Buying a home is an exciting time in your life. After scouring the property market, you have finally found the house of your dreams. Yet, the biggest hurdle is still ahead of you: making an offer on a home.
There are all sorts of questions about putting an offer on a house. From “how do I go about it?” to “can I bid lower than the asking price?” We’ll address all your concerns so that you can confidently put your offer in and secure the property.
What Do You Need to Put an Offer on a House?
To put an offer on a house, there are three things you will need.
- A prospective property
Before securing your dream home and putting in an offer, you first need to find the property. House hunting can be a long-winded process. With house prices rising across Sydney, buying property might seem challenging.
- Pre-approval on your loan
You need to know your budget limitations in order to search for a suitable property. We’ll get more into how to secure pre-approval on your mortgage and why it matters later. If you want to get a head start on your home loan, get in touch with Lendstreet to find out how we can assist you.
- A buyer’s agent
Real estate agents are usually employed by the seller. Therefore, they do not have your best interests at heart and won’t be invested in saving your money. Hiring your own buyer’s agent might be an additional expense, but their professional advice will be crucial and will put you in a stronger position.
Do I Need a Lawyer to Make an Offer on a House?
While there is no obligation to speak to a lawyer or engage their help when you make an offer on a house, it is recommended. A lawyer or licensed conveyancer will look after the transaction and guide you through negotiations and offers.
Placing an offer on a house is a legally binding contract if it is accepted. A solicitor will help mitigate any miscommunications during this process. Plus, they’ll help you include contingencies in your contract of sale so you can pull out at a later date if you need to.
Your team of professionals – from the mortgage broker to your solicitor – will make the journey of buying a new home far smoother.
What Happens When You Make an Offer on a House?
When you make an offer on a residential property, the seller will consider your offered purchase price and return with one of three outcomes.
- They reject the offer.
If your offer is significantly lower than the asking price, the seller will likely reject your offer. You might need to rethink whether you can increase your offer or if the property is out of your budget.
- They counter your offer.
On the other hand, the seller might consider your offer and respond with a counter-offer higher than yours. You can use this point to begin negotiating a lower price that suits both you and the seller. You’ll need to consider your financial situation and what you can afford before beginning negotiations.
- They accept your offer.
Acceptance is the best outcome. If both the buyer and seller are happy with the offer, the agent will prepare the contracts and begin the exciting process.
How to Make an Offer on a House
With the help of a mortgage broker, buyer’s agent, and solicitor, your dream home should soon be yours. However, you still need to put in some of the work yourself. Here are seven tips to ensure your offer is successful.
1. Do Your Research
Hopefully, before settling on this property, you will have researched the house and the local area – for example, does it have good schools? You must take this research further before placing an offer on the house.
Firstly, take a look at other properties in the area.
- What are the asking prices?
- How much do they sell for?
- How long are they on the market?
It’s a good idea to look at about ten to twenty recently sold properties to ensure that you don’t overpay.
This will give you a good idea of the market value of your prospective home and how much you should offer. If it’s a slow market, you might get away with a lower offer.
Secondly, get to know the seller’s position. Why are they selling the property? Tailoring your offer to suit their needs will likely improve your chances of getting accepted with a lower offer than the asking price.
How long has it been on the market? Have they had any other buyers interested? If you understand your seller, you might be able to strike a deal.
The real estate agent cannot tell you other offer values, but they might be able to hint whether you should raise or lower yours.
2. Get Your Loan Pre-Approved
To prove to the seller and real estate agent that you are a serious buyer, you need evidence that you have the funds to pay for the property. To do so, you need to get your home loan application pre-approved.
Pre-approval, or conditional approval, is the first step in securing your home loan. Your mortgage broker or home lending specialist will submit your home loan application to a lender. They will then either respond with conditional approval or rejection. The former means that they will lend you the funds subject to your financial situation staying the same.
It’s worthwhile applying for pre-approval earlier rather than later. Not only will it place you in a stronger position with better bargaining power, but you’ll be able to conduct a more efficient house hunt with knowledge of your budget.
The lender will then offer unconditional approval when you have made an offer on the house.
To get your loan approved, speak to a mortgage broker for financial advice. You’ll need to share your credit score, deposit savings, and details of the property.
3. Talk to the Estate Agent
Many prospective buyers make the mistake of not showing their interest in the property until too late. If you find the perfect house but are not yet ready to make a written offer, say you haven’t got your finance approved yet, then you should still talk to the estate agent. Tell them that you’re interested in the property and would like to hear if any other formal offers are made.
This will allow you to make your own offer.
4. What About Contingencies?
Including contingencies in your written offer is where engaging legal advice is vital. As an accepted offer is legally binding, you don’t want to be tied into buying a property if your loan application is then rejected or the property building and pest inspection doesn’t meet your standards.
Contingencies are legally worded clauses in your contract of sale that allow home-buyers some room to back out. They are often personalised requirements, such as enabling you two weeks to view the property again before the contract becomes legally binding.
The most common contingencies are the subject to finance clause that enables the buyer to retract their offer should their finance fall through, relevant inspections and the home sale contingency. The latter condition ensures that the buyer can sell their current property first. A pest inspection and building inspections are crucial, so you don’t get any unfortunate surprises when you move in.
5. Conditions of Sale
Conditions of sale are what you want from the seller before you buy the property. For example, typical conditions of sale might be repairing or renovating the property. Or, you might request that the seller includes the light fixtures or other aspects of the property in the sale.
You should be willing to compromise with your conditional sale. If you’re offering far below the purchase price and also want the seller to make extensive repairs, then you are unlikely to be met favourably. If the seller proposes a counter-offer, consider your priorities.
To make your offer as appealing as possible, you should think about the relationship between the cost of your conditions and the amount you’re offering. If the seller is losing out, they will probably not agree to your terms.
Although, don’t let this put you off from conditional sales. If the property requires major repairs and you cannot afford them yourself or significantly raise your offer, perhaps reconsider whether it is the right property for you.
6. Consider a Personal Letter
The housing market, unlike many other transactions, can become quite personal. The seller is likely attached to their home and would like to know it’ll be in good hands when they move on. There’s no harm in sending them a personal letter, sharing some background information about yourself and why you like their home in particular.
In an exceptionally competitive area, prospective buyers need to do all they can to get a competitive edge. Similarly, it might put you in a better place to offer below the asking price if you make a strong case for why you want the property. For example, if it is a large house in a good area, you could stress that it’ll be a suitable and happy place to raise your family.
7. Think About Your Counter-Offer
Earlier, we listed the potential responses you might receive from the seller. Before waiting for them to reply to your offer, begin thinking about a counter-offer should your first be rejected. It is usually recommended that you make your first offer 5-10% below what you are prepared to pay to allow room to negotiate.
If your initial offer is too low or the seller doesn’t approve of your conditions, they might respond with a counter-offer. Preparing your own counter-offer before entering the negotiation process will help you consider whether their offer is within your budget or not. If you haven’t thought about your counter-offer, it might be tempting to accept their response.
It’s also important for potential buyers to prepare their counter-offer as you don’t want to leave the seller waiting too long during the negotiation process. By responding to you with another offer, the seller is letting you know they are prepared to sell to you under certain conditions. You don’t want to risk losing the property by delaying too long.
How Do You Negotiate Buying a House?
Negotiations might seem intimidating. However, strong negotiation tactics will help you stay ahead of the competition in the buying process and secure the property at a lower price than you would have otherwise.
- Be ready
It’s essential that you know your budget. You don’t want to get carried away with negotiations and agree to a price far higher than what you had anticipated. Consider your loan amount and what you’re actually prepared to pay. Even if your lender offers a high loan amount, can you afford to repay the mortgage over the next thirty years comfortably?
Your mortgage broker will be able to assist your budget planning and offer professional advice about what you should pay.
- Justify your offer
Why are you offering lower than they want? You need to find a justifiable reason to reduce the property value.
This is where you must do your research on similar properties. If local house prices are significantly cheaper, why is the seller of your prospective home asking for much more money? These sorts of justifications will make your negotiations far stronger and more convincing.
If other properties in the area all sold for a similar price to the seller’s offer, can you find something within the property itself? For example, a tired kitchen, damp in the bathroom, or an unkempt garden might all be reasons to justify your counter-offer.
Speaking to the real estate agent will help you frame your justifications in the strongest way possible to make your case.
- Tailor your offer
Question the real estate agent as much as possible about why the seller has put the property on the market. Their motivations for selling may influence their consideration of your conditions; you may be able to negotiate the contract of sale without raising the price.
For example, if they are selling because they have separated from their partner, they will likely want to sort out the sale quickly. Therefore, you should offer a short settlement period in your contract of sale.
Depending on the seller’s reasons, you can adjust the conditions attached to the sale contract.
- Be confident
If your pre-auction offer and negotiations are unsuccessful, then the property will likely go to auction. If you want to continue to try to get the property, you need to prepare. Attend a few auctions before the one you wish to bid in, so you are confident that you know and understand the auction process.
At the auction, stick to your budget. It can be tempting to get caught up in the event’s emotion.
During negotiations, you expect the seller to compromise on the house price. Therefore, you must be willing to compromise yourself. Whether this is by increasing your offer or waiving your conditions on the contract of sale, showing a willingness to compromise will work in your favour.
Can You Withdraw an Offer on a House Before It Is Accepted?
The buying process is not legally binding until the seller accepts an offer. Home-buyers have time to withdraw their offer with a written letter to the real estate agent before the contract of sale is complete.
However, if you do want to revoke your offer, then ensure that you do so quickly. If you waste time deliberating, the seller may accept your offer. It is a lot more costly and challenging to withdraw once your offer has been accepted.
Although, if you do want to back out after the seller has accepted, you might still be able to get out during the cooling-off period.
The cooling-off period is mandatory in most states. It allows the buyer several days to reconsider after exchanging the house contract. The cooling-off period is usually a five business day stretch. It’s also worth remembering that withdrawing during this period might come at a financial expense to the buyer.
Can You Bid Lower on a House?
Home-buyers can make a low offer on a house; however, they should be prepared to make a counter-offer if the seller declines. Most sellers are unlikely to go below 5-10% of the asking price.
Before submitting a low offer, you should organise a building and pest inspection to see if there are any reasons to lower the house’s value.
Plus, remember to think about the seller’s motivations; they might prefer a long-term settlement over the highest price.
However, by submitting a low offer, you risk losing the property to someone else who offers more. To maintain a competitive edge, make sure that you have your home loan approved.
What Should You Not Do When Making an Offer on a House?
When you make your initial offer, you don’t want to risk closing off potential negotiations before you even have a chance to make a counter-offer. Here are some key mistakes to avoid when making an offer on a house:
- Don’t offer an insultingly low price.
While we’ve been offering advice on lowering the property price as much as possible, remember that the seller is the one with all the power. If you offer a sum that is significantly below their asking price, then you risk making an enemy of them.
- Don’t get too caught up with the sale price.
Yes, you want to pay as little as possible for your new home. However, as the buyer, the difference of $10,000 or even $50,000 is less significant than it is to the seller. You’re likely paying for the property through a home loan, which you only have to repay in installments over thirty years. Of course, this doesn’t mean you should agree to pay any old sum, but it’s worth bearing in mind.
If the property really is the home of your dream and your home loan is large enough, consider whether paying a bit more is worthwhile.
- Don’t include unnecessary contingencies.
You might be tempted to make all sorts of demands in your sales contract. However, remember that any contingency comes at a cost to the seller. Only include what is absolutely necessary and be prepared to compromise.
Making an offer on a house can be a complicated process. From worrying about offering too little to overpaying for the property, there are all sorts of concerns to negotiate. The key, however, is not to let yourself get too stressed about it.
As we mentioned, with the right home loan, paying extra for your dream home might be negligible. That’s why it’s crucial that you speak to an expert in home loans. Lendstreet will help you organise a suitable home loan and prepare your budget in order to purchase the perfect property.
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What Are the Rules for Making an Offer on a House?
There is no right or wrong way to make an offer on a house. How you go about making an offer depends on your situation. In general, you should try to make the situation the best possible outcome for all interested parties.
What Is an Acceptable Offer on a House?
It is acceptable to offer anywhere between 5-10% of the asking price. Any higher, and you’ll needlessly overpay for the house and any lower, and you’ll risk being rejected. The seller may want to negotiate your offer, so you should always try to have a little leeway to increase your initial offer.
If you’re offering below the asking price, make sure to research the market, similar properties, and the house’s condition to ensure that your offer is justifiable.
How Do You Make a Strong Offer on a House?
Make sure that you have your finances sorted. A confident buyer is far more likely to be taken seriously by the seller and estate agent. It’s never too early to seek pre-approval on your home loans. Speak to a mortgage broker about organising your finances.
When you submit your offer, ensure that it is reasonable. Don’t offer too low below the asking price and go easy in the contingencies. Try to make your offer as appealing as possible.
How Much Should You Offer Over the Asking Price?
Sometimes you might need to offer over the asking price. Some real estate agents will recommend offering 1-3% above the asking price in a particularly competitive area. Of course, if this is the case, ensure that you seek professional advice about how much you should offer.
How Do You Make an Offer on a House That Is Overpriced?
Firstly, you need to establish that the property really is overpriced. Take a look at similar property prices to ensure that the seller is asking too much before making a lowball offer. If the property has been on the market for a long period of time, this might also suggest that the owner has valued their property too high.
When you make your lower offer, provide justification and, preferably, supporting proof.
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