How Much to Offer on a House
Buying a home can be a tricky and lengthy process, and one of the most important aspects is making the right offer for the property in question. So how much should you offer for that new home? What’s the right amount? Is it too much, is it too little? All tough questions to answer, but here are some tips to navigate through this difficult portion of the home buying process.
Gauge the Market
Are properties in the neighborhood where your dream home is located selling quickly or slowly? Are they selling above their asking price or below? And what about the values of the homes in the area, are they appreciating or losing value? Are there similar properties in the area or in nearby areas that you desire? These questions should all be taken into account when coming up with your offer.
If properties are going quick and values are rising, you’ll likely need to make a higher offer (maybe even above list) to get it accepted. Of course, it may not seem so high if prices continue to rise. The opposite is true if prices are stagnating or falling…an offer below list should suffice, and at minimum should result in a counter.
Ask Your Agent
If you need help setting an offer price, speak with your real estate agent, it’s their job. They should know the area well and also have a good familiarity with the bidding process. They can advise you on what price to offer first and how to handle counteroffers and the like. They should also be able to access county records and find out what area homes have sold for recently. And remember, work with your buying agent, not the sellers agent, who will obviously have their own biased priorities.
There is a caveat. You need to take your agent’s advice with a grain of salt because they too are biased, even if they’re working for you. Ultimately, they are working to close the deal, whether that’s good or bad for your wallet. Empower yourself by doing your own research and asking lots of questions. If they recommend a certain number, suggest one a bit lower. You’ve got nothing to lose!
Research, Research, Research
Sure you can take your agent’s word for it, but why not do your own research? There are plenty of resources online that you can take advantage of to get home price valuations. Sites like Zillow and ZipRealty will show you homes currently listed for sale and their asking price. You can find out what other homes are selling for and what recent comparable sales went for. Keep in mind that many of these free services are just estimates, but it can serve useful when you first set out to look for a home. Also research the broader economy so you know where home prices are headed.
In other words, know your local real estate market before making an offer. How will you know how much to offer if you don’t know about other recent sales? Knowing the past and where the future might be headed can help guide your offer.
Offer What You Can Afford
Don’t get into a bidding war and make an offer you can’t actually live up to. Make sure you have a pricing threshold you’re aware of so you don’t overextend yourself. Speak with a mortgage lender or bank first before setting out to purchase a home. This way you’ll know exactly what you can afford before beginning the search for suitable properties, and more importantly, before making a bid.
A pre-approval letter should specify exactly how much you can afford in the way of a loan amount. You should also know your maximum down payment. With both of these numbers it’s advisable to leave a cushion in case anything changes, like the mortgage rate or appraised value.
More Contingencies Are Less Attractive
If your sales contract is full of contingencies, the seller will likely be less interested in your offer, especially if there are similar offers from other potential buyers. So if your purchase is contingent upon the sale of your existing home, you may need to up your offer to beat your competitors that may have fewer conditions tied to the sale.
There are generally contingencies related to the appraised value, the sale of other properties, and the ability to obtain financing. The last item is especially important nowadays as mortgage offerings continue to diminish thanks to the ongoing mortgage crisis. Getting pre-approved before searching for a home makes a lot of sense.
At the same time, make sure you protect yourself and your earnest money deposit from any missteps made along the way. There should be a comfortable middle ground that offers you outs if something goes wrong but also ensures your offer is strong.
Time on Your Mind
Timing is everything they say, and this is especially true in real estate. Home prices change all the time, and sink and climb as local and wider economic factors weigh in. When making an offer, make sure you have a timeline in mind as to how long you plan to keep the home. Generally, the longer you hold the property, the less important the offer price. But if you’re looking for a quick flip, pricing may be a major deciding factor.
Also consider your own time schedule. If you need to get into a home quickly because of a job change or similar relocation, you may need to boost your offer to make sure you land the property quickly. Obviously a buyer in a hurry is a more desperate buyer, while those who are casually looking can take their time and make lower offers.
However, you don’t need to reveal yourself as a time-pressed buyer. Play it cool even if you’re in a rush to avoid giving away all your negotiating leverage.
Like anything else, the more knowledge you bring to the table, the better off you’ll be. If you truly love a house, it’s okay to make a higher offer because chances are you’ll stay awhile and make it a home. And you wouldn’t have wanted to miss out over a few bucks (thousands). At the same time, there are always more fish (houses) in the sea…