You’ve found a house, it has the right schools and it’s in your established budget. Now comes the hard part. How much should you offer?
Ask yourself the following 5 questions and you’ll find you’re in a strong position when it comes to writing a compelling and fair offer.
1. What will the market support? First and foremost you need to understand the home’s “fair market value”. i.e. What have typical home buyers paid for a home like this in the recent past. Enlist the help of an experienced agent with current local knowledge (someone who’s currently active in the local market) to gather information on recent comparable sales (comps). Don’t rely on Zillow’s zestimate for accuracy. Even Zillow acknowledges this is simply a “starting point” and encourages users to supplement this information with a Realtor’s market analysis or an appraisal.
The best comps are similar properties sold within the last 3 months. Sometimes it might be difficult to find recent comps, in which case your agent’s experience and knowledge of the market and similar areas will be invaluable. Ask the listing agent what comps they used to set the price. The seller and their agent have already been through this exercise, you can benefit from their market research.
2. What can you afford to offer? Although the house is in your budget and your mortgage has been pre-approved at a sufficient level, the house may require repairs, have a costly HOA or be located in a less desirable school district resulting in you sending your kids to private school. This obviously adds to the monthly cost of you living there. Your offer price needs to take into account what you can afford on a monthly basis. Adjust it accordingly.
3. Do you have competition? Sometimes it’s as simple as having your agent ask the listing agent if there are any other offers on the table. Obviously another offer means you’ll need to be competitive in order to win. Although this may be a buyers market overall, there are still pockets of competition around resulting in multiple offers for well-priced homes. Don’t fall into the trap of assuming that all sellers are desperate sellers.
Your agent can generate stats showing the average number of days on market for properties, inventory levels overall, average list price vs sales price etc. This will help to give you a general view of the market activity in the area.
4. How motivated are they? What’s the seller’s situation? How long have they been on the market? Have they had any price reductions? Do they need to move or can they wait? A motivated seller will be more likely to negotiate an offer than someone who’s testing the market.
5. How motivated are you? If this is the home of your dreams you may be prepared to make an offer on the higher end of the home’s fair market value range.
At the end of the day you may never reach agreement on price for a particular home, but if you’ve followed these guidelines you can feel good about walking away having given it your best shot.
Based on an original column by Tara-Nicholle Nelson