You Found The Right Home. What Do You Offer The Seller?
You’ve looked at homes and found the one you want. Now what? What purchase price should you offer the seller? What other terms should you consider including in your offer? Here are some things to consider…
Making an offer on a home is just one more step in the home-buying process where an experienced, trustworthy real estate professional is essential. Whether this is the first offer you have ever made, or the fifth home you have purchased, remember that your broker has successfully negotiated who-knows-how-many offers. While the price and terms you offer are entirely your decision, you need to work with a broker whom you trust to have only your best interests at heart, and then seriously consider the advice she gives you.
First, your broker should do some “homework” for you. She should run “comps” for that home. This means she will do an analysis of recently sold homes that are comparable to the home in question. This will include homes within the same area that are similar in size, the number of bedrooms, baths and other factors. This analysis will show you the price (converted to dollars per square foot to make comparisons easier and more meaningful) that similar homes are selling for in that area.
Why is this important? If comparable homes in the area are selling for around $110 per square foot, you may be offering too much if you offer the seller a price that equates to $115 per square foot. Plus, if the home is priced significantly higher than the comps, you may have more flexibility in the price you offer. If you find that the home is very competitively priced at $108 per square foot, you may have less flexibility since the seller has already “priced to sell” the home. If the list price is right in line with the comps, you may have less flexibility in the price: the home is priced at market value, fair for both the seller and the buyer.
The analysis your broker performs should also include information about how long homes in that area typically stay on the market before selling, and the average percentage below list price that the homes sell for in the area. If, on average, comparable homes are selling at 98% of list price within two to three months, the home is probably in a ‘hot’ area, and you may have other buyers considering making an offer on the same home. This would indicate that you may want to make a stronger offer on the home than you otherwise might. On the other hand, if comps are selling at 95% of list price and are typically on the market for seven to nine months, you may have less competition and, therefore, more flexibility. You may also have a seller whose home has been on the market for a while—they are probably anxious to get it sold.
This analysis not only helps you make an informed decision, it also helps your broker in negotiations with the seller’s broker, especially if the home is priced higher than the comps—your broker can use this to justify your offer.
Your broker can also obtain additional information, such as the seller’s desired timeframe for closing, if another offer is currently being considered by the seller, or if the seller has received and rejected previous offers. This type of information can help you and your broker strategize the most successful offer.
In addition to deciding what price to offer, you must also decide what terms you want to include in your offer. For example, if you want the seller to pay for some closing costs that are usually paid by the buyer, you may want to offer a slightly higher price than you would otherwise to help the seller offset these additional costs. If the seller wants to close fast, and you can accommodate that, you may be successful offering a lower price than you otherwise might. Negotiations are not about “winning”—they are about obtaining an agreement that is acceptable to all parties involved. If this doesn’t happen, you won’t get the home you want—someone else will.
In summary, there is no definitive answer to the question “What Do I Offer The Seller?”. Every situation is unique. Deciding what to offer a seller is a bit like making soup: you consider all the available “ingredients” (the comps, the market situation in the area, your situation, the seller’s situation to the extent knowable, and other factors) and then combine them in a way to come up with the best “recipe”!