How Do I Decide What To Offer For A Home I Want To Buy? How Do I Make An Offer?
Every home buyer wants the lowest price for their next home. Finding a suitable home to purchase takes careful consideration of your needs in the future, but what is more difficult is determining how much you should offer.
In this article, we will cover a number of factors that prospective buyers should take when deciding what to offer for a home and how to make an acceptable offer.
What Price Have Similar Homes Sold For?
One of the first things that you should do when pricing a new home is to compare similar properties in the area.
Known as “comps” in real estate lingo (short for comparables), comps are a collection of completed home sales and current market sales that can help you determine a clear picture of what your target home is worth.The more comps that you take into account, the more you will understand the level of variation between pricing and a more realistic idea of what a property should be.
To find comps, you can use MLS listings, City-Data’s interactive home value map, online sources like Zillow, and more. Bear in mind that prices are subject to change and may not reflect the closing price (or concessions/contingencies added to the contract)
Consider the following criteria when generating comps for a property that you intend to purchase:
- Location of the property (i.e. close to schools, land features of the property)
- Construction type
- Square footage of the home
- Square footage of the property
- Number of bedrooms & bathrooms
- Current condition of the home & property
By comparing properties, you can determine an average price range that the home falls within. If the property is listed for lower, you may not have much room to negotiate a lower. If you find the home to be overpriced, this may offer an opportunity to start negotiations as a lower price if the owner is willing.
Length of Time the Home Has Been on the Market
Another factor that is extremely important in determining a home’s current value is how long it has been listed on the market. As a general rule, the longer a particular property has been on the market, the less the home may be worth.
Understand this predicament from the perspective of a home seller:
If the price of a home was too high, it may not have attracted enough buyers. In order to attract buyers, buyers would need to reduce the price to find a sweet spot, where they’re satisfied with the home’s selling price but also with the amount of offers they are receiving. This process usually takes time, so the longer it stays on the market, the more likely that buyers can get a home at fair-market value or less.
Sellers may also be in a rush to sell their property, as a home sale may hold up their funds for a new home purchase. The longer it stays on the market, the more likely that they feel the sale hanging over their head. This can be an opportunity for homebuyers to catch a great deal for property that may not have sold in a reasonable timeframe.
It’s also important to understand that if a home has only been on the market for a short amount of time, a seller may be turned off by a low-ball offer. This may ruin your chances of negotiation in the future unless better offers from other buyers fall through.
What is the Current Condition of the Home?
Unless the land in which a home is built on is extremely valuable, the condition of the home is a serious factor when determining the price that you’re willing to pay for it.
Most homebuyers want a turn-key home, a house that is ready to be moved into without any major repairs for livability. These homes are usually sold for close to fair-market value. Homes that are in lesser condition, however, may offer room for negotiating repairs depending on the current state of the home.
While a fixer-upper may be a great opportunity for those who may not be turned off by a home that needs repair or have less capital to work with, understand that they’ll be a tremendous amount of “sweat equity” and time spent that needs to be put into the house to make it safe and livable.
In order to come up with how much you can lower the asking price, you’ll want to pay attention to structural and functional issues (though aesthetic issues are also important in their own right). Some of the most common structural issues to check for include:
- Damaged roofing
- Sagging or warped floors
- Cracks in the concrete foundation
- Rusty plumbing
- Water stains on walls, ceilings, and floors
- Damage from pest infestations
- And more
Not all of the problems of a property may be visible for prospective buyers. If you’re serious about buying a property, hiring a home inspector is a smart decision to look over a home. Home inspectors can corroborate your findings, provide cost estimates for repairs, and discover problems that are usually only apparent to professionals (such as code violations, especially for older homes). Once an inspection is completed, you will have a clearer foundation to negotiate a price for with a seller that takes into account how much the home is actually worth.
Being Flexible on Price
For buyers that do not have the ability to offer more cash for a property upfront, there are ways to make an attractive offer that may persuade a seller. Besides price, homebuyers can make their offer more attractive by negotiating the following factors:
- Closing schedule
- Closing costs
- Rent backs
- Bartering assets
The main idea is to make the process of selling the property smoother for the seller in exchange for a lower price. For example, a home may be in need of a significant repair during the summer - a hard time to secure contractors - so you can offer to handle the repair on your own schedule for a lower price and expedite the sale.