How to Make an Offer to Buy a Home
Although your real estate agent is likely reluctant to name a price for you, you can utilize your agent's expertise to figure out a price to offer when buying a home.
Obtain Crucial Data Before Making a Home Offer
It's always helpful to find out why the seller is selling; however, you might not be able to obtain that information because the listing agent may refuse to tell you. But you can gather information without relying on the listing agent's cooperation. Realize that none alone of the following is sufficient, but each used in conjunction with the others will help buyers to make the decision on which price is best to offer.
- Determine the Market: Check the temperature of the marketplace. It is the market hot, cold or neutral? If you're making an offer in a buyer's market, you will have less competition for the home. Sellers will be more likely to be receptive to any offer because there are fewer buyers. If you're buying in a seller's market, sellers might not consider any offer that is less than list price. In fact, sellers could very well receive multiple offers, which means your offer should be as attractive as possible to win acceptance.
- Find Out How Much the Seller Paid: While it is true that in many cases the price the seller originally paid for the home has little bearing on today's market, if the seller purchased a few years ago in a depressed market, with little appreciation since, the asking price should be closer to the seller's purchase price. Although you may not be able to figure out the condition of the home when the seller bought it, nor whether the circumstances were extenuating, you can adjust for increases due to appreciation and remodeling improvements.
- Determine the Seller's Mortgage Balance: Unless the seller is in default and willing to participate in a short sale, the seller is unlikely to accept an offer for less than the mortgage(s), plus closing costs. If the seller has an extremely high mortgage balance, and the property is vacant, you can assume the seller is making those mortgage payments out-of-pocket, probably paying on two homes. If the mortgage balance is very low, the seller might not be motivated to immediately sell and can afford to wait out the market to get list price.
- Examine Comparable Sales: When looking at comparable sales, use only the properties that are similar in configuration, age, and location to the home you want to buy. Use the data from the most recently sold sales, and don't look beyond six months because appraisers won't.
- Analyze List Price to Sales Price Ratios: Ask your agent for a trend report covering the last six months. Look up the prices of the homes as they were listed and compare them to the prices that have sold. Ask how much is the gap? Are homes selling over list price or under? If under list price, by which percentage? If many homes are selling at 2% under list price, for example, that percentage could indicate the price the seller will or should accept.
- Check Square-Foot Cost Averages: First, understand that smaller homes are priced higher per square foot and larger homes are priced less per square foot. You cannot take the average square-foot cost and multiply it by the square footage of the home you want to buy to come up with a reasonable price to offer. But you can check the trends to determine if the square-foot cost averages are on the rise or declining and use that information to your advantage.
- Ask for the Home's History and DOM: Sometimes agents take listings off the market and resubmit them as a new listing. Find out if the home was an expired listing and then relisted. The Days On Market is important because if homes have been on the market longer than 30 days, the sellers might be more motivated to wheel and deal.
In closing, try not to become emotionally attached to the home before your offer to purchase is accepted. Prepare yourself for a counteroffer, and keep several other homes in mind in case your offer is rejected.