Preparing Your Offer

What Price Are You Going to Offer?

You’ve found the house you want. Now you need to convince the seller to let you buy it. But what is a “fair price”, one that both you and the seller can agree on. It isn’t always the seller’s asking price, but how do you come up with the price you are willing to pay?

Factors Affecting Your Offer Price

You should consider several factors when coming up with the price you are going to offer. The first step is to become familiar with what similar properties in the same area have sold for. Then you want to look at the overall condition of the home, any improvements that have been made to the property, the condition of the current market and any extenuating circumstances of the seller. The final thing to consider is your negotiating style; are you willing to ‘bargain’ for the property or do you want to reach a quick decision. After consideration of all these factors, you can decide on a fair price to offer for the purchase of the home.

1. Obtain the Most Current Sales Activity

When you look at what similar properties in the same area have sold for, you will be reviewing the ‘comparable sales.’ You want to compare as closely as you can to your desired property by looking at homes with similar square footage, number of bedroom and bathrooms, age of home, area of town and possibly even within the same subdivision. All of these homes that you include should also have been sold within the not-to-distant past. For example, looking at a home that sold 2 years ago may not reflect the current market conditions in your area of interest.

The most easily accessible comparable sales information can be located by your real estate agent in the Multiple Listing Service records. The Multiple Listing Service (MLS) is a “warehouse” of all the properties available for sale and those that have sold. Your Real Estate Professional has access to this list and can find out much more information than is generally available to the public. There are sites where the public can view various forms of information, but it will not be as complete as what your agent can provide.

When the sale of a home is completed and the transaction is closed, the selling price will be reported to the MLS. Since home sales are kept for several years, the database is huge. This is where you and your agent will look for comparables to that home for which you are planning to submit an offer. Of course, the most useful information will be from those sales that are most current. Using this information, your agent can guide you in determining your offer price.

2. Property Condition

Pay special attention when trying to evaluate a home’s condition. Being structurally sound is obviously the most important – look at walls, ceiling, floors, doors and windows. Next look at the fixtures, wiring and appliances – bathrooms, plumbing, kitchen, lighting, and electricity. Cosmetic items should be evaluated last (although they are always the ones we notice first) – paint, carpeting, flooring, window coverings. And don’t forget to check and see if the front and back yards are in reasonably good shape.

Now how do you use all this information that you have gathered? Your agent has checked available comparable homes in the area and together you will tour any other properties currently on the market. You can now see how the home you want compares to the others presently offered. Rank your desired home as average, above average, or below average with respect to what you have seen. Unfortunately, this will not help you in regards to the condition of the homes from your comparable sales list. However, if you have chosen the right agent to represent you, they may have personally visited most of the sold homes and be able to provide you with useful information.

3. Home Improvements

Note whether the previous owners of the property you wish to purchase have made any significant improvements. Painting or new knobs on the kitchen cabinets are examples of improvements which should be largely disregarded. Important improvements might be room additions, expensive flooring, upgraded carpeting, or swimming pools. You will, however, need to discount the monetary value of these improvements depending on when they were installed. Obviously those recently completed will hold more value than those added at a considerable time in the past. Make sure to rely on your real estates agents’ expertise to provide input in this area.

4. Market Conditions

You are probably familiar with the terms “Sellers Market” and “Buyers Market”. In a sellers market, the seller runs the show. Properties tend to sell very quickly after being listed. There may even be a ‘bidding war’ where the seller ends up selling the home for more than the asking price! Traditionally, most buyers want to get a “deal” on the home they are going to purchase. But in a sellers market, presenting an offer that is even a few thousand dollars below the asking price could result in losing your dream home. Is that worth it to you?

It’s just the opposite in a buyers market. Properties sit on the market for long periods of time and may experience several price reductions or buyer incentives just so that buyers will come take a look. This type of market allows you flexibility in constructing your offer. It is likely that even if your offer is low, the seller will make a counter-offer and then you both can negotiate towards an agreeable price. Remember though, don’t make your offer too low, you don’t want to insult the seller and lose the opportunity to buy your dream home!

More often, though, the market will not be at either of these extremes. It is usually steady, with some areas more active than others. In this case you could choose a home that ends up getting multiple offers or one which has had no offer in weeks. The best idea is to discuss possibilities with your real estate agent and present the offer you feel is most reasonable.

Unfortunately, no one can reliably predict when market changes will occur. Your best bet is to be as informed as possible before settling on your offer price.

5. Motivation of the Seller

In truth, the seller’s motivation will rarely affect the price of the home. You may save a little money if:

• The seller has already bought their next home and wants to sell their current home to avoid two mortgage payments.
• There has been a change in the seller’s situation such as relocation, divorce or bankruptcy.

In general, words like relocation, divorce, motivated seller or bankruptcy are used in the public advertisement of property to generate phone calls rather than to sell the home. Even if the facts are true, it doesn’t mean the seller is motivated to lose money on a quick sale. If a seller is truly in distress, however, then your real estate agent will probably be made aware of this fact through the Agent Remarks on the MLS data sheet. This way you can be sure that the seller is actually motivated to sell their property quickly.

Deciding On Your Offer Price

An analysis of the comparable sales will give you a good basis for deciding on your offer price. In addition, you need to look closely at the condition of the property and the amount and type of any improvements. Also, consider the state of the market in which you are purchasing the home and what affect this may have had on the seller’s decision to sell. Lastly, you need to ask yourself how much time you want to devote to the negotiation of your purchase.

Your “fair” price should reflect what you would be willing to pay to attain your dream home. The price you present in the offer may be lower. Most buyers tend to start with an offer that is somewhat lower than what they consider a “fair” price. Even though your real estate agent will assist you in this process, remember that the offer you eventually submit is up to you!