Making an offer on a property

March 14, 2016
Ali Batten

Properties are typically sold in one of two ways – either by private treaty or at auction. These work quite differently.

Private treaty
With a private treaty sale, the vendor sets the asking price, and as a buyer, you can expect to make and receive several offers and counter offers (via the selling agent) until you reach a price everyone is comfortable with.
Tips for negotiating a private treaty sale
Most properties are sold at a discount of around 5 - 7% off the initial asking price. It can pay to make an offer 10% below the asking price, which gives you room for further negotiations
When you’ve arrived at a figure, contact the agent by phone, in person or in writing to the agent. Specify how much you are willing to pay, and any conditions that you want to attach to the offer – such as an extended settlement period, and the deposit you will put down.
The real estate agent is obliged to pass your offer on to the vendor. You’ll just need to sit back and await a response – at which point, the negotiations will probably continue.

Do not be tempted to make an offer above your buying budget
If you wish to make an offer in writing, the example below shows the sort of wording you may wish to use. Importantly, the actual wording should be determined by your individual circumstances and the below treated merely as a guide.

Dear {Real Estate Agent}

Further to our inspection yesterday and review of the contract we would like to submit a formal offer of AUD$xxx,xxx for the vendor’s consideration on {property address}.

This offer is subject to:
1. Legal review of the contract and strata report;
2. Property valuation; and
3. Any other requirements as necessary.
As we are in a position to move quickly, we are also happy to discuss earlier settlement timelines with the vendor.

Should you have any queries or feedback please contact me on ph xxxxx or email xxxxxx

Buying at an auction
A sale by auction involves would-be buyers bidding against each other on auction day to secure the purchase of a property. The vendor will set the minimum price they are willing to accept for the place – ‘the reserve’, though this is not openly declared. Once the auctioneer describes the property as being ‘on the market’ it means bidding has reached the reserve price and from this point the highest bidder will secure the purchase.

The key factor that sets an auction apart from a private treaty sale is time. An auction can be over in a matter of minutes, but while it lasts bidding can be fast and furious. It all adds up to a high pressure environment and it is vital to keep a cool head.

As you’re directly competing against other buyers, prices can be driven up to an extraordinary level at auctions. On the other hand, it’s possible to pick up a great bargain. It’s this element of risk and uncertainty, plus the theatrical aspect of the auction process, that adds to the emotional overload.

Here are some tips to help you buy successfully at auction:
Consider making an offer on the place before it goes to auction. That way, you can use your knowledge of the market and the vendor’s circumstances to swing the process in your favour. After all, the vendor will be nervous before the auction too and may be tempted to accept a reasonable offer and avoid the uncertainty of the auction process. (Tip: a downside to this approach is that if the auction goes ahead, you’ve indicated how much you’re prepared to pay)

Attend a couple of auctions on properties you’re not intending to buy. Observe the process and the way the auctioneer runs the show. Take note of the strategies employed by those who are successful bidders

Before the auction, get your solicitor to check the contract (and strata report if applicable)

Get in touch with us to confirm that your home loan is pre-approved. This is extremely important as having loan pre-approval lets you bid with confidence and it gives you a bidding limit. Make sure you’ve had the necessary inspections done on the property, because when the hammer falls, the winning bidder is legally obliged to purchase the property

Ask your solicitor or conveyancer to check the terms and conditions that come with the property sale. If you want to change these, make a request. You don’t need to accept the terms laid out, and equally, the vendor doesn’t need to accept the changes you’re requesting. But it is always worth enquiring

Before the big day, establish the absolute maximum price you’re prepared to pay – and stick to it. Winning bids are often just over a round figure, so bear that in mind. It’s the little bit extra that can knock the opposing bidder out of the game

You’ll need to bring a cheque book to pay your purchase deposit – this must be made on the spot, and it’s usually 5 - 10% of the purchase price but this is something you should confirm with the real estate agent

If you think that this sounds like a stressful process for both the buyer and the seller, you’re right. And if you’re not sure of your abilities to handle that stress, consider getting a Buyer’s Agent to bid on your behalf and advise you in the run-up to the auction. 

Contact either Owun, Suzanne or Costa on 02 9517 1818 or to discuss your options. Or, if you feel like dropping in at our office, we are located at Suite 106, Flourmill Studios, 3 Gladstone Street, Newtown 2042. Be sure to share our blog on Facebook and Twitter and let others join the conversation!

Posted in: First home buyers

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