This is a question buyers ask all the time. And it’s a big one to answer, for it usually means the difference between securing the property you want, and losing it.
The first, and the most important factor to consider is what you can afford. There is simply no point in offering more than you can afford as the long-term consequences outweigh any immediate benefit of purchasing a property.
When considering what you can afford, it is best to obtain qualified assistance from a mortgage broker. They will look at your income and expenditure, and guide you on affordability. When you calculate this, also allow for increases in the prime-lending rate. It is best to factor in an interest rate increase of 2%. This is a comfortable buffer that should protect you from any nasty surprises.
You then need to ensure you have sufficient cash available for your costs. These include transfer costs, attorney’s fees, bond registration costs, removal fees, and whatever you need to get your new property ready for occupation.
So what exactly do you offer on the list price, assuming you have confirmed your ability to afford it? Some buyers mistakenly believe that they can work on a flat percentage, such as 10 or 20% below list price. This approach makes the assumption that every seller has slapped on 20% above market valuation. It’s the wrong assumption.
Many sellers list at, or only slightly above market value. If they have been correctly advised by a professional estate agent they will know that correctly pricing their property will result in maximum buyer enquiry. When there is strong buyer interest then buyers make their best offer.
It’s not unusual for a property to sell for full list price, or even slightly more. At Harcourts Platinum we sell almost 1 in 5 of our listings at the full list price.
So, what is the best way to determine what to pay then? Research. Buyers need to make an informed decision based on what they believe market value to be. The only way to do this is to know what’s on the market, and what has recently sold.
Most buyers can tell within a few minutes of viewing a property what it’s actually worth. So, once you have determined this, you need to know if you are in competition with anyone else. Ask your agent if any offers have been submitted on the property. If you are competing against other buyers you will need to act swiftly. And you will need to make your best offer. You simply may not get another opportunity to offer at all.
If there is no current competition for the property you can take the chance of starting slightly lower. But don’t be cheeky. This isn’t a market you can insult a seller in. Make a fair offer and see what the seller does. If you receive a counter-offer you will know what the bottom line is, and then you need to act to secure the sale. Remember that in a growing market what seems expensive today is outstanding value in a few months. So act quickly, but always within your financial limitations.
Principal of Harcourts Platinum, and Director of Harcourts South Africa
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