MAKING AN OFFER
Once you have found a house that you like, you must decide how much to offer. In putting together your actual offer, consider the following seven factors:
1. The advertised price of the house
Treat this as a rough estimate of what the seller would like to receive, and recognize that different sellers price houses very differently. Some sellers deliberately overprice, others ask for pretty close to what they hope to get and a few (often the cleverest) under price their houses in the hope that potential buyers will compete and overbid.
- Your financial situation
What you can pay for a house will probably depend on your cash on hand and how much you can reasonably borrow in a mortgage. When figuring out the cost of the house, be sure to factor in your share of the closing costs, which will be about 2% of the purchase price.
- The prices for comparable houses
Before making an offer to purchase, you should know the selling prices of nearby houses similar to the one you are interested in buying. A comparable sale should have occurred within six months (the more recent, however, the better). In a market where prices fluctuate fairly fast, comps should be on sale within the last month. A comparable sale should be for a house quite similar to the one you are interested in—in terms of age, size, and type and number of rooms. A comparable sale should be within six to ten blocks of the house you want to buy, or less if a freeway or other dividing line splits the neighborhood.
4. Hot Market
In competitive areas, homes sell quickly, often for 10% or more above the asking price, as bidding wars erupt among frenzied buyers. You'll want to arrive at a bid amount that will beat out the competition, but only just. Then again, some buyers deliberately bid sky-high in order to stop the madness and find a home, reasoning that by the time they would have otherwise had a bid accepted prices would have risen anyway. In a cold market, however, you'll have more room to negotiate with the seller, and you may get a bargain.
Remember that price alone is not the only consideration for sellers. Your ability to close the deal quickly, for example, by getting loan approval or lining up inspections in advance of presenting your offer is often crucial, especially in hot markets. Finally, your flexibility and sensitivity to the seller's needs, whether it's extending the closing date for a seller who can't move for a few months or paying for repairs, may make or break your offer.
6. Your Dream Home?
A modest house listed at a reasonable price may be a bargain if you have three kids, the house is in an excellent school district, and the lot is large enough to add on a few rooms. The same house may be overpriced for a couple not planning to have children. Don't get so carried away with judging objective market considerations that you forget your personal needs.
7. How much you are willing to pay
While tactical considerations (the temperature of the market and the seller's needs) are important, nothing should outweigh your own honest assessment of how much you are willing to offer.