Buying a property for the first time can be confusing, but we want to make it a little more straight forward for you. Financial expert and founder of the Young Money Blog, Iona Bain, sets out her essential steps for making an offer on a property.
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Buying your first home is one of the biggest purchases you’ll ever make. And while stepping on the first rung of the property ladder is an exciting experience, it’s also one that can be tricky to navigate.
Unfortunately, buying property continues to be a challenge, especially for first-time buyers. UK house prices are currently growing at their fastest annual rate in 17 years. According to Nationwide building society’s monthly report, the average house price has risen to £245,432 from £216,403 in June 2020.
It’s thought the steep rise is down to people re-evaluating what they want from their home during the pandemic and due to newly introduced tax breaks for housebuyers, like the stamp duty holidays in England, Wales and Northern Ireland.
But, just because getting a key to your very own pile of bricks and mortar may be challenging (and sometimes intimidating), it doesn’t mean it’s impossible. If you’re looking to make this particular dream come true, the process usually starts by making an offer on a property you’re interested in.
What does that actually mean? Iona Bain – speaker, podcaster, millennial money expert and author of Own It: How our generation can invest our way to a better future – is on hand to advise on the ways you can make this move as ways as possible.
“Putting in an offer on a house can seem like a scary and daunting leap into the unknown,” she says. “But if you are well informed about the local market and confident that your offer is a fair one, you have nothing to fear. Just make sure you don’t commit to a deposit too soon.” Here’s Iona’s guide to navigating the minefield of putting an offer in on a house.
Key vocabulary to know
Property chain – you are part of a chain when you are linked with other homebuyers. Sellers are linked because their purchase or sale is dependent on you moving forward with your purchase. This normally happens when people are buying a new home and selling their current one simultaneously.
Gazumping – a technical term for when another party comes along after you’ve had an offer accepted and makes a higher offer that the seller accepts.
Things to do before you make your offer
“Making an offer can be quite a scary process, because you may not be entirely sure whether the property is worth the value that’s being asked,” Iona says. Here are some ways to get as much clarity as possible:
Work out how much you should be offering
Iona recommends using a broker or mortgage broker to do this if you’re able to do so. A broker will be able to research the market and assist in finding the right deal for your circumstances, essentially filling any market knowledge gaps you may have or be worried about. “Explain your financial situation to them, including how much of a deposit you can raise, and what kind of property you’re interested in. They’ll hopefully be able to do some calculations behind the scenes, to give you some clarity.”
At this point, you will be asked to provide paperwork that provides a “snapshot of your finances”, which helps to reflect a true summary of what you really can afford. Be prepared to give a broad spectrum of evidence and examples to paint a clear picture, but also use the opportunity to ask as many questions about what they think is affordable or realistic for your personal situation.
Make sure you’re fully informed about the local area that you’re interested in
“Before you make an offer, figure out how much similar properties in the area are going for, and how quickly they’re selling,” Iona says. “Because if they’re selling quite slowly, and if a lot of them are going below the asking price, or they’ve been on the market for a long time, that might put you in a stronger position to put in a lower offer.”
“Whereas obviously, you haven’t got as much bargaining power. If, for instance, the properties are all getting snapped up straightaway at their asking price. You know, that means it’s pretty unlikely that your seller is going to accept a lower offer.”
“Don’t rely on virtual viewing, you need to walk the streets,” she adds. “Visit the neighbourhood at different times – is there noisy traffic twice a day?”
How to make the offer
1) Make your offer to the estate agent taking care of that property sale. You can do this by phone, email or in person. But it’s best to get it in writing, either way, Iona says, for clarity and “to reduce the potential for any conflict later on”.
This offer might say something like: “We are interested in [insert property name here] and would like to make an offer of [insert offer amount here].”
Iona also advises that you make it clear that you can provide confirmation of your financing, through a solicitor and through a mortgage broker.
2) The estate agent may come back with questions about your finances and how quickly you can go ahead.
3) It is then the estate agent’s job to go to the seller with your offer – it is important to know that this is their responsibility and not yours. “By law, estate agents have to pass on every offer they have received to the seller, even if it’s a ridiculous one. Even if you were to offer £50,000 less than the asking price, they still have to offer it to the seller,” Iona says.
4) The seller will either respond with a “yes” or “no” at this point. If it’s a “yes”, congratulations! If it’s a “no”, you will either move on to another property venture or you will enter negotiations, where you will return to step one and go through the same process again.
5) Once your offer has been accepted, you must ask for the property to be taken off the market as soon as possible. “Often sellers will work with more than one estate agent if they really want to sell the property quick, so the sooner the property is off the market the better,” Iona says. She advises being firm and not proceeding any further with buying the property until it has been confirmed to be off the market.
This is so that you know no other party is going to gazump you and the deal won’t fall through further down the line because of other competing offers.
How to proceed after the offer is accepted
The conversation around how much you will end up paying for the property will now begin, and is conducted by the estate agent – not you.
“Unfortunately, this does put the buyer at a disadvantage because the seller is employing the agent to negotiate on their behalf,” Iona says. “So you must remember at this stage they’re not working for you, they’re working for the seller.”
Some final advice for how to make an offer
Having the largest deposit possible helps
“It will look good to the seller because it will suggest that you can afford that mortgage, that your finances are fairly solid, and that you’ll ultimately be able to go through with the sale,” Iona says.
Be prepared for the worst
“About 10% of people have experienced the seller pulling out the deal after accepting their offer, because they got a higher offer from elsewhere,” Iona says. “Be aware that this is a risk, especially if your offer is on the low side.”
“Up until the point of exchanging contracts, either party can pull out, although you might lose your holding deposit, if you do,” she adds.
Once you’ve made your offer, it’s easy to become wedded to the idea of buying that particular property but Iona advises practising caution until everything is accepted and contracts are exchanged. This also means that your commitment isn’t ironclad yet. “Just because you’ve made an offer on the property doesn’t doesn’t necessarily mean that you absolutely have to commit to it,” she says.
Iona also warns being careful about making too low an offer, lest you risk being gazumped. “I think if you’re thinking about making a low bid, you’ve got to kind of tread a bit carefully – somebody could come along and give them a better offer.”
It’s easy to get overwhelmed when it comes to big money decisions like making an offer on a house, but Iona advises to push back against the imposter syndrome and arm yourself with as much information as possible, including the following:
- Do your due diligence on the local area
- Research your offer amount thoroughly
- Make sure your estate agent takes the property off the market when your offer is accepted
“You don’t need lots of money or tons of experience to get on top of your long-term finances,” she adds. “The key is to be engaged and informed, and not to run before you can walk.”
Speak to a financial adviser registered with the Financial Conduct Authority before taking any financial advice, and think carefully before making any decision.
Iona Bain, author and speaker specialising in millennial finances
Iona Bain is the UK’s go-to voice on millennial money, having founded the award-winning Young Money Blog in 2011. She is the resident Money Hacker at Radio 1 and author of a new book Own It: How our generation can invest our way to a better future, the first-ever detailed guide to long-term saving and investing aimed at young people.