How to make an offer on a house: A Step by Step Guide

Dominique Grubisa
Dominique Grubisa

Published 5:22 am 1 Feb 2021

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There’s more to putting an offer on a house than simply finding your dream home and letting the agent know you’re interested. For instance, do you have to pay the asking price or is there room for negotiation? And what happens when you do make an offer that’s below the asking price?

In this Step by Step Guide, we outline what you need to consider before you reveal your hand to the agent, including when to make an offer and what happens after it’s accepted.

Underquoting

Many would-be property buyers have been caught out by agents who engage in underquoting – the practice of intentionally marketing a property for less than the likely sale price. Underquoting is an illegal strategy that agents use to attract more prospective buyers. Agents are not allowed to quote below the seller’s reserve price and both NSW and Victoria have clear underquoting laws with hefty penalties for those that fail to comply.

In other states, buyers who believe agents are underquoting can turn to their consumer protection body for advice. Underquoting can be difficult to prove, so prospective buyers also need to do their own due diligence on any property that they are keen to make an offer on.

Underquoting FAQ for buyers

 Below are some points about underquoting to be aware of:

  • An agent must not provide you with a price that is less than the estimated sale price that’s recorded in the agency agreement.
  • If you don’t have an agreement, get the expected sale price in writing from the agent, although neither the agent nor vendor are obligated to reveal this figure.
  • If you feel an agent is underquoting, you can lodge a complaint with your state’s consumer protection body.
  • Laws introduced in NSW in 2016 and in Victoria in 2017 may force agents and vendors to provide price details, but they don’t currently need to advertise a property with this information.
  • Fair trading and consumer protection agencies can ask agents who they suspect of underquoting to provide evidence of how they arrived at their price estimate.

Paying an expression of interest

 If you have found your ideal property and made an offer, to show your commitment to the sale, you may be asked to pay a deposit as an expression of interest. You are not locked into the sale if you do this as it can still get taken off the market. It is also not assured that you will be the final buyer. Paying an expression of interest is simply a show of faith that you are committed to the purchase.

High-pressure tactics

 Buying property can cause a wide range of emotions. And while no one wants to miss out on their dream home, agents are not allowed to apply high-pressure tactics to get you to commit to buying a property. They may contact you after you have inspected a property but any harassment or demands to make an offer are not allowed under consumer law. If you feel an agent’s behaviour is bordering on harassment, you can make a complaint with your state or territory’s consumer protection agency.

Negotiating changes to the contract

 Whether or not you have the ability to negotiate depends largely on how you intend to buy a property. In general terms, there is little room for negotiation with property purchased at auction as there is no cooling-off period. You will need to have completed any negotiations to the contract before the fall of the hammer.

If you’re buying by private treaty, there is generally a cooling-off period that starts once contracts are exchanged and you have paid a deposit. You can negotiate changes such as the settlement period, the deposit amount and whether certain fixtures can be included in the sale price.

  Making the offer depending on the sale type

There are a wide range of different sale types or ways to buy a property. The way you make your offer will depend on the method used:

  • Private treaty – the seller sets the price and the prospective buyer makes an offer in writing to the agent.
  • Tender – multiple buyers submit their best offer to the agent. The offers are kept secret so buyers are unaware of how many others are interested and what they are offering.
  • Auction – buyers bid in an open environment with the highest bidder securing the property on the day if the seller agrees or the reserve price is reached.
  • Ballot – often used for buying off-the-plan apartments for which there is high demand. The developer adds interested parties to a waitlist ballot and if their name is chosen, they can purchase a property at a fixed price.

Conditional offer versus unconditional offer

 Offers can be either conditional or unconditional.

  • Conditional offers depend on specified circumstances being met before a sale is completed. These could include the results of a pest and building inspection or whether finance can be obtained. Sellers are under no obligation to accept the conditions if they find them unreasonable.
  • Unconditional offers are those made without any conditions attached and the buyer will purchase the property when the offer is accepted. Most offers made at an auction are unconditional.

Making a pre-auction offer

Buyers keen to secure a property can sometimes make an offer before the auction day. If you want to do this, check with the agent first as some will only accept a pre-auction offer if they feel the price is strong. If they do, send your offer through in writing before the auction. Make sure you have researched the market so you know your offer is competitive and as pre-auction offers are usually unconditional, you will need to be prepared with your finance and have had the contract checked out.

If your offer is rejected and the property goes for much more, the agent may be guilty of underquoting. If you think this is the case, contact your state’s fair trading body and ask them to investigate.

FAQs

What is considered a low ball offer?

 These are offers made by a buyer that are considered significantly below the vendor’s asking price. This is a common negotiation tactic but there is a danger that a very low offer may put the buyer offside with the agent or vendor who will no longer take their offers seriously. Low-ball offers work best if the buyer feels the asking price is too high, or if the property requires a lot of updating.

What do I need to make an offer on a house?

 If you’re ready to make an offer, it’s best to have preapproval from your lender so you know how much you can afford. You may also want to have your solicitor go over the contract of sale to see if there’s any red flags.

 Once you are prepared, put your offer in writing and send it to the agent. The agent has to pass on your offer to the vendor who will either reject it, accept it or counter it with a higher amount.

How much deposit do I need to make an offer on a house?

Your deposit is subject to your lender and its criteria. Some lenders allow you to borrow up to 95 per cent of the sale price so your deposit is only 5 per cent. The typical deposit is 10 per cent but if your deposit is 20 per cent or more you can avoid paying lender’s mortgage insurance. The more you put down as a deposit, the less you have to borrow and this may give you more negotiating power with your lender as you could be perceived as a low-risk customer.


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DOMINIQUE GRUBISA
Lawyer, Asset Protection Specialist and Property Educator

Dominique Grubisa is a practicing lawyer with over 25 years experience. She is a property investor and developer, an entrepreneur with businesses in Australia and Southeast Asia, a speaker, educator, writer and published author.

Dominique has successfully built businesses from start-up to turning over tens of millions of dollars in Australia and internationally. Her passion is making the legal system fairer and more accessible for everyone and empowering people by sharing knowledge.

Dominique’s exceptional experience as both a lawyer and entrepreneur, means that she is in a unique position to share her rare knowledge to those of us wishing to learn how to build wealth and succeed in business and property. Through her proprietary education platforms, Dominique is able to successfully educate, coach and advise thousands of clients on how to grow and protect their wealth.


This column has been written for general information purposes only. It is not intended as legal, financial or investment advice and should not be construed or relied on as such.

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