O-YES Properties | When is a 20% drop in the asking price of a property a reasonable offer?

When is a 20% drop in the asking price of a property a reasonable offer?

The combination of record-low interest rates, and a surge in buyers looking to buy new homes since the end of the hard lockdown, means the local property market is seeing record activity levels.  

Buyer interest has skyrocketed

Data shows a whopping 46% increase in buyer activity since level 5 of lockdown ended, and 45% increase over the same period in 2019. Since the hard lockdown ended on 1 June, buyer interest has skyrocketed, averaging 90% buyer enquiries to marketed properties ratio, compared to a 62% average in 2019.   

Ooba reports that the average bank deposit requirement is down y/y to 8.1% (from 13.2%) as at June.

We have seen record sales activity in June and July, following lockdown, with signs of a rebound "only just getting started”. 

Know when to negotiate

One of the important aspects of purchasing a property is knowing whether the seller is open to negotiation and how much below the asking price the seller would accept.

Buyers should not be misguided by reports about bargains because even in this market, well-priced properties are selling for close to and full asking prices.

Similarly, July ended with the highest sales in six years and he warns buyers putting in low offers will be left disappointed.

Some data shows buyers paying an average of 96.7% of sellers’ asking price since 1 June, compared to the 2019 average of 96.4%.  

Every pricing scenario is different, advise the experts. While the slanting of a market in favour of sellers or buyers come into play, the willingness of a seller to accept a lower offer depends on how well the property is prices, circumstances and urgency to sell.

What is a reasonable offer below the asking price?

Never assume that the seller will take a lower offer, even in a buyer’s market. If you are unable to afford the full asking price, it is best to shop around for properties which are more aligned to your budget.

Some instances where a seller may accept a lower offer include the seller’s own needs and urgency, especially if there is a shortage of buyers or the property has been on the market for a while. 

When could you offer 20% below the asking price? 

Such a significant discount is rare in the primary market below R1.5 million but more prevalent in the market above R20 million depending on various factors including the motivation of the seller.

Reasons, why a seller may accept such an offer, is the need to make a quick sale, or if the property requires significant work, or if he really just wants the property off his hands. Another could be where the price is significantly higher compared to peer properties because the seller wanted to “test the market” and it has now been on the market for some time with no offers.

 

When could you offer 10% below the asking price?

Older properties with seriously dated finishes or an urgent seller may consider a 10% discount, especially if the property has been on the market for a while. Other reasons could include an urgency due to relocation to another city or emigration. A property overpriced compared to peer properties in the area may also offer the opportunity for a 10% discount if the seller is motivated to sell, or if the property has been on the market for several weeks without much interest.

When could you offer 5% below the asking price?

If you are a cash buyer or do not have to sell a property first, the seller may well be willing to accept a lower price as it means that the transaction can be wrapped up quite quickly. Likewise, if the seller has already put in an offer elsewhere, they may be willing to accept a lower offer to speed up the process.

When should you offer more than the asking price?

When there are multiple offers on the table, the seller will typically accept the highest offer. If the property is in a great location and well-priced, your best chance to secure the property would be to offer higher than the asking price. 

So while the market has picked up significantly and contrary to expectation, sellers in many areas are achieving close to and often full asking price in the lower price bands provided that the asking price is set realistically - the advice for buyers remains, "be realistic".  

When there are discounts, it is only about 5% to 10% and it is only really above the R4 million price band where there is some room for negotiation, but this is highly area dependent. That said, while it is generally a buyer’s market, there are very few desperate sellers. Most sellers are prepared to wait for the right price. Buyers will need to be realistic with their offers or they risk losing out, especially in the low to mid-price ranges, but across the board really.

Courtesy of Property24

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This article is a general information sheet and should not be used or relied on as legal or other professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your legal adviser for specific and detailed advice. Errors and omissions excepted (E&OE)