April 23rd, 2018 7:02 AM by Jackie A. Graves, President
You'll need to know about recent sales, work needed on the home
and what the sellers are looking for to determine the right asking price. (Getty
questions to help you create an offer that will put you in the best position to
have it accepted by the seller.
Now that you’ve found a house you're interested in buying, you
definitely don’t want to overpay. Who does? That sweet spot where both the
buyer and seller get what they want is where
the best deals are made.
To figure out how much your initial offer
should be, you have to work backwards from how much you're willing to pay when
all is said and done. Analyze comparable sales, market conditions, property
conditions and financial considerations along the way. Sound difficult? Not
really. As long as the homework is done right and the ducks are lined up, you
confident in your initial offer.
Here are 10 questions to ask as you determine your offer price
on a house.
What is the market value? In
short, market value is what someone is willing to pay for a home. After looking
at all the recent comparable sales and
factoring in current market conditions, this is the price both the seller and
buyer can agree on.
Market value is not a specific number, but a range. At the low
end, you're getting a great deal, and at the high end you're paying top dollar.
Where you end up on the market value spectrum is determined by a combination of
market conditions, motivation and financial comfort.
What do the comps tell you? When
determining the sale price, analyzing comps is the most crucial step. Comparable sales are listings which
have sold in the past 6 months and are located in the same subdivision or
geographic area as the house you're researching.
By focusing primarily on sold homes, you
keep the focus on true market value. Active listings only reflect what a seller
thinks their home is worth, not what a buyer is willing to pay for it.
Every home and lot is unique, so you'll
need to lean on your real estate agent to help you select the most like-kind
comps and add or subtract value based on differences in condition, updates,
size and more.
What's the list price? Now that you've analyzed
the comps to determine what you objectively believe the market value spectrum
is, see how this matches up to the list price the sellers have set.
Have they priced the house on the low end
of the spectrum in a hot market to
potentially attract multiple offers? Are they fishing to see what they can get
and have set the price at the high end, or even above the spectrum? Are they
making significant price drops regularly?
Most importantly, assume nothing. While
analyzing the sellers' strategy can give you some insight into their head space
and potentially help determine your offer price, don’t overthink it. No one
knows the sellers' true motivations and sometimes not even the sellers
themselves know just how far they are willing to bend until they see an offer
in front of them.
What does the market look like? Have your
real estate agent pull all active, under contract and sold listings from the
past 6 months. If there are relatively few active listings compared to sold,
current inventories are low and houses are more likely to sell quickly, and
vice versa. Of those under contract, if the majority were on the market for a
short period of time before changing status, this is another indicator of a hot
market. Finally, look at sale price compared to list price to see if houses
were selling quickly and for above list price.
How much work is needed on the home? As you tour the home, pay close
attention to what improvements or upgrades may be needed, including appliances,
HVAC, water heater, roof and more.
While some buyers will assume any of these
items can be negotiated after the home inspection, in many
areas it's common practice that you won’t be able to ask for replacement or a
credit to do so simply based on the age of a unit. Factor these expenses into
the initial offer price, or plan for budgeting monthly.
Have you considered the whole offer? Remember
that offer price is only one aspect of a much larger picture. Find out where
your priorities lie and have your agent do his best digging to find out the
same for the sellers. Finding the middle ground is where the best deals lie,
whether that means leasing the house back to the sellers for a couple months or
purchasing the property as-is, for example.
When should you go low? Typically, an offer at
the low end of the value range, or even below, is more likely to be entertained
by a house that has been on the market for an extended period of time. As long
as you're reasonable and justified in your offer, there's no reason to worry
about offending the seller with a low offer.
But never assume. Even if a house has only
been on the market a week and you feel it's overpriced, there’s no harm in
offering what you feel is reasonable. The only way to really find out how bad
the owner wants to sell it is to put an offer on the table.
Depending on how the sellers counter a low
offer, you'll have a clearer idea of what their ultimate target price is. If
you come in 5 percent below list price price and they counter at just 0.5
percent below, you know they aren’t willing to budge much. You’ll have to
decide how far you want to push it and when you want to dig your heels in.
When should you go high? A spring market can
be more difficult, as bidding wars are more
prevalent and there's typically a quick turnover of listings. Keep your focus on
the market value spectrum and don’t let the competition drive you to buyer’s
remorse by overpaying.
If you're searching in a hot market and a
new listing pops up that is well priced, get over to see it as soon as
possible. Once you've researched the comps and feel comfortable with the offer
price, this may be an excellent time to present an offer with very little room
for negotiation. In the end, it could potentially save you money by not
allowing the house to end up in a bidding war.
What about multiple offers? Make
sure your real estate agent finds out if the sellers have one or more offers
and if so, when the listing agent plans to present all offers to the sellers.
If there are multiple offers, don't expect
to negotiate the price. Once again, have your buyer’s agent ask plenty of
questions: Will the sellers entertain an escalation clause, or do they simply
want your highest and best offer? Are they mostly motivated by price or are
there other aspects of the contract that mean more to them? For example, would
they like a leaseback? Would they prefer an as-is offer?
Multiple-offer situations are
the pressure cookers of residential real estate. If you aren’t careful, you may
feel obligated to do whatever necessary to win the bidding war and ultimately
end up with buyer’s remorse. Trust in your research from reviewing the comps
and determine the price you're willing to go up to without losing sleep
regardless of whether you win.
How do you avoid regrets? One
strategy buyers have used is to bid an extremely high price to
beat out the other competitors with the expectation that the appraisal will
come in low and you can renegotiate later. Do yourself a favor and do not adopt
this method. Not every appraiser truly knows the market and may just give you
the benefit of the doubt that the agreed-upon sale price is justified.
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