How to make an offer on a property?

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  1. #1

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    How to make an offer on a property?

    Hello,

    My wife and I have a lead on a property we're interested in. We're a bit unsure of how to proceed with negotiations and the offer as it relates to local HK customs / normal practices / protection against risk.

    1) Asking price is $6.0M (village house). Of course I can't expect anyone here to suggest a fair counter offer without a lot more details, but on average, how much can be expected to be knocked off of an asking price during the first offer and following negotiations? We're thinking of offering $5.3.

    2) Should we go with the property agent in person to the owner to make the offer, or is this rude? It seems to be accepted practice for the agent to handle this solo? I'm wondering if adding a 'personal' touch of in-person offer might be beneficial.

    3) When we make the offer, do we make it pending inspection approval? Are there property inspectors in HK that we could hire to inspect and comment on the general health of the property?

    4) Is it normal practice for the buyer to make an offer of a settlement date? If so, what is typical, 2 months away, 3 months away? We were thinking of offering Nov1 settlement (3 months from now), but may consider sooner if owner's could trade for a lower price.

    5) Any other tips/tricks to making an offer and protecting our interests? As naive expats, my wife & I are wanting to make sure to learn any mistakes that others may have made.

    Kind regards


  2. #2

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    Quote Originally Posted by antelope123
    Hello,

    My wife and I have a lead on a property we're interested in. We're a bit unsure of how to proceed with negotiations and the offer as it relates to local HK customs / normal practices / protection against risk.

    1) Asking price is $6.0M (village house). Of course I can't expect anyone here to suggest a fair counter offer without a lot more details, but on average, how much can be expected to be knocked off of an asking price during the first offer and following negotiations? We're thinking of offering $5.3.

    2) Should we go with the property agent in person to the owner to make the offer, or is this rude? It seems to be accepted practice for the agent to handle this solo? I'm wondering if adding a 'personal' touch of in-person offer might be beneficial.

    3) When we make the offer, do we make it pending inspection approval? Are there property inspectors in HK that we could hire to inspect and comment on the general health of the property?

    4) Is it normal practice for the buyer to make an offer of a settlement date? If so, what is typical, 2 months away, 3 months away? We were thinking of offering Nov1 settlement (3 months from now), but may consider sooner if owner's could trade for a lower price.

    5) Any other tips/tricks to making an offer and protecting our interests? As naive expats, my wife & I are wanting to make sure to learn any mistakes that others may have made.

    Kind regards
    Hmmm, buying a property in HK, is a lot like walking into the lions den, and playing poker, all at the same time.

    First rule is to inform your agent that you want this property, and that if he messes up the negotiation, you wont be pleased, especially if he's inexperienced and has no idea about negotiating, compared to order taking.

    Take an open cheque with you, and begin the negotiations with the owner present, their agent, and your agent present.

    You can negotiate terms of settlement, 3 months is not unusual, we had 3 months arranged which we shortened to 2, but also arranged 4 months with the people buying our previous home, which gave us an extra 2 months while we started renovations on our new home.

    You can also negotiate the commission, as you will have to pay the vendors agent 1% as well as 1% to your own. You can negotiate the vendors to zero, and get both agents sharing the single 1% commission, instead of both.

    I assume you have already got a bank apprasial of your properties worth, how much lower is the banks value of your property compared to what the vendor wants to sell for ?
    If its more than 20%, you have a fair amount of negotiating to tackle, and dare say a meeting somewhere in the middle of what the vendors think the property is worth, and what the bank thinks.

    Getting inspectors in won't change the vendors mind on price, he will risk waiting for another buyer, regardless of what can be found.

    So, if the property has a vendor price of 6 million, the bank would probably be sitting around 4.8 - 5.2 million, I'd be pretty close in saying you will get down to about 5.5 if the vendor is reasonable, 5.6-5.7 million if they are hard nuts to crack.

    You can forget about $5.3 million unless there is a massive swing between the banks value and the vendors, like 2 million plus difference, then the vendor is dreaming.

    6 million seems high for a duplex, I hope thats atleast a tri level, with a rooftop, a % of gardened area surrounding the ground floor, and a car port....
    Last edited by Skyhook; 31-07-2007 at 12:54 AM.

  3. #3

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    Great advice Skyhook.

    6.0M is for all 3 floors and rooftop, car port (I think 2-3 spaces), though it will require some renovations to put it into shape (we sought out a 'diamond in the rough' intentionally).

    I expect two quotes from banks tomorrow (DBS and BoC - the only two banks we've found that might let us do less than 40% down), and will hold off negotiations until then - great tip on using the bank's valuation as leverage.

    When you say bring an open cheque with us - do you mean for deposit to hold any agreement? Is there a standard deposit amount that we would offer if we agree on the sale?

    Is the agreement 'binding' in any way if we do give them a cheque, and if not, how do we move to a binding commitment? (I want to make sure we don't get lured into a bidding war after we've agreed on the price).

    One expat friend of ours who has bought/sold properties said it would be unusual to make the offer in person as opposed to letting our agent do it solo. Are you suggesting that we should make sure we're present? I'm hoping a personal interaction will help get the deal done, but at the same time don't want to tread on any toes culturally speaking, nor increase the risk of a failed agreement - for example, with in-person negotiations, we would be expecting them to respond on the spot to our offer - is that practical?

    Regarding negotiating agent fees - is this best done before/after a price agreement on the sale? Should I give my agent a heads up that I'll be requesting this before the meeting? Is pushing this down to 0.5% / 0.5% reasonably standard and they won't freak out at the suggestion ?

    Last question about banks - if the bank values at 5M and maximum 70% loan, but the purchase price is 5.5M, they will only give us 70% of 5M, and it's up to us to come up with the extra 500K (on top of 30% of 5M, stamp duty, etc...)?

    Thanks so much, I'll write more when I hear from the bank.

    Best Regards


  4. #4

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    When I spoke to you last time in email, I explained why we burried the "village House " idea, and went for a top floor apartment that included a 500FT2 roof top. Our property is 16 years old, in the process of being completely rebuilt and modernised, but the attractive thing about our location, is the bank will allow borrowers upto the full 95% and the valuation was within 200K of the banks price, and the asking price. These things need to be present later when you decide to sell, because a large percentage of buyers will borrow to as close to the maximum borrowable amount.

    Bank values are based only on average locality transaction $$$ per SQFT ratios. They don't consider renovations or improvements made, although they will send somebody out to re value if there is a major value dispute/difference..

    As to the open cheque, and being in person, regardless how your friend did his negotiating, in my case I am far more confident in that role than any agent here in HK, I found all to be rather weak in strategised communication, and far to self interested ( worried about their commission ) to be an ally of the buyer.

    I will only negotiate with the person who owns the property, to gauge body language and see if they are bluffing, as I explained earlier, buying property is like walking into a lions den, and playing poker, ie having a poker face while you deal.

    I made it clear to our agent that we wanted the property, and it would be upto him to work with us following our clear / realistic M O.

    When you negotiate, you must be prepared to pay money right at the moment you can get signatures down on a document called a S & P, or a Sale and Purchase agreement. This agreement outlines all the things that are included in the property transaction, ie settlement periods, any furniture inclusions or repairs that need to be made prior to you moving in, a new contract drawn up by the vendors lawyer will be drawn up later, both the S & P and the main property purchase contract are legally binding....

    A deposit must be paid upon an agreement being reached, it can be less than 10% on the day, the shortfall made up to the 10% amount must be paid within 10 days. Failure to do so, will incur a demand for the previous 10% balance, plus an additional 10% penalty.

    You will discover that Village houses in 98% of cases, are going to be difficult to move, especially in the 6 plus million dollar range, as people who are going to potentially buy these properties need large cash reserves to meet the 40% difference. If it was a popular apartment complex, they only need to fork out 5% out of their pocket.

    Anyway, see how you go, be firm and set a realistic target, you will spend more on renovations than you think, especially if the place is over 15 years old, and unlike in a the UK or Aus, where you can contract a surveyor ( for $400AUS ) to inspect the home, giving you a detailed condition report, here in HK its not something that would be encouraged.....

    Good luck with your negotiations, and encourage your agent to earn his comission by not saying something stupid that burns the opportunity, ie FACE, a really annoying condition where the vendor is caught lying via the negotiation, and then it creates a road block, one that generally cant be resolved.

    Its a very different ball game here, with an attitude that you just roll over and pay whats asked, unless its during SARS, then they drop their pants and off load property at 50% less than prices are today.

    Go figure ....

    Last edited by Skyhook; 31-07-2007 at 11:16 AM.

  5. #5

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    YOU SAID " 6.0M is for all 3 floors and rooftop, car port (I think 2-3 spaces), though it will require some renovations to put it into shape (we sought out a 'diamond in the rough' intentionally). "

    You don't say where this house is but in the " normal " areas this sort of money will get you a newly refurbished house 2100 ft in roof etc etc. New ones on the Ting Kok Road developments ( brand new and fitted out to your specs ) have first prices at 6.5

    First rule of house buying. There is always another bargin round the corner.
    Second Rule. Do not commit to ANYTHING until you are 100% happy. Then check twice more !

    For a 2100 diamond in the rough 5 should be the MOST to pay. Assuming normal areas. Working through a local and not letting agents know there is a Gewillo involved is always the best bet.

    In my previous life I was a property developer ( better rate of return than putting money in the bank ) and your previous quote of
    "As naive expats, my wife & I are wanting to make sure to learn any mistakes that others may have made. " would make any seller rub their hands with glee.

    ALSO - Property valuations are made over the phone to a database. NOT by a bank survey. You can call 5 companies and have 5 prices. BEWARE !!!!

    Also banks are very carefull in transactions regarding Village houses. There is often no ownership provinences.

    In general terms also, someone saying that this might be a good deal is setting you up. The local market is full of spin. BEWARE.


  6. #6

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    Boris explains it exactly how we found the HK property market, we looked at over 30 different properties until we landed one that had the best potential growth at a price that was 200K off the BOC's valuation. I couldnt be happier, but we fought hard to cut through a lot of the BS that the HK market attempts.

    Last edited by Skyhook; 31-07-2007 at 12:23 PM.

  7. #7

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    Hi all,

    I have an update on bank valuation:

    Bank of China: Valuing at 5.6M
    DBS: Valuing at 4.25M

    Asking price: 5.89M

    The difference in bank valuations is huge! How do we know what the fair value is? Seems this is also a threat to future resale value that DBS values it so low (they say they got quotes from 4 different agencies).

    Where to go from here?

    Can anyone else share similar stories?

    thanks


  8. #8

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    We just bought a house up near Sai Kung and played one bank against the other until we got what we wanted from them.
    If you want to put an offer in, I would definitely go through an agent who has experience and knows the market- I can recommend ours if you are unsure. The 1% commission they would take would probably work out much less than what the family would ask for if you went direct.


  9. #9

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    Quote Originally Posted by antelope123
    Hi all,

    I have an update on bank valuation:

    Bank of China: Valuing at 5.6M
    DBS: Valuing at 4.25M

    Asking price: 5.89M

    The difference in bank valuations is huge! How do we know what the fair value is? Seems this is also a threat to future resale value that DBS values it so low (they say they got quotes from 4 different agencies).

    Where to go from here?

    Can anyone else share similar stories?

    thanks
    When we looked to buy it was mistyfying to us with a) the way of valuation b) the way the bank had no idea about how the valuation information was made c) that it was not a reasonable ( in our uninformed way ) valuation regarding position, quality and market value of surrounding comparable houses.

    However, in the time honoured fashion we bowed to the system and did not proceed.
    There is always going to be another along in a minute and when you can get your ducks aligned with all the agencies , then you should have that warm fuzzy feeling inside that you have got the correct price in the prevaling market.

  10. #10

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    antelope
    The bank will give you max. 70% of the bank valuation, not of the actual (most of the time higher) price you pay.
    Make sure you get a solicitor who has experience with Village Houses and knows what he/she is doing - there are some differences between Village House transactions and other properties. If you are not careful you end up owning the house, but not the land it stands on.