Clients often ask me the best way to negotiate on a new property. Whilst there is no one single answer to this question, I have learnt from experience that understanding the market that you are in is really important.
Having recently purchased a new home I had the opportunity to put this theory into practice, so here is my advice on the things to consider doing before entering into negotiations.
Understand the market
The majority of my clients are buying in London and the South East. I recall in 2014 and 2015 meeting with a succession of clients who were paying more than the asking price to secure a property. The general feeling seemed to be that there was so much competition from both domestic and international buyers, people were securing properties at all costs. Of course, a client can offer whatever they want to for a property but the real test is the surveyor’s valuation.
In the previous buoyant market, surveyors tended to agree with the offered price of a property and as a brokerage we dealt with very few down valuations. However, over the past two years, as regular readers of my blogs will know, the market has been slowing down and we get many more down valuations than previously. This began well before Brexit and the recent political upheaval.
Personally, I take time to read a couple of publications that help me understand what’s happening in the market.
The Royal Institution of Chartered Surveyors produce a market survey report every month and my guilty secret is that I often read it. In fact, I would go so far as to say I enjoy reading it.
The most recent report (August 2017) suggests that house prices are falling in London and to a lesser extent the South East. The surveyors who contributed to the report cited a lack of stock on the market and said they expected more landlords to exit (rather than enter) the buy to let market. This confirms what my clients have been saying for a couple of years. I personally find the commentary from surveyors fascinating. The comments below are from surveyors across the South East.
Market still flat and likely to remain so until Stamp Duty levels reduce to make moving home affordable and allow more transactions to take place.
Still a shortage of stock. Summer holidays have also restricted activity.
Brexit continues to be an excuse for poor activity but with no real foundation.
A quiet holiday period with inevitable drop in demand. Supply is seriously affected by a lack of confidence, domestic issues rather than Brexit, hopefully world peace will not be shattered.
Values flat. Price sensitive market due to stamp duty.
I also read the Nationwide housing report (London house prices fall for first time in 8 years – Sept 2017) and the Halifax housing report on a periodic basis. Both give a great insight into the market. If the surveyors and the lenders are telling you the market is not good then it’s pretty clear there is room to negotiate if you are buying.
Monitor the market
Three months before I started to look for a new home I looked at 20 properties in my price bracket in the approximate area I wanted to buy in. I am not saying for a second I wanted them all but I wanted to get a gut feel for how fast prices moved and how long properties remained on the market for. It was amazing to see that three months later, just as my wife and I were ready to buy, that 16 of the 20 houses that I first monitored were still for sale and almost all had price reductions of up to 10%. Three of the properties had been sold only to come back on the market again a few weeks later. Another clear sign the market was poor and again a great tool when starting to negotiate.
Rightmove is handy because it tells you when a property came onto the market. However, I found out during my research that if a property comes off the market for over a week then it appears to be a new entry onto the market whereas in reality it could have been on sale for a year. The same applies if the seller changes estate agents.
Get yourself purchase ready
Personally, I would always get myself into the best position I can just before I put an offer in on a property. For me there are a few key things you can do to help yourself:
- Get your mortgage in principle agreed before putting an offer in. This gives you a lot more credibility with an agent and it should mean you are not forced to speak to the agent’s financial advisor which of course makes it harder to negotiate on price.
- Have your solicitor in place. Again, this makes you more credible.
- Use your key selling points as a buyer when putting an offer forward. Is your loan to value low? Are you a first-time buyer or in rented accommodation? These are both really positive factors that can help make you more attractive as a buyer.
Remember the bigger picture
Clients sometimes have a blind spot for how much they think their home is worth. If you are moving up the ladder then whilst of course you want to get the maximum price possible remember this is an equation. Yes, you might have to accept £10k less for your house than you think it’s worth but if that allows you to move and you can then knock more than £10k off your new home then in the grand scheme of things you are up. My Dad told me this at the start of my process and I think its great advice.
If you get your first offer accepted in the current market there is an argument to say that you have gone in too high. Personally, I would start low and expect to get rejected a couple of times unless you are worried there really is the famous estate agent 'other interested party'. You never know the seller’s true situation and at the moment clients are constantly telling me they feel they have done well in the market so start low and work up in small increments.
As always, get in touch if you need advice.