What Are the Factors That Affect Your Offer Price?
You've found it! The perfect - well, almost perfect house. There are a few little things
that you'll want to change, but overall, it's exactly the house you've been waiting for.
You know the seller's asking price - but you're not sure how much to offer him for the
property. It's a dilemma that faces many first time (and often second and third time) buyers.
Take heart. Settling on an offer price that will clinch the deal without paying too much isn't
as complex as some make it sound. It's just a matter of weighing several factors to come up with
a number that takes them all into account.
To start with, write down the asking price of the house you love on a slip of paper - and
put it aside. You won't be using it in your figuring at all. If anything, it's your high
end reference point.
Instead of starting with the seller's asking price, buckle down to do a little comparative
research. If you've looked at several houses in the same price range, you'll have a fairly
good idea of the general market price for similar homes in the same area. There's your
starting point. From there, compare the house with others in the same area and adjust the
price up or down in considering condition, extras and improvements. Next, evaluate the
market conditions, and finally factor in the seller's situation.
That's the quick, down-and-dirty nutshell version of how to determine your offering price.
Now let's take a look at each step with a bit more depth.
Comparable home sales price
Your first step is to find out the prices that similar homes have brought recently.
Specifically, you want to look at sales of homes with about the same number of rooms, bedrooms,
square footage, lot size and type of construction. The main sources of information about
comparable sales are the public record and the Multiple Listing Service. You can find most
of the information you'll need in the public records at the local Registrar of Deeds
office - though you may find that the records are 1-2 months out of date. They will give
you a base price though.
Most of the information that's compiled by the Multiple Listing Service is only available
to Realtors, but that's starting to change. You will find information on selling prices and
details about homes on web sites like
Realtor.com - but it's still far easier for your real
estate agent to access those figures for you. If you're working with a buyer's agent, ask
their advice on local comparable home sales in recent weeks. Those sales will be posted
to the MLS as soon as the deal is closed.
House Condition
Information on comparable sales, particularly the most recent comparable sales, is the
best starting point for your calculations, but there are other factors that should play
into determining your offer. The condition of the house should be a major consideration,
for instance. Is the property average for the community, or have there been improvements
that make the house worth more than its neighbors? Perhaps it's a bit on the shabby side,
so worth a bit less than other homes in the area.
If there are structural defects, or problems with the house's basic systems that won't
be repaired before a sale, factor in the cost of making those repairs yourself. Consider
the cosmetics - paint, flooring and any special extras that the house may have. If there
have been major improvements to the home, factor in a portion of the cost of the improvement.
If the condition of the house is excellent, and there are improvements to the property that
are substantial, nudge your offering price up. If the condition is poor, obviously, nudge
it down a bit to reflect the extra work that the house will require.
Property Market Condition
A third factor that should have a major effect on the price that you offer for the property
is the condition of the market. Your goal is to make an offer on the property that will beat
the price offered by other potential buyers - without paying more than you have to. If the
real estate market is 'hot', you may not be the only prospect bidding on the house that you
want. If that's the case, you'll probably have to make a higher offer than you would in a
'soft' market. If home sales are slow, a seller will be more inclined to accept a lower offer.
Home Seller Information
The final major factor to consider is the seller's personal situation. A seller who has
already bought a new house, for instance, is more motivated to sell rather than continue
paying two mortgage payments. Other situations that may incline a buyer to accept a lower
price include relocation to a distant city, or having inherited it without having any desire
to live in it. The more you know about the situation the seller is in and their reasons
for selling, the more information you have on which to base your offer price.
Once you're determined an offer price, run it by your real estate agent for a reality check.
If you've engaged a buyer's agent as opposed to working with a realtor who is engaged as a
seller's agent, they'll be able to offer valuable advice and insight - without being influenced
by the prospect of higher commission on a higher price.
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