Finding the house you want to make your dream home can be an incredibly exciting moment. Making an offer on that house however, can be a daunting and stressful task. The written offer is a step in the home buying process that requires the finesse, experience and negotiating skills of a REALTOR® professional.
Deciding How Much to Offer
There are several factors to consider when deciding how much to offer: the listing price of the home, the prices of comparable properties that have recently sold, and of course what you can afford.
- Listing Price: Also called the “asking price”, this is a rough estimate of what the seller would like to receive. It is important to consider how long the property has been on the market for and if there have been any price reductions. Other factors that should affect how seriously you consider the listing price include whether the property is a foreclosure or short sale, and if there are multiple offers being presented to the seller.
- Prices of Comparable Properties: Your REALTOR® can provide you with a list of comparable properties, or “comps” that have recently sold in the area near the property you are about to make an offer on. The most relative and supporting comparables should fall within these guidelines:
- Sales that have occurred within the last three to six months – the more recent, the better.
- Sales of properties similar to the one you’re making an offer on, in terms of age, size, and bedrooms and bathrooms.
- Sales within a reasonable proximity (six to ten blocks in an urban area; consult your REALTOR® in rural areas) of the property you are making an offer on. This radius may need to be reduced if a freeway or other dividing line splits the neighborhood.
- What You Can Afford: You should come to the offer table pre-approved. When figuring the total cost of the property, be sure to include closing costs into your budget. Closing costs are typically 2%-5% of the final purchase price.
Once you have considered the factors at hand, it is time to decide on a number. In competitive areas or “hot markets”, you may have to offer no less than the asking price. You should be mentally prepared for negotiations, and in some cases even bidding wars, which can erupt among aggressive buyers. In hot markets, properties often sell for 10% to 30% above the asking price.
If you are making an offer in a hot market, you may need more than just a well-priced bid. Considering the seller’s needs is the best way to achieve an advantage in the competition. Your ability to close the deal quickly is often an advantage. For example: buying with all cash or having your loan pre-approved tells the seller that you are a serious buyer. Your flexibility and accommodation of seller time frames can also be beneficial. For example: extending the closing time frame for a party that cannot move for several months; or making your offer for the property “as is”, meaning you will pay for any needed repairs.
In less competitive areas, or “cold markets”, you will have more room to negotiate with the seller at a lower purchase price. REO, short sale and Bank Owned properties can often be obtained at great prices, but be prepared for a long and challenging closing process.
In any market, you will want to bid to win. Be sure to discuss the best strategy for your offer with your REALTOR®.
This information is meant as a guide. Although deemed reliable, information may not be accurate for your specific market or property type. Please consult a REALTOR® professional for more information on making a written offer.