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Bidding game
You’ve found the perfect home, and you’re ready to buy, so how do you go about getting your offer accepted? Nick Lemming gives his advice
‘‘It is often worth putting a deadline of, say, 48 hours for your offer to be accepted: this makes it more difficult for the agent to get other prospective buyers to submit a competing bid’’
Deciding on what and how to bid for a property is one of the most challenging parts of the home-buying process. There is no set formula and this is an every man for himself commercial negotiation, made all the more difficult because the individuals involved may have widely differing standards and business experience.
Before even thinking about submitting an offer you need to do as much research as possible. Find out why the property is on the market and how long it has been up for sale. A vendor with a deadline (or in the current climate a definite need to sell) is more likely to negotiate than one who does not have to move. Similarly a property that has been on the market for some months may sell well below its guide price.
Remember also that the vendor is human... he will probably be more prepared to negotiate if you take the trouble to be courteous and get to know him. Discuss why he wants to move, what his ideal timescale is and how you can help in the process.
You also need to find out what the competition is. Ask the agent if it is worth viewing the property if you only have budget of HK$X (set discretely below the guide price). If he says no then you know the seller feels in a strong position, if yes then it may indicate that there will be room for negotiation. When looking around the house ask how many other viewers there have been and try to ascertain their level of interest. Do all this before requesting a confirmation on the asking price.
With this information in hand, you can work out what you are able to bid for a property and what it is worth to you. Note that it is possible to get a pre-approval on a mortgage. The process works exactly like applying for a mortgage itself, with the sole exception that you have not yet signed a Sales & Purchase Agreement (S&P), committing you to a deal. A pre-approval normally takes about one week to process, and for first-time buyers, who are unsure of their borrowing ability, it is the safest course to take. It also removes the fear of losing a deposit on a property if you sign a deal to buy and only then discover you are unable to finance it.
As a rule of thumb, your mortgage repayments, together with all other monthly repayments, should amount to no more than 50 percent of your monthly income. For a loan based on the Hong Kong Interbank Offer Rate (HIBOR), a typical mortgage rate is currently around 2.5 percent. Based on these rates, you could borrow HK$2.5 million for a monthly mortgage repayment of HK$10,000.
When thinking about your financing, factor in, too, that there are many additional costs that you will have to pay, not least of which is the deposit. In Hong Kong, banks will only lend a maximum of 70 percent of a property’s purchase price. This means you will normally have to put down 30 percent of the price you agree with the seller as a down payment. Add to that stamp duty, agent and legal fees, the cost of improvements and moving, then the net funds available to you to bid with are soon reduced.
Once you have checked out the valuation of the property with your bank, and received confirmation that you are eligible for the mortgage required, you can begin to negotiate with the seller.
How you submit your offer will depend on how the sale is being conducted. ‘Best and final offers’ are submitted in writing and have to be with the agent before the relevant deadline. In the early stages, a verbal offer by telephone will usually suffice but make sure that you keep a record of the agent’s name and time of your call. It is also often worth putting a deadline of, say, 48 hours for your offer to be accepted: this makes it more difficult for the agent to get other prospective buyers to submit a competing bid.
Unless submitting a best and final offer (which needs to be exactly that) you should pitch your opening offer at slightly below the price that you would be happy paying. It is quite normal for a seller to ask for a better bid but if you offer below, he may decide to readjust his sights accordingly. Needless to say, offering the guide price first time is seldom a good tactic.
The agent has a legal responsibility to report your offer in writing to his client. Beyond that the vendor decides on what course of action should be taken, often as advised by his agent. Particularly in the current market you need to be clear as to whether you already have a mortgage agreed in principle and whether your offer is subject to survey or any other conditions. The cleaner your offer, the stronger your negotiating position, and the more likely that an offer below the guide price will be accepted.
Once you fix a price with the seller, and agree the deal, start processing your mortgage, and instruct a solicitor to act for you. At this stage, it’s crucial to keep in constant contact with your solicitor and bank to ensure that they are making progress.
Be sure to brief the vendor weekly on how you are getting on; convince him that you are proceeding fast with the purchase. He must believe that, even if another offer comes in, you are the best person to run with.
Subject to satisfactory offers of funding and acceptable terms, be ready to exchange contracts. Initially, you sign a preliminary S&P, outlining the terms of the purchase and the dates involved, and put down 5 percent of the purchase price as a deposit. Another 5 percent of the purchase price is due in two weeks, when buyer and seller sign the formal S&P, normally at the offices of their respective lawyers. Note that once you’ve signed the S&P, should you choose to walk away, you’ll lose your deposit.
Completion of the sale – when the remaining 90 percent of the price is due – normally takes place two or two-and-a-half months later. Only then can you consider the property yours. The best advice, then, is don’t set your heart on a new apartment until you have paid in full – and you have the keys in your hand.
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