Capitalise on house price falls

House prices are predicted to fall for the rest of this year- so if you're looking to buy, what should you do?

You can almost smell the fear.

Rightmove, the property search website, has predicted that all of the increases in house prices seen so far this year will be wiped out by the end of the year.

It claims to be registering more than 30,000 new properties each week at the moment – an increase of 45% on July last year – and says the number of unsold properties per agent rocketed by 25% in the first six months of 2010.

Surveyors are witnessing similar movements in the market, with 5% more surveyors reporting a fall rather than a rise in buyer enquiries in June, and 27% more surveyors reporting a rise rather than a fall in new instructions from sellers – the highest level since May 2007.

Could this be the start of a double-dip in house prices – or just evidence that speculative sellers are putting their homes on the market, following the abolition of home information packs?

Whatever your view, signs are that it’s turning into a buyer’s market. But what does this mean? If you’re a buyer, how can you use the current market to your advantage?  

1. Do your research.

You need to find out how much properties have fallen in price in your area since you first started looking.

A good place to start is by looking at the PropertySnake website. It will show you properties near your postcode, currently on offer, that have been reduced in price recently. You could also use the Nationwide house price calculator to examine how much a property in your region would have fallen since last quarter, on average, and read up on the latest house price index from Halifax.

And keep checking those estate agents' windows. If lots of similar properties come on sale in the same road, it makes sellers price their homes more competitively. Similarly, if you find a property you like at a higher price than the one round the corner, you will be in a strong position to negotiate for a lower price.

2. Communicate with the estate agent and the seller.

Explain why you are offering a low price - for example, because the property next door is for sale for £10,000 less, or because you’ve had to cut the price of your own property. (In the boom times, it was quite natural to pass an increase in the price of the top property down the chain, so everyone paid more. Now, you may be able to do the opposite and pass a decrease in the price of your home up the chain instead.)

If the estate agent and seller think you are being reasonable or have justification for offering such a low price, then you stand a far greater chance of getting your offer accepted than if they think you are taking the mickey.

3. Be prepared to move quickly

If you can convince the seller that if he/she accepts your offer, you'll exchange contracts on the property immediately without further delay, he/she will may be more likely to accept a lower price and just get it over with it as the market is so slow.

So make sure you have an agreement in principle from a mortgage lender in place before you make an offer, and when you’re negotiating, dangle the option of trying to complete within, say, four weeks. This will demonstrate your commitment to buying the property and ensure the buying process can move ahead quickly. It might also net you a juicy discount!

4. Be upfront about the survey

When you make the offer, warn the seller that it is made on the basis that the cost of any major problems found in the property survey will be discounted from the offer you made. In a buyer’s market, sellers are unlikely to object to this.

That way, if your surveyor finds something wrong with the property, such as damp or dodgy electrics, you can legitimately lower your offer and won’t have to pay the extra cost of fixing the problems.

The best way to go about this is to find a couple of firms that will give you a free quote for the work. Then present the quotes to the estate agent and cut your offer by the cost of the best quote.

If it's a problem like a history of burglaries or subsidence, bear in mind that your insurance premiums may be higher each year you live in the property, and factor this cost into your calculations.

5. The murky world of gazundering

When house prices fall, the practice of gazundering comes back into fashion.

Most of us have heard of gazumping: when you've made an offer on a property, which is accepted by the seller, only to find that the sale falls through because the seller accepts a higher offer from another buyer.

Gazundering is the exact opposite of gazumping.  You put in an offer on a property, which is accepted, only to turn around before contracts are exchanged and lower your offer. The seller then has to decide whether to forgo the sale, potentially losing the chance to buy the property he/she wants, or take the reduction in price on the chin.

You may think such a practice is unethical or even immoral. But the fact is, it is perfectly legal – at least in England and Wales. (Scotland operates a different system.)

It’s worth thinking about this potential dilemma before you start the buying process. While you’re not legally committed until you exchange contracts, ethically you may feel it would be wrong to pull out or try to negotiate a reduction in the price after you’ve made your verbal offer.

But if an identical, cheaper property comes onto the market, you may also feel you are paying more than the market price.

Either way, it’s a good idea to figure out where you stand on this issue before you hire a solicitor. Some conveyancing firms will not charge you a fee for the work they have done if the sale breaks down before completion. Considering legal fees can range from £500 to over £1,000, this could be a significant saving if you do decide to pull out. So check your conveyancer’s contract carefully before you hire one.

Watch out if you’re a seller

If you’re selling at the moment, you clearly need to watch out for gazundering and guard yourself against it as much as you can. Read Stop buyers from gazundering you for more help.

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