Successfully making an offer on a house below the asking price is all about knowing what the property is worth and adjusting your offer based on market conditions and the vendor’s motivation for selling.
How Much Below The Asking Price Should You Offer?
Generally speaking, before COVID-19 lockdowns, 75% of all houses sold by private treaty were sold at a discount to the listed price. The discount varied but mostly stayed between -4% and -6%.
More recently, the median vendor discount across the capital cities was -2.8% in the three months to November 2021, CoreLogic data shows.
A low offer is anything below the average discount on a similar home in a similar area at the same time. For example, if you determine that there are few buyers in the market and you want to purchase a home for 10% less than the asking price, you might start off by offering 15% less. In rising markets, however, stick closer to the average discount.
To better understand how much below the asking price you should offer, you need to be able to gauge how hot the property market is and understand what is motivating the seller to sell. This information will help you come up with a realistic offer that gets accepted. Otherwise, you risk your offer being ignored. This is one of the main reasons new prospective homebuyers lose out at property negotiations.
What Are The Market Conditions?
There are three things we can look at to determine quickly how hot or cold the property market is:
Auction clearance rates
Average days on market
Property market clock
1. Auction Clearance Rates
The auction clearance rate is the percentage of auctions that result in a successful sale, either at auction, before the auction or just after the auction.
This data is freely available on CoreLogic’s website and helps quickly gauge how much heat is in the property market.
What the auction clearance rate tells us about the market:
40%: falling market, buyers have the advantage
50%: steady or slightly falling market
60%: steady prices
70%: seller’s market
80%: strong seller’s market, which usually means prices are rising fast
90%: completely insane
In Sydney and Melbourne, the clearance rate is a reliable indicator. Whereas in Perth and Adelaide, most properties are sold by private sale so the auction clearance rate isn’t that useful.
2. Days On Market
How long a property stays on the market is another useful metric to gauge buyer interest in a particular property or area. Fewer days on the market means there is more competition and you’ll need to make an offer closer to the asking price. More days on market means there is less demand/competition in the area and you can get away with offering less.
For example, if you find a house that has been on the market for 60 days but most recent sales in the area have taken 30-45 days, you can start off with a lower offer than the average vendor discount. This situation could also mean the vendor has unrealistic price expectations.
You can quickly find the average days on market for a suburb using property listing websites. These will also allow you to see how long properties you’re interested in have been on the market. Your mortgage broker can provide you with a suburb and property report for any homes you’re interested in.
For free property and suburb reports, speak with one of our mortgage brokers today by giving us a call on 1300 889 743 or by filling in our online assessment form.
3. Property Market Clock
The Herron Todd White monthly report gives us an insight into where the major cities and regions are in their property cycle, using a ‘property clock’.
Making a lower offer can work when the market is declining or is at the bottom of its cycle.
Whereas, in a rising market, the chances of your lower offer getting accepted are slim.
For example, using the image above most cities are rising or are already at market peak, it means there are no opportunities for big discounts at this point in the cycle.
Get Enrolled For The
Home Buyers Program
Thinking of buying a home?
Learn how to buy a house and avoid costly mistakes in under 2 hours.
A low offer works best when the vendor requires a quick sale. So you also have to understand the seller’s motivation.
A quick sale is more common than one might think. Many homeowners who are selling have already found another property. This often means their real-estate agent is under pressure to finalise a sale quickly.
It could also be divorce, financial stress, plans to relocate for a new job, or a death that is forcing the homeowner to sell.
This is why it’s so important to talk to the real-estate agent and ask a lot of questions.
Remember, your offer, although low, should give favourable terms and conditions to the seller so that it is still attractive to them.
Alternatively, if the sellers are relocating for a new job in three months, they may prefer a longer settlement period so they do not have to move out of the property before they relocate.
Fast Track to Approval: Your Home Loan Checklist
A well-curated checklist to improve your chances of a home loan approval.
Disclaimer: Over the next few days, you’ll receive additional guides to help you on your homebuying journey. Occasionally, you’ll receive carefully curated home-buying tips, offers & schemes, and news articles. You can unsubscribe any time you want. View our Privacy Policy
How To Make A Counteroffer
Once you’ve made your offer, you may receive a counteroffer from the vendor, so you should be prepared to either accept it or make your own counteroffer.
For example, if a property is advertised for $700,000, and you put in a written offer for $625,000, the vendor might counter with $675,000, even if they are willing to sell for $650,000.
Be prepared to counter their offer but move quickly with this, as the seller may have other bidders.
How Do You Make A Low Offer In A Rising Market?
You should almost always make your offer below the asking price. But in rising markets, stick closer to the average vendor discount in the area where you’re looking to buy. Remember to consider the market conditions and vendor’s reason for selling, and adjust your offer accordingly.
If markets are rising, and you’ve found a property that you really like, you may have to pay a premium.
There is no better way to get information that can help you make this decision than to go to property inspections and auctions, and talk to real-estate agents.
Should I Make A Verbal Or Written Offer?
It is generally recommended that you put your offer in writing. This is because even if a verbal offer is accepted, there is no guarantee the vendor will honour it.
You should always get your conveyancer to help you put your offer in writing.
Do You Need A Pre-approval To Make An Offer?
As discussed above, price isn’t the only factor vendors are considering when looking at offers. They’re also looking at the buyer.
A buyer with a pre-approval is more likely to be seen as serious, especially if the vendor requires a quick, decisive sale. It helps them avoid uncertainty with settlement and finance dates.
To get pre-approved, please speak with one of our specialist mortgage brokers by giving us a call on 1300 889 743 or by filling in our online assessment form today.
Related Topics
Does A 20% Deposit Home Loan Benefit Me?
Is it ideal for your home loan situation?
Upfront Costs of Buying a Home
Learn the expenses involved and how to keep them at a minimum.
How To Do A Property Inspection Before Buying
Seven tips on how to inspect a property
3 Secrets To Getting A Better Mortgage Deal
How do I get the best home loan deal?
What Is A Property Report And Why Do You Need One?
Know what information a property report includes and how it can help
you buy or sell a home.
How to determine property value
Learn about how to estimate your property value
with these easy to follow tips!
Trust Home Loan Experts To Help You
We have thousands of five-star reviews and testimonials on Product Review, Google Review and Facebook.
4.8 out of 430+ reviews
4.8 out of 720+ reviews
4.8 out of 1,650+ reviews
What Our Customers Say About Us
Made first home buying a breeze!I cannot thank Rob, Rabin and Nikhil enough.
They made the process so simple and stress free, especially for a first home buyer.
Always there to answer all our queries and give us their professional advise as well. I definitely recommend them to anyone who is thinking of buying their first home.
Perfect one stop home loan broker. As a first home buyer, I got a complete guidance from my broker Steve.
My partner and I approached Home Loan Experts for our first home loan. The whole process was incredibly efficient.
I'm a first home buyer and was confused how all the paper work need to be done. Find home loan expert on google and totally trusted as they would guide you step by step.
Excellent service at every step, they organised a LMI free loan due to me being a registered nurse and they were able to secure us an excellent interest rate.
Thanks to Home loan experts, I realised that it was possible to in fact increase my existing borrowings up to 90% LVR for being a CPA on $150k+ income without having to pay an arm and a leg in LMI
I needed a loan for my land and a separate one for the construction. Jenish, Kirtez and their team took care of both.
I have very good experience, always received prompt responses during the stage construction loan process.
Special thanks to Pranav this time for making our experience truly exceptional for our construction loan.