What's a reasonable offer?

BordsMagoo

I've been looking to buy for a few years while saving but luckily never did. Im currently renting and love the house Im in, i don't see much of my landlord but he's a lovely man, great landlord. We were recently chatting and i asked him would he ever consider selling, he said he'd really love to because the house is a burden to him and he seemed shocked i was interested-long time renter! I told him i haven't actually mortgage approval (but I've a good steady job Im in years, a large deposit and a clean credit history) and we discussed me buying the house so he told me to see how much the bank would give me and let him know.
Obviously i know i need to get mortgage approval first but Im fairly confident i would get it.
What do i tell him regarding price? He seems really eager to sell, houses in the area are currently between 150k and 230k on daft, this house being identical to a house for 160k?
I don't want to insult him by offering to little but obviously want it at the best possible price. How do i proceed?

Senna

BordsMagoo wrote: »

see how much the bank would give me and let him know.

This piece of information should be the last thing you should ever tell him.
You obviously know the house very well, so you know any problems it might have (bar legal stuff), this is ideal as you have been "test driving" the house for years.
You are in a strong position for negotiations, you can go to him with "the bank will only lend me X" so X+ 10% deposit (you might have more but he doesn't know that) = your final offer. But your offer will have to be well thought out, too low and he will dismiss it completely, too high and you have over paid. If your not embarrassed to put in the offer, then its too high.

What would you be willing to pay?
If your monthly rent was the mortgage repayment, what would the mortgage amount be? (@6% for 25yrs, just to give you an idea of renting versus buying)
Would you be happy to live in the house for the rest of your life?
Would the house be suitable if you have a family?

The identical house at 160k, how long has it been on the market?
160k with a couple of years at double digit price drops could be 120k ASKING PRICE soon.

It really comes down to what you are willing to pay, forget what the bank will offer you, pick a price you would be comfortable to buy it at, then see if the bank would be willing to lend you that much. You are in a very strong position, an EA telling a vendor a low ball offer will be rejected far quicker then you telling him "bloody bank will only lend me €X, i really thought they would offer me more than that, I know its low..........?" wait for his reaction.

realgirl

Arrange to have a reputable local estate agent value the property and definitely do not go over that price, the bank won't go ahead with a mortgage for more than current market value anyway. I think you should try to buy for a good bit less than the current value - prices are still going down, the landlord wants to sell, he avoids the hassle and estate agent fees of putting it up for sale on the open market etc. Good luck.

BordsMagoo

Yes I've really thought hard about it and i would be very happy to stay here forever, its a decent sized house and the area has always been my dream area but i never believed i could buy here. In the boom these houses were on average 300k+!

The number i have in mind is 130k but I've looked online and in 2005 the landlord was looking for 380k and in 2007 was looking for 250k, the embarrassment of offering so little but it does make me worry that if i bought in a few years i could get house for a fair bit less.
Mortgage wise i would be a lot better off, Im paying 900 a month at the moment, if i borrow 100k (i have 60k in the bank from saving really hard and inheritance) i would be paying back about 500 a month.

ABEasy

I reckon 130-140k would be a fair price. At 900 pm with a gross yield of 7.5% (alot would say in the current Market you'd need 10% at least) assuming you are paying market value rent. I wouldnt worry about future falls if this is the house you want to make a home for the next decade+.

Also remember when doing your calculations to calculate the cost of not buying now, say you buy at 140k borrow 100k repayments 500 pm then you save 4800pa less lost deposit interest of 1200pa (40k @3%). So the net annual cash-flow saving will be 3600 pa, the actual saving will be more as you are paying off a loan so a percentage of the 500pm is interest. Basically it's not all about price drops!!!

p.s. calculations don't take account of repairs & maintanence, property tax or tax relief on your mortgage interest.