Above, Below, or At List Price? How Much to Offer on a House8/5/2020
- Know your market
Before you get your heart set on a property, it is crucially important to understand if the market in your desired area is currently a buyers or sellers market A seller’s market can be tough for buyers and cost you more, especially if you allow emotions – instead of logic – to drive your offer decision.
- A buyer’s market is an area where more houses are listed for sale than active buyers ready to purchase them. This gives buyers the advantage, especially with a motivated seller, and is undoubtedly the best market to find deals.
- A seller’s market has eager buyers competing for houses as soon as they are listed for sale. This gives sellers the advantage as homes often sell quickly and above list price.
- Know the comparable sales or comps in the area
“Comps,” short for comparables, are recently sold homes that are similar to the house you are offering to buy. Home sellers use comps to help them determine their asking price, while you can use comps to figure out how much to offer on a house.
You can find comps by looking at online real estate listings, but for more accurate and detailed information, you’ll want to rely on your real estate agent. This is because listings typically state the asking price of a home, but not the final sale price, which is more indicative of the market value.
Fortunately, your real estate agent has access to a variety of databases, such as the multiple listing service (MLS) that provides more detail about comps. Your agent will interpret the information and write up an offer that works for you and the current housing market Having this information is especially important once negotiations begin.
- Know the condition of the home listed for sale
You’ll want to compare the condition of the house you like to what’s known about the comps. Let’s say the comparable homes all have new appliances and sold at the same price as a home you are considering – except the home you’re thinking about making an offer on has old appliances. You’ll know you can offer less because the properties don’t compare apples to apples, and you’ll likely need to make upgrades in the not-too-distant future.
This comparison stands true for any repairs or updates you’ll need to make in the home. By looking at the condition of homes that have sold recently in the same listing range, you’ll have a good idea of the value those repairs bring to the house.
4. See if you can discover the seller’s intentions
Understanding the seller’s intentions for selling the home can be an ace in your pocket. Maybe the seller is relocating for a job and will take a lower offer in order to sell the home quickly. Or perhaps an older couple is moving to Dallas to retire, but they have plenty of time to sell their home and therefore, want the best offer.
Check with your real estate agent to see if they have any details about the seller’s intent. They may not have any information to share but it’s always worth checking. When you know a bit about the seller’s motivation for selling, you gain important insight on how much to offer – and what other terms might appeal to them, such as a quick closing or allowing them more time to move their belongings.
5. Know your reasons for buying a house
Before you start drafting up offers, understand your motivation for buying a house. Do you plan to stay in the area for 5-10 years? Are you looking to put down roots? Or are you thinking more short-term, with a likely plan to sell in a few years when the market turns around?
When you are clear about where you stand, you can make a logical offer based on your realistic wants and needs, rather than letting your emotions rule the day.
6. Know your budget
Every buyer should seek a pre-approved loan before the house hunting begins. This pre-approval creates leverage for making a firm offer based on current finances and a willing lender. Your pre-approved status is a signal to the seller that you can close on the house if you make an offer.
Going through the loan approval process provides good information to help you understand the demands on your budget. And to be clear, just because the lender agrees to lend you a specific amount does not mean you should offer the full asking price on a house.
Put all the numbers on the table. Determine the amount you are pre-approved for and then use a mortgage payment calculator to figure out what your monthly payment would be. Be sure to also account for private mortgage insurance (PMI) if it applies, in addition to any other expenses. See how it all adds up and determine a reasonable budget that fits the lifestyle you want to have while living in that house
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