Below are some of the things you should know before you make an offer.
Know your budget
Never enter into a negotiation without knowing how much you’re able to pay. This could mean making sure you have Approval in Principle confirmed by your home loan provider. Make sure that your budget also captures additional costs like stamp duty.
Know the rules
Like so many things in the real estate world, the formal process of making an offer varies from state to state. Generally, offers can be made verbally or in written form. Written offers may be taken to be more serious. Remember that even if the offer is accepted it’s not binding until the contract has been signed by you and the vendor.
Know the market
When you zero in on one property, it’s time to start researching. Find out how much similar properties in surrounding areas have recently sold for to give you an idea of what you might expect to pay.
Once you’re armed with this information, find out what kind of sale the vendor has chosen. There are three you’re likely to encounter:
Private treaty sale
Here, the vendor sets their asking price, and offers and counter offers will be handled by the real estate agent. The negotiation happens until a price is accepted by the vendor. You can withdraw your offer at any point before the vendor formally accepts it. Generally negotiations could begin below the asking price and work their way up.
Regardless of the requirements in your state, you should consider creating a paper trail and put your offer in writing. Make sure that you include:
- your contact details
- the address of the property
- the amount of your offer
- your proposed settlement timeline (for example 30, 60 or 90 days)
- when your offer will lapse, if you would like to put a time limit on it
- any additional conditions that your offer is subject to.
Private sale (without agents)
This situation is very similar to a private treaty sale, but without the agent to act as an intermediary, so you deal directly with the vendor.
Even if the vendor is headed to auction, pre-auction offers might be accepted. If the vendor will accept an offer, then the process essentially becomes a private treaty sale. If the offer isn’t accepted (perhaps due to being below or close to the reserve) the property will go to auction, and you’ll have the chance to bid for it there.
Here are some other things you need to keep in mind before making an offer:
When you’re setting conditions, remember that the vendor could be comparing your offer to a similar offer – but one with fewer conditions. On the other hand, you could be very sure of your position and the value and condition of the property and therefore comfortable to ‘go unconditional’.
At auctions, offers are generally made unconditionally. If you wish to place conditions on your bidding (for example, a different settlement time frame) you’ll need to seek agreement with the vendor in writing before the auction kicks off.
The role of the real estate agent
In most cases, the agent will be the primary person you deal with. When an agent is engaged, they are acting for the vendor. But they want to make a sale happen, so take the time to find out what you can from them. They may be able to give you an idea of the preferred conditions for the sale, the reasons for selling or how popular the property is.
And don’t be shy about letting them know that you are interested. While you may not wish to reveal your budget, you could let them know you plan to make an offer, and make sure they can get in touch with you.
Getting a valuation
You could choose to get a registered valuation during the negotiation process. If timing is an issue, you could make your offer conditional upon the outcome of a valuation, but of course, the vendor isn’t obliged to agree.
To sum up
- Before you consider making an offer, you need to understand your budget, how you’re required to make an offer in your state/territory, and have an idea of the value of the property.
- There are three main types of sale: private treaty sale, private sale and auction.
- Consider carefully which conditions you set within your offer – if they are too restrictive your offer may not be accepted, but an unconditional offer can expose you to risk.