How to make an offer at fair value?

ncmscnc

We are looking for a single bedroom freehold place with a guide price, which the EA says is the asking price at £270k. 

How to know if that is a fair price?
Do people usually offer 10% more than amount? That’s a lot at £27k

I mean we can try an hover around FV at 1 or 2% understandably. 

Would appreciate any tools if you could share with us please such as websites, calculators, registers etc… which we can use to understand the value of the place before making an offer. 

We are FTBs within M25. We can buy two houses for this price elsewhere but that’s a discussion for another time

user1977

Mainly, you look at recent sold prices for similar properties.

MaryNB

Have a look at the sold (not SSTC) prices of similar properties in the area. There will be a lag of a few months but they're more accurate than SSTC numbers (these don't reflect the actual offer, or final sales price). 

How much demand is there? Are there a lot of offers on the property? 

It's a bit of a seller's market at the moment in many areas of the country. A lot of places are going for over asking. However, I would never offer above asking on the first go unless they already have an offer above asking. When I offered (when it was a buyer's market) I offered about 5% under and then got with my second offer which was a shade below asking. 

Set a max offer you are willing to go to before your initial offer. You don't want to get caught up in a bidding war only to get cold feet later on. 

Be careful offering above asking. If you have a high LTV you may not be able to withstand a downvaluation by your lender. 

ncmscnc

MaryNB said:

Be careful offering above asking. If you have a high LTV you may not be able to withstand a downvaluation by your lender. 

Thanks. 

What's down valuation by lender please?
Is it what I think it is? Lender they just fix a price and say only lend up to £260k and the we have to pickup the rest in cash?

user1977

ncmscnc said:

MaryNB said:

Be careful offering above asking. If you have a high LTV you may not be able to withstand a downvaluation by your lender. 

What's down valuation by lender please?

It's the lender disagreeing with your assessment of the value. Or to put it another way, they think you've over-valued the property.

brasso

Personally, I wouldn't offer over asking price without good reason. A good reason we had recently was a house that was clearly being put on at below normal market rate, and that had more than 40 viewings booked within a couple of days. The EA told me that the final sales price would be at least 50K over the guide price. We put in an offer of nearly 70K over but were still outbid. 

If this house hasn't got a very obvious reason to over-offer then I see nothing wrong with going in at the asking price. If other people offer the same, or if there is very high interest in it then it's likely to go to best-and-final-offer stage. That's when to over-offer (if you really think it's worth it).

propertyhunter

ncmscnc said:

MaryNB said:

Be careful offering above asking. If you have a high LTV you may not be able to withstand a downvaluation by your lender. 

Thanks. 

What's down valuation by lender please?
Is it what I think it is? Lender they just fix a price and say only lend up to £260k and the we have to pickup the rest in cash?

Pretty much. They believe it's worth less than what you have offered and will only lend on the value they have determined through their own valuation, which means the difference you pay with cash, or you re-negotiate the price with the vendor to match the bank's valuation. 

MaryNB

ncmscnc said:

MaryNB said:

Be careful offering above asking. If you have a high LTV you may not be able to withstand a downvaluation by your lender. 

Thanks. 

What's down valuation by lender please?
Is it what I think it is? Lender they just fix a price and say only lend up to £260k and the we have to pickup the rest in cash?

I'll use the asking price of £270k for my example.

Say you have a deposit of £30k, you offer £300k, so you need a loan of £270k. You therefore need a 90 LTV mortgage - easy enough most lenders will go that high, some to 95LTV.

However, LTV is loan over valuation, not loan over offer.

Say the lender decides it's not worth £300k, their surveyor values it at £270k which was asking price and what the EA valued it at..
The LTV is now £270k/£270k 100% - no chance you'll get that. They may offer a max 95 LTV so they'll give you a loan of £256.5k (95% of £270k) but with a deposit of £30k you now only have £286.5k, you need to find another £13.5k.

Say you have a deposit of £60k, you offer £300k, so you need a loan of £240k. You therefore need an 80 LTV mortgage.
Once again, the lender decides it's not worth £300k, their surveyor values it at £270k.
The LTV is now £240k/£270k =89%. Lender is happy to lend at a 89% LTV so the only thing you have to worry about is a higher interest rate because you are in the 80-90% band instead of 75% to 80% band. 

ncmscnc

brasso said:

If this house hasn't got a very obvious reason to over-offer then I see nothing wrong with going in at the asking price. If other people offer the same, or if there is very high interest in it then it's likely to go to best-and-final-offer stage. That's when to over-offer (if you really think it's worth it).

Thank you. Never understood how are when to over offer. 

 I don't think this place has anything special going to over offer. 

A single bedroom place, mid-terraced place, on street parking. A big elongated garden, freehold and access to TFL busses are the only selling points. 

Even EPC ratings has room for improvements as per the rating certificate. Looks well maintained though.