FAQ'S: Step 5 to Buying Your New Home - What's a Fair Price?

Question:  Now that we've found the perfect place, how can I figure out how much to offer the sellers to buy it?

Answer:  There is no magic formula for coming up with the perfect price to go with your perfect home. There will be two important factors.  First, how does the asking price stack up to the actual "market value" of the property?  And second, are you the only offer on the table, or is there competition from other buyers who share your good taste?

Once you decide on a house, I will start by putting together the history of sales for similar homes in the neighborhood or even the same street.  I will give you information about the differences in each one - was the kitchen renovated?  Was there a first floor powder room?  Was the lower level finished?  In short, what did these homes have that your new home lacks, and vice versa.  This will help you determine whether or not the sellers' asking price is reasonable or just way optimistic.

If you are the only offer on the table, it may be difficult to resist the urge to negotiate for a lower number, even if their price is at or below the recent comparable sales. Here are some important considerations:

• If the home was just listed, the sellers might be less willing to negotiate than they will be after it's been on the market for a few weeks or months.
• If you go in too low, they may not take your offer seriously and reject it outright. 
• If they do decide to enter into negotiations with a counter offer, competition could show up while you are going back and forth.  You could become the warm up act for what could become the main feature - the new buyers' offer!

In competitive situations, especially if you really, really want the place, you could be tempted to offer more than the asking price, even throwing caution to the winds and pay more than the research shows the house is worth.  Or, as frequently happens these days, you could decide not to participate in a nasty bidding war and move on to find another new home. 

There are some listing agents who deliberately price below market in the hopes that the property will get bid up.  So the focus really needs to be on the market value rather than the list price.

Of course, price is not the only factor.  The terms of the offer you make will also influence how attractive it could be for the sellers, whether or not there are other offers on the table.  And that will be the topic of Step 6!  So stay tuned!