How much to offer below asking?

I suspect this has been discussed before, but in case if anyone is interested I posted my views on this topic to a question asked on the Gold Coast thread:

Gold Coast Property News - official thread

 

I have found at times a property can be listed drastically over or drastically under fair value.

Late last year I inspected a property in Perth which was listed for $649,000, which equated to $686 per square metre. It was a potential development site but I couldn't make the numbers work at anywhere near that price. The property went under offer but the offer fell through due to a low bank valuation. The vendor did not lower the price. Madness!

The interesting thing is the just around the corner, just a couple of hundred metres away, a property sold just before that one for $500,000, which equated to $548 per square metre. The fair value for the $649k property was not more than $520k, $129k under asking. Naturally, the property did not sell and was put back on the market for rent at $280 per week!

In that case, I would have started out by offering $500,000, which is somewhere around 22.5% under asking. I didn't bother. It was a terrible property with no upside that I could see.

About 3 months later, I found a property down the road listed for $556 per square metre. A recent sale of an abutting property (it backed onto this one) put the fair value at $632 per square metre. In that case, I offered 1% less than ask. I found out later the property was listed below fair value because it was a forced sale.

Pretty much you can ignore the ask price, do your own research and ascertain what you believe to be fair value. Then offer somewhere around that. If you get knocked back I'm sure there are plenty of other properties for sale

 

[QUOTE="big max, post: 32Interesting question. In general, I would always "start low", ie offer below "the asking price" and work up from there.

Very roughly, if I saw a place relatively fairly valued for say 800K, I would look at starting around 5% below asking. So offer 760K, with the general standard "negotiation dance" leading to a "meeting in the middle" of around 780K.

Things can really vary though depending on vendor's motivation to sell and/or your desire to buy. There have been times (not often!) when I bought immediately at asking - I once saw a house at 560K and offered this amount on the spot. (I failed to get it as the vendor sold it to someone who signed before I did on the same day). But that is a rare scenario.

If anything, on the Gold Coast, there are some properties that are priced significantly above market rates. These can include beach front, high end apartments/penthouses, and high end houses such as Sovereign Islands where someone might be trying it on asking 4.2m for something that eventually sells at 3.5m.

I would say use existing sales data as your guide, and look at yield. You should really be determining your own "fair value" and using that as your starting point.

As a final comment, I think as a market rises, people typically would be paying closer to asking price. So back in 2012, when it was a real buyers market, you could put in many lowball offers, and some would eventually hit. As things warm up in the cycle the gap usually closes, and when a market gets really hot, you can get situations where demand leads to prices going way above "asking" or "guide" prices. Gold Coast is in my view still just warming up, so its a delicate balance now between wanting to get the best price you can whilst knowing other investors are starting to move their bias towards "buying in"[/QUOTE]

 

that will save everyone a trip to the goldy

THIS^^^ but I would go 1 small step further and knock x% off what you believe to be fair value.

x% is market dependant

 

Definitely relative to the market, yield, specific location, property and demand. I tried offering below the asking price in a hot market in Melbourne (e.g. Cranbourne) and the REA just laughed at me hysterically

I always believe in offering a little bit below the asking price and previously sold prices. You can only really do this in a market that isn't hot.

Once an area is burning hot and people are offering 70k+ above the asking price, it's too late... just walk away unless it's your dream PPOR

 

My parents just sold a property in Melbourne. Offers started at 7% under ask and ended up 2% under ask. I think x% under would generally be in the range of 5% to 10%.