Buying your first home is a significant investment and if you’re like most people, it’s the largest financial decision you will have to make at any one time. So, it pays to make sure you have the right purchasing strategy in place to ensure you buy at the right price because;
- you can control what you pay for a property,
- you can’t control what you sell it for.
Which is why my personal motto is: “Invest wisely, borrow carefully and sleep comfortably.”
And there is one key strategy I always advise my clients of when they are looking to buy a property: don’t submit an offer via Expression of Interest (EOI). Now, I know this will upset lots of real estate agents out there but it just makes no sense for you to do this as a buyer.
If you show interest in a property, generally the agent will ask if you want to put in an EOI. So why shouldn’t you do this?
It’s simple really:
- Even if accepted by the seller, an EOI isn’t legally binding on either party.
- It gives the agent time to “shop around” your offer to other prospective purchasers in an effort to create competition and ultimately increase the sale price of the property.
Like a game of poker, as soon as you submit an EOI, you have shown your hand to the agent and lost control of the process.
As mentioned earlier, when buying a property, you are making a significant financial investment. Therefore, you need to take control of the process.
You do this by:
- presenting your offer in contract form (because once accepted by the seller this document is legally binding on both parties); and
- including a special condition in the contract such that if the offer is not accepted by 5pm on the next day, that your offer is withdrawn. In doing this, you are putting pressure on the seller to either accept your offer, or risk losing you as a buyer. Further, limiting the timeframe reduces the chances that the agent can “shop around” your offer in search of a competing, better offer from another purchaser.
Following these guidelines can be scary when emotion comes in to play. Therefore, you need to balance the risks of losing the property having regard to your emotional attachment, versus the significant investment decision that you are about to make.
Of course, the cleaner you can make your offer, the stronger your offer will look in the eyes of the seller. By that I mean, make sure that you have a letter of pre-approved finance to prove you’re a serious buyer with your finances all organised, so the seller will consider your offer seriously.
Personally, I have used this strategy to purchase multiple properties, successfully purchasing well below the asking price. Recently, I purchased two properties for 33% below the asking price and well below what I considered to be market value for the properties. I did this by keeping my cool, submitting my offers in contract form, backed up with the evidence of having pre-approval for finance.
So, to recap:
- If you’re currently shopping around for your first home (or your next one!), make sure you’re coming from a position of strength with finance pre-approved by a lender.
- Never submit an EOI, instead ask for a contract and make your best offer within it.