Research shows the majority of homebuyers are paying under the asking price for a new home, despite talk of an overheated market. So what’s going on?
Despite tales of sealed offers, gazumping and bidding wars, new research shows that nearly three-quarters (72%) of buyers in England and Wales paid less than the asking price of a property in the past twelve months.
According to data from Rightmove, even in the highly competitive London market more than half (53%) of buyers still paid under the asking price.
So what’s really going on out there?
Asking prices
Rightmove conducted a survey of more than 6,000 people who bought a property in the past year to see if they paid below, above, or exactly the asking price for their new home.
The results are surprising. Rightmove found that while new seller asking prices rose by nearly 8% in England and Wales over the past year, when it comes to closing the deal most people are still managing to negotiate under the asking price.
The results differ around the country. In London 53% of buyers paid under the asking price. This compares to 70% in the South East, 71% in the North East and 82% in Wales.
One in five buyers (21%) paid the exact asking price and 7% paid over the asking price.
The results cast some doubt on the talk of a housing bubble and demonstrate that buyers can still negotiate on price.
However, Rightmove also found that the gap between asking and sold prices has narrowed. Its figures show that in 2012 properties achieved around 95% of the asking price, which had increased to around 97% in 2013.
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Why properties don’t achieve asking price
There are numerous reasons why properties don’t achieve asking price but the most obvious one is the asking price is too high.
A friend of mine who’s currently house-hunting summed it up: “Daft or greedy estate agents are raising the expectations of daft or greedy vendors.”
Vendors ultimately decide what price their property will be marketed at and, inevitably, will aim for a high price.
Estate agents, meanwhile, often use a high valuation to get the instruction from the vendor, even if it means lowering the asking price later.
Another friend of mine has been trying to sell her house for about a year. An estate agent told her she’d get X amount for it, more than the other agents valued her property at. Yet, an asking price offer, or any offer at all, failed to materialise and she eventually had to drop the price to something I expect is more like its true value.
Negotiations
Another reason most properties don’t achieve their asking price is savvy negotiation on the part of the buyer.
[SPOTLIGHT]The best way to negotiate is to discover what might be wrong with a property and how much it will cost to put right. For example, when I bought my flat there wasn’t a working boiler and, in the height of the last boom, I got £5,000 knocked off the price.
Other defects might be discovered in a survey – so make sure you get one done. If you can move quickly, or are a cash buyer, use your buying position in your negotiations too.
For sellers, a key aspect to achieving the asking price is for your property to be as close to perfect as possible with no major work needing doing.
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The mortgage market review
The mortgage market review which came into effect in April means mortgage borrowers face tough new affordability tests when applying for a home loan.
The knock-on effect of this is that lenders may offer a lower mortgage than the borrower was hoping for, with many potential buyers turned down altogether.
There has been anecdotal evidence of properties sold subject to contract later coming back on the market after buyers failed to get the required mortgage to go ahead with their purchase.
What should you offer?
If you’re planning to make an offer on a property, look at local market conditions first. Find out what the average asking and sold prices are of similar properties. That way you know if the price being asked for is fair in the current market.
Be sensible with how much you can afford and check you can borrow the required amount. You’ll be wasting everyone’s time if you offer a price but can’t raise a mortgage for the amount of money you need.
Don’t be disheartened if your first offer isn’t accepted – most vendors will turn down an opening offer to see if you come back with something higher.
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More on buying and selling property:
Banks and building societies withdraw tracker mortgages
Bank of England asks regulators to act on mortgage lending