Is an offer 5% less than the asking price too low? I don't want to be disregarded by a too-low first offer…
not at all, but i would recommend having a look at sales history in the area and finding out what the average discount is, have a look at http://www.investsmart.com.au find the suburb, click on it and there should be a discount % there.
my last property was advertised for $189k i offered $150k and eventually got $163 about 15% probably could have got more
You can offer what you like! You could offer 20% less if you wanted to. It may not be accepted, but you never know.
It is handy to know why the vendor is selling. For instance, if they are moving house and have already bought and committed financially to the new house, they might urgently need funds from the sale of their current house (which you are thinking of buying). In this case, urgency might cause the vendor to consider a lower offer. Or maybe it is an elderly couple that is downsizing, and they don't actually need full asking price. Or maybe it is an elderly couple that would consider taking a portion of the sale price now, and will "loan you the remainder" for which you'll pay them interest a little above what their bank account would earn. This is known as vendor finance.
Try finding a polite way of asking the question of why the vendor is selling. You could also subsequently ask the agent if the vendor would consider an offer. If you make an offer, the agent is, by law, required to inform the vendor of your offer. If you wish to make an offer, be very clear (for eg "I would like to make an offer of $x. Could you please notify the vendor of my offer." The vendor can then say no to your offer, or they might ammend their price a bit, or they might hold steady and insist they are waiting for the asking price. Either way, negotiation is not necessarily over here. You could make your offer, they could say no, you could say oh well, that's all I can afford, but I am ready to go with finance. Do keep in touch and let me know if the vendor should have a change of heart. The vendor might panic a bit after a couple of days and decide to accept your offer after all. You just never know. They won't give you a discount if you don't ask, that's for sure.
Jacqui Middleton | Middleton Buyers Advocates
http://www.middletonbuyersadvocates.com.au
Email Me | Phone MeVIC Buyers' Agents for investors, home buyers & SMSFs.
Great piece of advice JacM.
I will tell a little story of my last purchase.
It was a unit, listing for 258k, and i wanted to offer, 240k, the agent said " no no, that is far too low and he has already refused offers under 250k" So, silly me, i wanted the unit bad and when the agent told me that she had pple comming to put their offers the next day, I swallowed that hook line n sinker. The thing is, 3 weeks later, after i have done the building report and the strata report, and my head had cooled down, Bank valuation came in at 230k, I was so shocked, and i told my solicitor taht i would recin the contract, (i wasnt going to pay 20k more for the place). I was hard and tough, I was going to throw away the money that i have spent on the checks done. But to my supprise, the vendor did come back to me, at 238k as a final offer, My solicitor and i looked at each other, and I decided to go ahead with the purchase. Happy Ending i got a further 12k discount and good monthly cashflow.Moral of the story- be patient and cool headed when buying investment property.
There's some great advice there Dreamer, and I believe an offer should always be for what you believe to be the right price. And that "right price" should be determined by research. And, if possible, that research should be unclouded by emotion. I have bought property before without knowing the vendor's expectations. But I did understand my own expectations. I guess I may have paid more (or less) than the vendor expected, but that's okay.
TCL Investor
Did you manger to get your 6 positive cash flow properties??
Very interested to hear
Marie
Hi Dreamer
The guys above have given some great advice.
I'll also add one thing. It's important to not lose crediblity with the agent you're dealing with. From my experience, the quickest way to lose it is by placing a ridiculously low-ball offer. Not always, but most of the time they'll just view you as a tyre kicker.
That said, I'd never offer asking price (and I'd do my own due dilligence to ensure that asking price is somewhere near what the property is actually worth). When placing my offer, I take into consideration the vendors motivation for selling (as JacM mentioned above) and provide evidence (such as recent sales in the area) which help justify the offer that I've come up with.
Cheers
Jamie
Jamie Moore | Pass Go Home Loans Pty Ltd
http://www.passgo.com.au
Email Me | Phone MeMortgage Broker assisting clients Australia wide Email: [email protected]
Hi Jamie, great advice there. As an example, my offer was 5% under asking price, and this was based on the past 3 months of sales in the same and surrounding suburbs for properties similar to what I was going to purchase (2 bed/1 bath/1 car space) as well as looking at 3 bed houses for comparison as well (No 3 bed units built in the era within that suburb.). It wasn't realistic for me to go lower than 5% under asking based on this evidence. They dropped their asking price, no one else showed and interest, so they ended up calling me to see if I was still interested in the property and accepting my unchanged offer, providing early access to plan renovations and commence demolition once the existing tenant vacated.
wwc_1980 wrote:Hi Jamie, great advice there. As an example, my offer was 5% under asking price, and this was based on the past 3 months of sales in the same and surrounding suburbs for properties similar to what I was going to purchase (2 bed/1 bath/1 car space) as well as looking at 3 bed houses for comparison as well (No 3 bed units built in the era within that suburb.). It wasn't realistic for me to go lower than 5% under asking based on this evidence. They dropped their asking price, no one else showed and interest, so they ended up calling me to see if I was still interested in the property and accepting my unchanged offer, providing early access to plan renovations and commence demolition once the existing tenant vacated.
Yes this is how you do it. You can't pick a % and discount by that amount. It's about research and knowing what it's worth.
I saw a house that was really cheap. Rang up and raced out there only to have someone beat me there by an hour. They looked and signed. The agent was an out of area agent and had no idea of the value. So the asking price is irrelevant really. I'm sure you've all seen places way over priced also. Lots I see I wouldn't buy with a 10% discount because the vendor has set an unrealistic price.So research, know what it's worth to you. Offer that. Tell the agent "I am submitting an offer of $?? based on my research that the house has small yard, 3 beds, needs new kitchen etc". Then you don't sound like you have plucked a figure from the air. The vendor may begin to see that the property is not perfect and be realistic. If you have other properties that you are considering. Tell them that. Name them. Say why they are better or if not better, that they are cheaper etc.
With investing it's about numbers. Leave the emotional purchases to the PPOR buyers.
Look at values rather than percentages. I bought an IP some years ago – 17% discount on initial asking price. INitial asking price was still good value.
IP a few years later. I assessed the value at $X, passed in at auction. Later that year I purchased for about 2/3rds of $X. 7 years later property now worth between 2 and 3 times $X, grossing 1/3rd of my purchase price. Industrial property badly managed by Vendor.
PPOR listed at offers between $245-$265, offered $230. Purchased at $237 Sellers had found a hobby farm they loved where the vendor to them was willing to reduce his price.
Property listed $369, offered $305, purchased $320. Vendors selling to build a new house for retirement.
For an employer we wanted to buy a commercial property at auction. We assessed value at $Y, rocked up to auction, I was the only bidder (in fact the only person there besides the agent and auctioneer). They said the reserve is 2/3rds $Y and we can sell it to you now. I said you drive a hard bargain and knocked them down in the rush to sign. Between our use of the premises and tenants I had lined up for the excess space we were getting an itial return of just under 1/3rd of the purchase price.Don't feel embarrassed about offering a particular figure.
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