Kathryn Lee - 12 Jul, 2021
After scouring the housing market for some time, you’ve fallen in love with a home that ticks all your boxes. Now you’re wondering how you make an offer on the house without paying more than you need to. We explain everything you need to know during this exciting time.
Australian homes typically sell by private treaty, where the vendor sets the price of the property, or via auction, which involves making a bid over the reserve price to secure the property. Both buying processes are completely different and how you make a house offer will depend on the selling process of the property.
Before taking a serious look at the property market, seek pre-approval from your lender first. By doing this you will know the limits of your budget and won’t set your sights on something outside what you can afford.
Seeking pre-approval, sometimes called conditional approval, also puts you in a stronger position when making an offer as it makes you more attractive to vendors.
Although you can make verbal offers on a house, for clarity on details and terms it is best made in writing.
In your letter of offer the following should be included:
You may also want to seek legal advice before making any formal offers.
Making your offer is as simple as contacting the property agent and letting them know the amount you’re willing to pay – to start with a verbal offer is fine.
Tips on making your offer:
Once you’ve given your verbal offer to the agent, they’ll take you through the process of formalising a written offer.
There are three typical outcomes once you make an offer on a house.
Even after making a formal offer the buyer has several stages to withdraw from the sale before it is finalised.
An offer is not a legally binding contract and can be withdrawn before the seller accepts. You can revoke your offer by giving the agent a written letter informing them of your offer withdrawal. If you decide you want to revoke an offer, don’t waste time. It becomes much more difficult and costly to revoke and offer once it is accepted.
Most states also have mandated cooling-off periods. This gives the buyer several days to reconsider their purchase after the exchange of contracts. However, withdrawing from the sale at this point will come at a financial cost to the buyer.
Home loan lingo got you down? Check out the eChoice finance glossary for help with those pesky terms!
A lowball offer is an offer considered to be less than what the property is actually worth, and is a tactic many home buyers might consider in a slow market. However, while it’s natural to want to get ‘bang for your buck’ in any purchase, a lowball offer is not always a good tactic in home buying.
Research the sale history of the property and look at similar property types in the area that have recently sold to get an idea of the worth of the property.
You might also like: How to research the property market
Generally speaking, a vendor cannot back out of a sale once an offer has been accepted, however, there are few exceptions. This could include a vendor cooling off period being stipulated in the contract or the buyer not meeting the requirements of the contract.
As a seller, you should seek legal advice for a better understanding of what breaking a legally binding contract would mean for you.
The amount of money you put down as a deposit is subject to your lender and their criteria. Some let you borrow up to 95% of your property’s value so you may only need to put down 5% to have your loan approved.
But, it’s a good idea to aim for more – you won’t have to borrow as much, you will have lower repayments and you will lower the amount of interest paid over the lifetime of your loan.
You’re also in a better position to negotiate lower interest rates with lenders because you pose less of a risk with less to repay.
When you put down 20% of the sale price or more, you also avoid paying Lender’s Mortgage Insurance. This is a way to protect the lender when you borrow a large fraction of your purchase price. This cost can either be upfront or made in addition to your repayments.
|Loan amount||$390,000||Loan to value ratio (LVR)|
|Loan amount||$410,000||Loan to value ratio (LVR)|
Copyright © Finconnect (Australia) Pty Ltd trading as "eChoice", ABN 45 122 896 477 Australian Credit Licence 385888, is a wholly owned subsidiary of Commonwealth Bank of Australia ABN 48 123 123 124.
The purpose of this calculator is to assist you in estimating whether you will need to pay lenders mortgage insurance (LMI) based upon the information you put into the calculator.
The results of this calculator are estimates only. They are based on the information you have provided. If you change any of the information, you will obtain a different result. Other fees, charges and costs may apply.
The actual amount you can borrow, and the applicable loan repayments, can only be determined once you submit a full application to us and we assess your application using our credit criteria applicable at that time.
Before acting on the results of this calculator you should seek professional advice and speak to an eChoice consultant.
You might also like: What is Lenders Mortgage Insurance and How Can It Be Avoided?
Selling a property comes with its own set of worries, one of the most important being knowing when to accept an offer.
Take time to consider what you are willing to accept and what conditions you might negotiate on when you place your home on the market. Some things to consider:
You might also like: Can you trust your property’s valuation?
It is best practice to respond to all offers, and if you are selling through agent, they will likely push you to give an answer to any offer. If you choose to reject or counter the offer make sure you respond in a timely manner.
Buyers making an offer can bid lower than the asking price, although some agents may not commit to writing an offer if it is too low. Most vendors will not go below 5% – 10% of their asking price but there are factors to consider:
There is no legal requirement to use a lawyer to make an offer on a house but it is advisable to speak with either a lawyer or a specialised licensed conveyancer to look after your transaction. They can help guide you through negotiations and offers, although the real estate agent will also provide guidance where needed.
In a slow market or a buyer’s market, you may want to consider lowering the price of your home. Before you lower your asking price, consider what offers you are willing to accept and whether it’s the right time to sell if offers are low.
Selling in a buyer’s market – when there are many properties for sale and competition among vendors is high – means prices are driven down. Consider how motivated you are to sell at the given time and assess whether your asking price is inflated. Consider reducing the price or waiting out the market.
Some other things to consider include:
When a property is “under offer” but the sold sticker has not gone up, this means that it is still subject to a few conditions. This can include cooling off periods or pest and building inspections. At this point you can phone the agent and find out which conditions are still being determined so you can keep track of whether it will return to the market. You can still inspect the property to make sure it ticks all your boxes, and then if need be, sit tight and wait.
Often contracts for the sale of residential property come with a cooling-off period, though, it is rare buyers to pull out of a sale. Under a contract of sale, terms can be changed to waive, reduce or even extend a cooling-off period. These terms are discussed and settled in pre-sale negotiations.
Extra conditions may be added to your contract of sale such as your ability to obtain finance or the sale of your current property.
If you buy a house at an auction, say goodbye to a cooling off period. Cancelling after securing the property at auction will become an expensive exercise, so be confident in your choice and your finances before this.
You might also like: What is a cooling-off period?
Contract cancellations need to be made in writing and usually within a period of time and at a cost. Look above to find the cooling off laws in your state, and if you fall within that time.
You can also pull out if the seller fails to fulfil a condition under the contract. But if you want to withdraw after this period of time you should speak to a lawyer about the consequences of breaching a contract.
Legally there is nothing stopping a real estate agent from disclosing if other offers have been made and what the magic number was. But, according to Lisa Suryawan, Sales Manager of Xynergy Realty, she says:
“It’s best not to share what the offer amount is however we could give an indication of a range where the offer might fall.”
Negotiating buying a house can be tricky – especially when properties are in short supply and competition between buyers is high.
It can help to:
Properties often go to auction because the real estate agent believes the property is going to garner high interest among buyers. While this increases the likelihood of a positive outcome for the vendor, the competition of an auction can suddenly push the price of a property far above its reserve, leaving hopeful buyers disappointed.
For a pre-auction offer to be taken seriously, you will likely need to make it worth the vendor’s attention. To use the old adage, make them an offer they can’t refuse.
Tips for making a pre-auction offer:
Words by Michelle Elias
Updated by Kathryn Lee December 2020
You might also like: The Guide to Property Investment
Looking for a home loan? Contact eChoice. With access to 100s of mortgage products from over 25 different lenders, eChoice brokers have the tools to help you find the perfect home loan to suit your needs. Best of all? We do all the paperwork!
This information is a guide only and is an estimate only based on the past 12 months of aggregated online mortgage enquiries from eChoice and partner programs.
Submitting your enquiry
An eChoice home loan expert will be in touch soon.