Offer on property

[july]

Hi
I am still getting used to the new forum so please excuse me if this is not perfect!
I have an offer in on a house at 280,000, the reserve is 288,000, the property passed in at auction at 277,500 two weeks ago. The offer of 280,000 has been declined even though the agent said it was a good offer (who knows what he actually said to the vendors!) There are no other offers on this property apart from mine. Just wondering how other people would proceed at this stage.
Thanks

[Lotana]

July,

I guess it depends on how badly you want to buy this property. But in any case I would try to find out two things: their reasons to sell and the sales history of the place. If there is a good reason for them to sell, they will accept your offer. If they bought the place long time ago they most probably are making a very good profit and getting $8K less wouldn't stop them selling. If however they bought recently then after stamp duty the profit may not be there without the $8K.

Say cheese :p ,

Lotana

[manny]

Hi July,

I wouldn't personally call the agent back & let him sweat it out... when he does call say that you have submitted an offer on another property (with a subject to another offer being rejected), so re-confirm that the offer stands as it is WITHOUT increasing it, otherwise they risk losing you... :) you never know... (just don't let the agent see that you really want this place)

Good luck with it...

Cheers,

MannyB.

[Sunstone]

Mannys right.

The key to negotiation is to ALWAYS have another alternative.

If you have no alternative or are unwilling to walk away you will always end up paying more for the property then you necessarily should at the time.

Cheers,

Sunstone.

[Apocalypse]

Originally posted by july
Hi
I am still getting used to the new forum so please excuse me if this is not perfect!
I have an offer in on a house at 280,000, the reserve is 288,000, the property passed in at auction at 277,500 two weeks ago. The offer of 280,000 has been declined even though the agent said it was a good offer (who knows what he actually said to the vendors!) There are no other offers on this property apart from mine. Just wondering how other people would proceed at this stage.
Thanks

If you are prepared to walk away, put an expiry date/time on the offer. Or try going backwards. Offer $279k, with an expiry.

Have to be prepared to walk away though.

[Joe D]

July

Do you trust the feedback you are getting back from the agent? To me, if the agent truly thought it was a good offer they would be pushing the vendor to accept .........

If it were me and I had any doubts, I would contact the vendors directly (easily enough done) to firstly check that your initial offer had been presented and also hopefully to find out what would close the deal.

The 'gap' mentioned is quite small percentage-wise, so given that you have shown your offer is serious (in writing), there is in my opinion no reason why this deal should fall over, unless someone isn't doing their job.

Investigate a little further, but at the end of the day be prepared to walk away from it doesn't suit you.

Good luck!

[JoannaK]

I'd reduce my offer to what was passed in at auction.

I was watching Hot Property (or something like that) and a woman auctioned a property and her reserve was $800k, it didn't reach it so she passed it in. She ended up selling it weeks later for these than the highest price at auction!!!

Vendors sometimes don't realise that the market sets the ultimate price - not the vendor!

[KJL]

July

We were in a similar position when we bought our home, and the agent was asking for more and giving us the "What's the absolute best you can offer" line etc.

We said to the agent that that offer WAS our best, and that we wanted to buy somewhere quickly, and that whilst we did want that particular property, the owner had til midday the following day to consider our offer, otherwise it was withdrawn and we'd have to look elsewhere.

This did two things (a) focussed the owners' attention on whether what we'd offered was in fact enough, as opposed to simply letting the agent guide them and tell them to hang out for more; and (b) drew a line in the sand with the agent to say 'if you want your commission on this sale then convince the seller'!

We got the call at midday exactly the following day to say the offer was accepted. The ppty had been on the market for only 3 days (not even advertised nor a board gone up - we found it by walking into the agent who had the new listing), and this was a year ago when the market was hot.

I acknowledge it's a risky strategy, and you have to be prepared to walk if your bluff is called.

KJL

[robwil]

HI July.

I would be going with Manny's & Joe D's advice
be prepared to walk away.

Good luck.

Regards Rob.

[steverm]

It does seem not showing the agent how much you REALLY want the property is an advantage.

How about re-writing the offer with an expiry date in it and attaching a cheque for the deposit amount. This will reinforce that you are serious. Write in the offer that "in cashing the attached cheque, you - the vendor agree to accept my offer and conditions and agree to enter into a contract of sale within 24 hours."

Be creative, it may just work.

[Mike]

Hi July,

Like the others, I feel you are in a strong bargaining position given that nobody apart from you is biting above 278K. As time goes on capital growth will increase the value of the property and the vendor will be more reluctant to sell below the reserve. But, in your favour, it will become increasingly difficult to find other buyers unless interest rates drop again.

I would suggest if auction clearance rates are still good which indicates a willing market then the vendor may have unrealistic expectations. His reserve is not meeting market sentiment. You may be the only willing buyer left.

I would now put pressure on the agent to convince you that the property is worth the reserve. Get as much comparable info as you can from the agent. Rental comparisons and anything else you can get. After considering the comparables you will better guage whether it is worth another bid. What you are showing the agent by this stalling tactic is that you are really stretched. This may make the agent think twice about how far he can bluff you without losing you.

Regards, Mike

[july]

Hi
Thanks everybody for your suggestions/experience.
I signed a contract last week for 281,000 but for a longer settlement time, attached a cheque (10%) with a expiry time of the next day.
Firstly the vendors would not meet with the agents until after the expiry time so even when the agent met them our offer had lapsed!!!!!
The result of one hour of agent negotiating with vendor...
The vendors counter-signed without negotiating anything - they still want the reserve of 288,000 with their original settlement time.
I'm begining to believe the agent when he says that they are proving challenging to deal with.
Thanks

[pjb89]

Hi July

It definitely sounds like the vendors know how to play the game...maybe some of our other resident RE experts might provide sound advice?


Peter

[Apocalypse]

Depends on how bad you want it, but basically they've called your bluff...so you walk away. Tell them to contact you if they're prepared to negotiate. If they need to sell, and there is no other interest above your offer, they'll probably get back to you.

I think if you go back with a slightly higher offer again, they'll hold out on you and you'll pay the full $288k. Just my opinion.

[Bobq]

Julie,

Have you considered how much it will cost them to go to auction again? I'd submit a revised, lower offer and note that in offering it to them at this price you are 'saving' them $7k (or whatever an auctioneer charges these days).

I would also be very carefully asking yourself why you want this property so much. There are plenty of fish in the sea, and walking is not so terribly hard.

Hopes this helps.

Regards,

Bob

[Les]

G'day July,

Is this property in a current "growth" area? e.g. are values rising by (say) $3k per month? If so, and it suits you to do so, how about offering them $288k with a 4 month settlement?

I've known this to work (on one occasion, at least ;) ) where the vendor was actually a "group" - and one of the number was saying "We'll get our price" - and he did. Wouldn't sign for $5k under asking price - they (HE) wanted full List Price. They signed a contract for full asking price on a 6 month settlement in an area where values were climbing at $2.5k per month. The happy buyer (who I believe frequents this forum) had another 6 months of growth at a discount.

The buyer got his extra $5k, but the property had ballooned up another $15k by settlement.

The happy seller was justified in telling his mates "I TOLD you we'd get our price ..... " (he's the MAN!!!) He was right !!!!


And so was the investor that picked it up.

Regards,

[Mike]

Hi July,

A book I have talks about setting reserves. First a pessimistic estimate of the price at which a property might sell is determined followed by an optimistic view. The reserve is the middle of these two figures. My guess is that the range between pessimistic and optimistic with this property is $40,000. So if the reserve is $288,000 then the optimistic price is $308,000 and the pessimistic price is $268,000. The actual selling range should be 5-10,000 on either side of the reserve which takes in to account the market on the day. In my opinion, the vendor should have listened to the market talking at the auction and when the bids got to $277,000 put it on the market.

Quote from the book:

Accurate advice on the reserve figure from the auction house is vital. Far too often vendors are inclined to fix an amount which is high on the principle 'you can always bring it down afterwards'. Such an approach is totally unrealistic in the auction scene.

If the reserve is realistic and it becomes obvious to bidders that they are likely to be successful, then they are often encouraged to bid again and a little higher than wisdom would suggest. A high reserve and no sale kills the interest. The market for the property is depressed. The vendor is no longer in a strong position when the auctioneer has to start negotiating a private treaty sale after the pressure in the auction room has been removed.

Your bid of $280,000 seems most realistic as it is less than $10,000 below a reserve which was probably set too optimistically. I'm going to suggest a strategy which I don't think has been thought of before to break this deadlock and that is to bring in a professional negotiator like a buyers agent. Sometimes these vendors/agents will play their hand as if they are dealing with a novice or desparate buyer and won't negotiate seriously with you. Their theory is, I guess, that sooner or later you will crack and take it at their price. Time to get tough with them methinks. Do our resident buyers agents think this idea is worth a try?

Mike

[asy]

Hey July.

I agree with Mike.

Now is the time to get tough if you really want the property.

If you have set yourself the limit of $280k you must have had reasons for doing so.
Perhaps this is your spending limit?
Perhaps this is the point at which the property ceases to become viable?

I would suggest you go to the agent, and sign a contract at $280k. Put a termination date and time on the contract, after which the contract will become invalid, and you will walk away.

Tell the agent that you want to see that the vendors have signed the contract, even if they alter the purchase price to something acceptable. That way they will have to think about whether they are going to lose the sale.

I don't usually advocate written offers, but in this case it looks necessary.

Also, and I know this is getting a little monotonous, but will people PLEASE PLEASE PLEASE fill in their LOCATIONS! Just a city, or state will do, we don't CARE where you live, promise, but it makes it a WHOLE LOT easier to answer people's questions with specific reference to state legislation and practice.

Anyway, hope this helps.

asy :D

[Joe D]

July

You are obviously really keen on this property but showing your interest now will surely see you paying the vendors (inflated) price.

Why not have a third party (friend) come into the scene and offer a price slightly lower than your last offer. His offer is obviously worded as '......, or nominee'

This may semi-condition the vendor to a lower price and if the vendor counters at a price less than the previous reserve, there is always the possibility of reaching agreement. That is, you can always up the ante without losing face or showing yourself.

Just a thought....

Joe D

[Jakk]

G'Day July and others,

Has anyone thought that maybe this vendor believes that his asking price is justified and maybe even that it's less than he had originally hoped to achieve.

In situations like these, you can do what you like and the price is still the price.
Not so long ago I myself was involved in a similar scenario, I offered a figure that i actually thought was quite reasonable but it was not accepted.
I asked the agent, who I know very well, to go back to the Vendor and find out what he would accept.
The agent came back and said that the vendor would only sell at the listed price and not a cent less.
We played the to and fro game for about 2 weeks and then I used my ace card and walked away.
The problem was I really wanted this property.

I had the agent set up a meeting between the 3 of us and felt that if I could talk directly to the vendor, he'd realise what a nice bloke I was and surely I could get some sort of concessions.

The meeting went well and we reached agreement and yes I did purchase the property.........at FULL PRICE.

......and that was the only way I was going to get it.

so July, the question is, How much do you really want this property? Do you have 288,000 reasons why you must have it.

Because by the sounds of things, that's where it's at.

one more thing........I think Geoff Doidge uses this line.........
"....the opportunity of a lifetime comes around about once a month...."

Your move............


regards

[july]

Hi Jakk
How long ago did you purchase the property and are you sorry now that you paid full price for it? May I also ask what made you want it so much that you finally paid full price.
Thanks

[Jakk]

G'Day July,

in answer to your questions,

how long ago?...........February, this year.

Am I sorry that i paid full price?............I am never sorry about buying any property, I do my homework, work out how much I am prepared to pay, try and negotiate the best possible price and/or terms and then do the deal, if it suits me. I don't suffer from any buyers lament, I never dwell on what something has cost me, I move on. For a property to get my interest initially, there must be something about it that has created the desire to own it.

In this particular case the gross rental return at the time of purchasing was $17,400, the current gross rental return is $21,500, in rough figures around a 25% increase.
The cost to get the rental increase, nothing!!!!, the property was owned by the previous owner for over 20 years and he had a negligent property manager that hadn't increased rentals in line with current market conditions. In actual fact the rents hadn't been increased at this property for over 3 years, ludicrous!

What made me want the property so much?.............I think I've already answered that question.

By the way, this property had been on the market for about 2 months before I started negotiating on it.

regards and good luck

[lawsjs]

Do you want the property?
$8000 is only $10/week
If its not worth an extra $5/week after tax to you then don't offer any more. Tell the agent the price you offer will drop $2k a month. If you aren't worried about ego and it is worth $5/week to you then pay the extra. I personally wouldn't get too worried about 1.5 trips over the Harbour Bridge per week. You could pay the list price, and drive over the Anzac bridge once a week, and still be as well off, with an extra property!

[july]

Hi
I wanted to thank everyone for replying.
I have purchased that property and yes I did pay what the vendor was asking after using many of the suggested tactics including walking away.
The thing is, as Jakk said, I really wanted this property.
I found out that the vendor had bought this property in 2001 (when prices were already inflated in this area), renovated, lived in it for a few months and then rented it out. I spoke to someone (who knew the vendors personally) and found out that the vendors actually wanted 15,000 more than what was it was listed for so they felt they had already taken a loss and actually preferred to keep the property than give it away for anything less than their asking price.
As it is unique in that it is a shop front residence where someone can run their business from home or just use it primarily as their home I decided not to let a short term loss prevent me from obtaining a excellent long term property investment. The location is great, close to transport, shops and very close to the cbd.
Thankyou

[asy]

YAY FOR JULY!!!


Congratulations!!!



WELL DONE!!!



asy :D

[Jakk]

G'Day July,

and CONGRATULATIONS............

You are the fortunate one, how many people when purchasing a property actually get exactly what they want........but in your case, you actually have.


What short term loss .....$8,000???

Let's assume for a minute that someone else had jumped in and paid the price asked and you had missed out on buying this property..............how long would it have taken you to find another like it?

A long time or maybe never, not in that location maybe.

July, in 1,2,5 or 10 years, who knows, people will be telling you that you stole it............and when you tell them that at the time you thought you paid $8,000 too much, you'll all have a good laugh.

The property is yours now, look to the future, the past is gone, would you now sell it to me or someone else for $8,000 more.....I don't think so, what is the property now worth to you?
possibly quite a lot more than you paid for it in reality.

Once again, Congratulations and well done on trusting your own instincts and securing what you wanted........isn't that what really matters?

By the way, what use do you have planned for the property?

regards

[yuch.]

And there will be more fish in the sea when RBA start rising the interest rate for a couple of %s!

[Sunstone]

Yep.

Agree with Yuchun on this one. Looking forward to two decent interest rate rises.

Cheers,

Sunstone.

[Kevin Hockey]

Just over 2 years ago I was selling a property in Brisbane at Wavell Hts. It was in a street which offered clear city views, was elevated, 607m2 and needed plenty of renovations. Offers came in at 150k and 160k. I may have had one at 165k, can't remember. The owner stuck firm, wouldn't negotiate at all, he was under no pressure to, if he didn't sell he knew it was in a great position anyway. I tried to tell every buyer what a great buy it was, and yes, they may even pay $5-10,000 above its market value, but the rateable land value went up the year before by $15,000 and was highly likely to do it again the next year. Anyway, no-one bought it.

Now the same property will sell between $280,000 and $320,000, maybe more. The point is, what would it matter now if they had paid what the owner wanted. I know hindsight is a wonderful thing but not everytime does it have to be an outright bargain of the century. When I bought my current home, we paid a good price considering it has major white ant damage in the roof. I wouldn't swap it for the world (so to speak) considering I have 2 boys and we back onto a large park. I can fix the damage but the position is priceless to us. Sometimes you just know a property is right for you.

Congrats on your purchase, sounds like a great buy.

www.nundahrealestate.com.au (http://nundahrealestate.com.au)

[Mike]

Hi Kevin,

Interesting story. Just wondering about the "scarcity" value of that property in Wavell Heights? I agree that elevated position with city views is attractive. How many of those come on the market? Occasionally? regularly? If they rarely come on the market then scarcity value would be a factor to buy. Two years ago many QLD areas were starting to boom so buyers could be choosey and patient. If I am right about the scarcity factor then that should have been emphasised more than potential growth. As I said, many areas had potential for strong growth 2 years ago so that argument wouldn't have swayed buyers as much as scarcity value, I would have thought.

A point about your own property: I heard it said from other investors (not families with kids) that properties backing on to large parks are undesirable because of the potential for vandalism to the property. Have you heard that?

Regards, Mike

[Kevin Hockey]

Yes Mike, a property with potential city views does have its scarcity value, which is why I considered that paying a little too much at that time as worthy of the risk. The market was in its infancy of the boom but no-one predicted just how much it would rise.

To your second point, yes we had heard about living close to parks as being security risk, however just like the building matter, these things can be fixed. Our property is fenced, we have a dog (a golden retriever which is about as vicious as the wiggles on a bad day) and we plan to install an alarm system. The positives far outweigh the negatives. Our position offers so much to my boys.

Our plan is to raise the house, we have about 150k equity at the moment, build in some rooms under and take in a couple of students. Our equity will remain, someone else will pay the mortgage and we will continue to invest in more property. I see others doing it so figured why not us. If there's money to be made you can count me in.

Kev

www.nundahrealestate.com.au (http://nundahrealestate.com.au)