How much should I offer when purchasing a new home?
First time homebuyers often ask me this question. As a realtor, it’s my job to educate them on the real estate market to help them make a sound decision on what their offer should be.
First of all, your realtor should provide you with a Comparable Market Analysis (CMA) showing similar properties that have sold recently in the same area. The CMA will calculate prices of all the active, pending and sold properties in order to provide an average price. This average price is a good starting point. It often, not always, means that it is likely the home will appraise for somewhere near this amount.
There are other contributing factors to an offer price. These factors include time on the market, number of offers submitted, whether it’s a buyers’ or sellers’ market, and, of course, property condition
In a buyers’ market, you’ll often see homes with more days on the market. The longer the house has been on the market, the more likely it is that the seller will negotiate a lower offer. If you do decide to go this route, lowball offers are generally 10-20% less than the asking price. The seller has the option of rejecting or countering your offer. If the seller counters your offer, it’s your decision as to whether or not you’d like to accept their counter, make a counter offer of your own, or walk away. Sample Scenario: Listing price is $300,000. Your offer is $240,000. Seller counter offers at $260,000. You now have three choices: 1) Accept the sellers’ counter offer of $260,000; 2) Counter offer the sellers’ counter offer at a lower price (possibly $250,000 or whatever you decide); or 3) walk away.
On the other end of this spectrum, let’s say it’s a sellers’ market, there’s a brand new listing that you love, and it’s a multiple offer situation. It is more than likely that at least one or more of the offers are at or above asking price and the seller is not going to accept a low offer. At this point, you need to decide just how much you want the house and how much over the asking price you’re willing to go. The price boils down to how much the seller is going to let the property go for and how much the buyer is willing to pay. If you can afford it and are qualified, don’t be afraid to offer higher. Unless you waive the appraisal contingency on the contract (not recommended), you won’t be paying higher than what the house appraises for unless you choose to. For example, the house is listed for $200,000 and your accepted offer is $210,000. The appraisal comes in at $205,000. The seller now has the option of renegotiating the sale price to $205,000 (most sellers will) or not selling. If the seller decides not to sell at the lower price, the buyers, if willing and able, can pay the difference in cash (lenders will not lend over appraised amount) or walk away with earnest money refunded in full. It should also be noted that type of financing will factor into what offers will be accepted in a sellers’ market: the easier, the better. Cash is always good. If not cash, a conventional loan is the route to go. FHA sometimes has hurdles the seller may not want to jump through. Sellers often are not willing to pay VA non-allowables.
One last thing to keep in mind when making an offer to purchase a property is buyer concessions (closing costs, warranties, etc.). It doesn’t hurt to ask. You’re more likely to have concessions paid by a seller in a buyers’ market than in a sellers’ market; however, it is possible. If you really love a house and you’re going to be asking for concessions in a sellers’ market, you may want to raise your offer price accordingly so the seller still nets the same amount.
I hope this helps. If you have any questions, please contact me at (602) 882-JANA (5262) or janakaye@cox.net.
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