Here's How to Determine Offer Price When Buying a Home
How to Determine an Offer Price When Buying a House in MN
The moment you have been waiting for has arrived. The home you want to buy has come on the market. You feel like Goldilocks when she lays in the baby bear’s bed that felt just right. Unlike Goldy, who proceeded to take a nap, you are ready to rock and roll. It’s time to write an offer, also know as writing a purchase agreement.
The central theme of the offer is the amount you agree to pay to the seller for the property. Your goal is to reach that magical place where deals come together. It’s that sweet price point where the seller receives the amount he wants, and the buyer knows she is not paying too much.
The starting point is the seller’s asking price. Your real estate agent’s job is to help you decide if it is reasonable or too high. Several factors to consider that will affect your offer price include a comparable market analysis of homes that have recently sold, market conditions, property condition and updates, length of time on the market, and seller motivation.
The Comparative Market Analysis or CMA
Your buyers’ agent will pull several months of data on homes that have sold in the same general location to help you determine a range where your offer price should fall. Comparison factors will include the number of bedrooms and baths, price per square foot, age of the home and condition.
When you find comparable properties, you want to compare the sold price to the listing price. Did most homes sell above, below, or at the listing price?
While it is critical to know what comparable properties sold for, it is also essential to look at those that did not sell. Was the price too high for the market? Were alterations made to the home that affected salability?
Another vital piece of data is the number of days comparable properties were on the market before going under contract. Did a home sell quickly at a particular price point or languish on the market for weeks or months?
Local Twin Cities Real Estate Market Conditions
Have your Realtor pull a list of comparable homes on the market in real-time. Consider those that have recently sold and those that are under contract and pending. Even though this will not tell you the agreed-upon selling price, it will show you how fast homes are selling in your area of interest and price range. If there are few homes available to purchase, you can conclude the market is competitive, and there may be other offers and a bidding war.
Remember, if you fell in love with this home, chances are others did too! Securing a deal under these circumstances may require you offer a price on the high end of the range even if it is above asking price. The general rule, if it is a seller’s market, you should expect to move quickly and make an offer on the high end of the price range. If it is a buyers market offering a price on the low end of the spectrum might be enough for an opening bid.
Condition of the Property
The condition of the home you want to buy has a strong influence on the price. If it in move-in condition with an updated kitchen and bath, expect there will be other offers so come out with your best opening bid. You may not get a second chance.
If you find a fixer up that has good bones and meets all your criteria, you will have an opportunity to purchase it at a lower price that reflects that condition and might be the perfect deal for you. A word of advice, make sure you know what you are taking on and be sure the house is structurally sound.
Length of Time on The Market
When you look at a listing on most real estate websites, you can discover the time a property has been on the market. But what you won’t find out is if it has been listed previously, either with the same agency or a different one. Your agent can get that information for you.
If the home you want to buy has been on the market for a long time, you may wish to bid on the lower side of the price range. If it has been previously listed and didn’t sell, you know it is overpriced. In situations like this one, your agent’s experience and knowledge is invaluable. Seek guidance.
How Motivated is the Seller
There are times when the homeowner has a strong motivation to sell quickly. For instance, perhaps they are moving out of town or state for a new job. Maybe they already bought their next home and want to avoid paying two mortgages or maintaining two homes. Perhaps there is a divorce or financial problems that make it necessary to sell quickly.
All of those factors mentioned above may inspire a seller to take a lower offer and sell sooner than later. Or it may not. Each situation is unique. However, knowing more is better than not knowing enough when it comes to the sellers and their reasons for listing their home.
As you work through the steps of writing your offer, always remember the goal is to put together a deal that benefits you and the seller. Final thoughts; analyze the data, ask the right questions, consider your options and make an offer that fits into your predetermined budget. Most important of all, listen to your agent and let him guide you through the process so you can sleep in the house that is just right for many nights to come!
Please check out these other posts on the topic of buying a home.