There have been a lot of changes in Real Estate lately. Whereas a year ago, homes in Henderson and Commerce City, Colorado, might languish on the market for 6 months or more, lately the number of days on market has dropped dramatically. What's more, available homes are at a 10 year low throughout the Denver Metro area!
This means that home prices are starting to rise. It also means that multiple offers may be submitted for those limited homes.
How do I determine what the best offer price is on a home?
As recently as 6 months ago, a buyer might find a home they love and automatically offer 5 or 10% less than asking price right off the bat. The prevailing opinion was that it was a buyer's market, and a seller would jump at any offer - even a "lowball". Urban legends abounded about buyers getting a $1,000,000 home for $300,000 - or less.
While some people did get greatly reduced prices on their home purchase, most listings were priced reasonably for the current market. In recent years, the "current" market was depressed in many areas. Now, however, many areas are seeing the market lean heavily toward the seller's side.
As a home buyer, you need to work closely with your Realtor and your lender to determine the best price to offer. Your lender will give you the amount you are qualified to borrow, and help you determine what your payments will be to stay within your household budget.
Your Realtor will help you determine the best price to offer by examining several key pieces of information:
- Sold "Comps". In the Real Estate business, Comparable Homes are referred to as "Comps". Your Realtor will research the sold data for other homes in the area you are interested in that are close in square footage, age, number of bedrooms and bathrooms, and condition, to compare it to your desired property - referred to as the "Subject" property. Depending on how much activity is going on in the area, your Realtor may go back anywhere from 1 month to 1 year. Remember that the more recent a compared sale is, the more weight it should be given in your comparison. If the Subject property is nicer than the Comps, it would command a higher price. The opposite is also true: if the Subject property is a fixer - upper and needs a lot of work, it may be priced lower. Your Realtor will also be able to share other details with you about the Sold Comps, such as whether they were bank owned or short sale.
- Days on Market. If you are making an offer on a home that has only been on the market for a few days, the seller will probably expect to see a full price - or nearly full price - offer. If the property has been on the market for several months, the seller might be willing to accept something less than asking price. After comparing the Sold Comps, the number of Days on Market can be a great indicator of whether the seller is getting anxious to sell. Selling a home can be very disruptive to your personal life! Which brings me to....
- Price Reductions. If a property has been on the market for several months and the price has been reduced, the seller is giving a fairly clear indication that they are willing to negotiate. Keep in mind, however, that this doesn't necessarily mean that you can "lowball" them. If the price reductions are in line with the current neighborhood market, offering the current asking price might be just right (See #1, above). If there have been multiple price reductions in a shorter period - say every 20 days - the seller is giving an even clearer indication that they really want or need to sell, and may work with a "lowball". On the other hand, if the house has been on the market for many months without a single price reduction, the seller may be stuck on that price. This doesn't mean you cannot offer a lower price, but it may not get accepted!
- MLS Information and Notes. Sometimes, the seller shouts it from the mountain tops that they will accept an offer lower than asking price. "Motivated Seller!" "Bring All Offers!" "Please, PLEASE, Buy My House!!!!" (Ok, maybe we don't see that last one often...) These are all pretty good indicators that the seller really wants to sell, and these phrases can usually be found in the listing and marketing pieces. If a seller has become more "motivated" recently, the first place this might show up is in the MLS. Your Realtor will check the listing for you the day you decide to make an offer.
You may determine that the current asking price is just right. If so, there is absolutely nothing wrong with making a full-price offer. Not every Real Estate transaction needs to look like a Donald Trump negotiation!
And keep in mind that your lender will not lend you more money than the property is (technically) worth. They will be doing their own appraisal to determine what the value is in their eyes, so they know the property is worth their risk.
Wondering if your Denver Metro dream home is priced right? Call me today! 720-341-5235