 2017 you’re almost certainly paying more than you should.
4. Have evidence to back up your bid
There’s a lot of information out there. If you’re buying in Camden, Haringey or Barnet you’re lucky to have a reliable local property resource in the Ham & High. The Land Registry is also a good place to check how much comparable properties in the same area have sold for recently. You can use the information to say either “I’m offering more than the people this time last year,” or “I’m offering less because the market’s fallen by 10 per cent since then, or because this house needs money spending on it and the other one didn’t.”
How much to offer
5. Look at the yield
One way to make an objective calculation of what any property is worth is to work out what the rental yield (the return on your investment) would be. This works regardless of whether or not you ever intend to let the property out. Find out how much rent for the property would be from the agent then work out the annual figure (multiply by 52 if they offer a weekly figure, 12 if monthly). Divide the annual rent by the asking price and multiply by 100 to get a percentage. Investors want a yield of at least six per cent. If the yield is closer to three or four per cent, which is a typical figure for central London, then you’re offering too much. What yield doesn’t do is work out how much subjective things that you can’t value are – the view from the kitchen window, or the proximity to your mum – but it will show you what it’s worth objectively before you get carried away and fall in love with it.
6. Talk to other agents
Talk to other local agents who might have pitched for the business. Maybe they valued it lower than the agent you’re dealing with and they can give you reasons why.
7. Negotiate any extras when you’re making your offer
If your offer is to include any extras like carpets or curtains, now’s the time to negotiate it. You might offer to pay the asking price, or increase your offer slightly in exchange for furnishings and you could end up with £10,000-worth of kit. The seller might have been planning to leave the things you want anyway so it might not cost them any money but could help the deal get done. Don’t come back to them later with a list of requests.
How to offer
8. Stress what a great position you’re in
You are that most coveted of assets, a chain-free buyer; you don’t have to sell anything in order to buy. If they want the money, even if it’s a bit less than they’re asking for, they can have it by the end of the week. That can be a significant redeeming feature of a low offer.
9. Repeat after us: the estate agent is not acting on your behalf
They are not a broker, they are an agent, and they’re not acting for you. Don’t tell the estate agent more than you need to. If you tell them up front that your parents might chip in for the right thing, they will squeeze you for that extra £30,000 – their job is to get the most out of you, not to get a fair price out of you.
10. But do play ball with the agent
What you’re trying to do here is to get the agent to stop being an agent and start being a broker. They’re paid by the other side but if you can, corrupt them. Some agents want to look like they’re earning their money so you could lay out the top figure you’re prepared to bid up to but offer to bid lower at first so the agent can appear to be negotiating you up to a better price. You could say: “I would be prepared to offer £475,000. Do you want me to start at £425,000 and you can push me up?” Remember, he or she gets paid for doing the deal, not for giving good advice. Offer every opportunity for them to make some money by doing a deal.
When you offer
11. Find out when the estate agent’s targets are calculated
Many London agents get paid entirely on commission because the market is so difficult at the moment so if you can, try and find out how and when your agent gets paid. It may be possible to get a better deal if buying at the end of the month/quarter/financial year when the agent is trying to meet their target and might get their commission or not based on your offer.
12. Confirm that your offer is subject to contract and to survey
When you’re making your bid you want to confirm that it’s subject to contract so under UK law you can walk away from it without any consequences. You want to make sure it’s subject to survey and, if you’re getting a mortgage, it will be subject to a mortgage valuation.
13. Get a survey
A structural survey or at the very least a homebuyer’s survey is very important. Is HS2 going to go burrowing underneath the building? Does the flat have rampant dry rot? Do all the windows in the house need replacing? These things ought to be checked after you make an offer (subject to survey) and before you exchange contracts. If the survey does uncover a problem that will cost you money once you’re the homeowner, you can go back and drop your offer.
14. Confirm everything in writing
Follow up every conversation you have with everybody, whether it’s to a lawyer, a mortgage broker or an estate agent. It’s boring but you can do it easily by email off your smart phone. When you’ve made an offer, send an email to confirm that you’ve made an offer and how much for. There’s less opportunity for people to forget or misunderstand something.
15. Don’t be afraid to walk away
There are 25 million properties in this country and there is more than one with your name on it. Although it may feel like you’ve been looking for half your life, don’t be pushed, don’t be rushed and don’t be frightened of walking away. You can do this right up until you’ve exchanged contracts. You’d be amazed how many people come back and say “you know that derisory offer you made a couple of weeks ago? On reflection could we take it?” That said, you don’t want to get a reputation for being unreliable so don’t use this as a strategy. There are enough people who’ll let you down, don’t add to it.