Negotiation advice

LitBill

Hi,  

Some guidance on negotiating the purchase of a house would be appreciated.

I am in a position to proceed after the agreed sale of our current home which puts us in a good position to start negotiations. 

The house we’re interested in is in a desirable location in a town which seems to be in a bubble where house prices only seem to be going up. 

It is valued very highly and the asking price is way above anything similar in that spot and in the town. The last sale I can find of a similar house on that street was last year but about 15% less than what they are asking for. The house also needs lots of work to modernise and make it energy efficient.

I’m about to go for a second viewing to really understand what work needs doing to help my budgeting.

It’s been on the market for 3 weeks and from what I can gather not had masses of interest or any offers. The vendor is looking to downsize, I’m not sure yet if they’ve found anywhere.

What are your thoughts re: opening offer? Is there a general rule of thumb, say dropping the offer in at 10% below asking? This would be a reasonable price to pay, I think they’re really chancing their luck with the asking price.

seradane

There isn't really a "rule of thumb" because just because the property has been listed at a certain amount doesn't actually say much about what it's actually worth. Maybe the vendor is delusional and thinks they can get way more than they can. Maybe they're keen for a quick sale and so have underpriced it. The only way you know is by comparing it to other properties currently for sale and what's sold recently.

That being said, just from my (completely anecdotal and instinctual) experience, 10% below seems to be the minimum figure that the vendor is likely to initially entertain - unless there's some special circumstances. Obviously there are plenty of houses that have been reduced by more than 10% in the end, but if it's new to the market then it's likely the vendor is going to want to get a price in the ballpark of what they've listed (that is, after all, why they've chosen to list it at that price) so aren't likely to immediately accept an offer that's lower than that.

So in your case, you've got to figure out what you're willing to pay for this property. If that max price is 10% under or less, then of course you can make that offer, but be prepared that you'll likely be turned down - and may just have to wait until the property has been on the market a while with minimal interest before they come back to you (if they ever do).

OldMusicGuy

Keep it simple. Work out the maximum you are prepared to pay for the house (the point at which you will walk away) and start below that. How much below depends on how much you want the house, and how much you want to risk upsetting the vendor (and thus having them refusing to deal with you). Most people would view an offer within 5% of asking as "serious", but you can offer anything you want. If they reject your initial offer, make a higher offer but don't go up in penny packets. You can always leave your "best and final" offer on the table. 

We sold our house to downsize last year. We started off at the high end of the valuation range to "test the market". We had lots of interest but no offers, so we dropped the price and then accepted an offer that was 4% under the revised asking price. We were keen to be realistic about the selling price at that stage because we had found a place we wanted to move to, so did not want to wait. We could probably have got more if we had been prepared to hang on.

The issue you have right now is that you are only 3 weeks in and if the vendor doesn't have a place to move to, they won't feel under any pressure to reduce the price. Your "logic" about why it's only worth xxx is irrelevant to the vendor (so don't waste your time telling them). It's only when they really want to move that they will become more open to negotiation. Also, if they are downsizing, they will be looking to realise some equity. Once they know the cost of the place they are buying, they will know if they can drop the price on their place. We had a figure in mind that we wanted to realise, so once we knew the cost of the place we were buying we could work out how low we were prepared to go with our selling price.

So IMO you are a bit early in this process for the vendor to be ready to negotiate. Don't be surprised if they try to hold firm to their asking price at this stage.