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 headspace 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 in 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 its common practice that you won’t be able to ask for a 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 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 the 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.
Not to mention, a listing agent will likely spot this method a mile away and be less likely to take your offer seriously. At the end of the day, don’t play with fire, because getting burned is awful and wallets are highly flammable.
Courtesy of realestate.usnews.com and credit to Ray
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