Trying to Decide How Much to Offer on a House? We Can Help
The right offer can be the difference between getting the keys to your dream home or losing it to another buyer. However, figuring out the “right offer” can be difficult, especially in a competitive market.
This article will discuss factors to consider when making an offer on a house. Whether you’re a first-time home buyer or seller, or you’re a seasoned pro, we’ll help you make an informed decision when trying to determine how much to offer on a house. We’ve also included a few helpful tips for making your offer stand out in a crowded market.
Let’s get started!
What Type of Market Is it?
Before deciding whether to offer above or below the asking price, be sure to research the current housing market. Largely depending on supply and demand, the real estate market is always in one of three categories:
1. Buyer’s Market
There are typically more houses for sale in a buyer's market than potential buyers looking to purchase them. Therefore, during a buyer’s market, you may want to consider making a lower offer than the list price of a home. You’re also potentially in a better position to suggest seller concessions.
2. Seller’s Market
In a seller’s market, the homeowner has more power because there are usually more potential buyers than houses for sale. This market often leads to bidding wars and sales prices going above the market value of a home. This is normally when overbidding and offers above ask are seen.
3. Balanced Market
When the local market conditions provide neither the buyer nor the seller with a clear advantage, you’re in a balanced market. In other words, roughly an equal number of buyers and homes are available. Houses are more likely to sell for their listing price (or close to it), but that doesn’t mean you’re without wiggle room or negotiating power.
Additional Factors to Consider
The market conditions are just one factor to consider before deciding how much to offer on a house. Before making a lowball offer or coming in way above a home’s value, here’s some food for thought:
How Much House Can You Afford?
Establish your price range before you buy a house. Don’t calculate this based on what your pre-approval letter says. Your pre-approval letter is the amount your mortgage lender is conditionally willing to lend you. However, just because you can borrow $500,000 doesn’t always mean you should.
The larger your loan, the higher your monthly mortgage payments will be. So, if you want to borrow $400,000, keep that in mind when calculating your purchase offer.
What Are Similar Homes Going for in the Neighborhood?
By compiling a comparable market analysis, you can identify the listing and final purchase prices of similar homes sold in the last few months. One clear indicator of a home’s value is how much comparable homes nearby have sold for recently.
For example, if the house next door is identical to the one you’re looking to buy and recently sold for $800,000, then $800,000 may be a reasonable asking price. However, if it sold for $20,000 below the ask, it is a good idea to investigate why that is and take this into consideration when making your own offer.
How Long Has the House Been on the Market?
Has the home been on the market for several months? Is it available for a lower price than a month ago, or has the home price dropped multiple times? Houses on the market for long periods are more likely to have motivated sellers wanting to sell. You may want to consider making a lower offer or negotiating closing costs if this is the case.
Before you gather your down payment and earnest money, try to figure out why the house is still on the market. Is there a lien on it? Is the seller or their real estate agent hard to work with? Get all the information you can before entering a deal.
Conversely, if a house has multiple offers after only being on the market for a couple of days, you’ll likely need to make a higher offer to remain competitive.
What Condition Is the Home In?
If the home desperately needs a renovation, or if something came up during the home inspection that will be costly to fix, consider making a lower offer or asking for seller concessions. You can negotiate for the seller to pay for these repairs so that you don’t move into a fixer-upper. Don’t hesitate to request additional inspections to ensure the repairs were done correctly.
Meanwhile, new homes and move-in ready houses are often more desirable, so you may consider starting with a higher offer.
How Badly Do You Want the Home?
Emotions are a factor when buying a home. If the house is “perfect” for you, you’ll be more inclined to lead with your best offer. Before you do, though, try to be as objective as possible. For example, don’t ignore the $15,000 assessment or the fact that it’s slightly out of your price range.
If you show your hand, you may get out-negotiated by the seller and pay more than you would’ve otherwise. But, at the same time, if you don’t make a compelling offer, you risk the seller closing with someone else.
The more informed you are, the better your chances of making a competitive offer.
How to Make Your Offer Stand Out
Sellers typically go with the highest offer presented to them. However, that’s not always the case. So before you decide to bid above their best offer, here are a few ways to make an offer more desirable:
Find Out What the Seller Values
Good poker players know you should play your opponents, not your cards. The home-buying process is no different.
Create your offer with the seller in mind and tailor it to their needs. For example, if the seller is starting a new job in a different city and needs to sell quickly, they may value a faster close over a higher offer. If that’s the case, make your offer as hassle-free as possible.
Be Earnest With Your Earnest Money
Making an earnest money deposit helps show the seller that you’re serious about your offer. If you and another potential buyer have made the same offer, show how serious you are by putting more earnest money down. For example, if you put 2% down while the other potential buyer only puts down 1%, yours may be considered the more genuine offer.
Keep Your Contingencies to a Minimum
We don’t recommend waiving the home inspection or the appraisal, but the fewer strings you attach to your offer, the more attractive it gets. However, these can come at a cost, like making costly repairs if the home isn’t in excellent condition or paying for all the closing costs, so be careful with what you remove here.
Using Aalto to Determine How Much to Offer On a House
Aalto is a modern real estate platform that empowers homebuyers and sellers alike to take control of the real estate transaction process. The traditional real estate process is daunting by design, and sometimes even figuring out how much to offer on a house can feel like an arduous process.
Luckily, it’s not a process you have to undergo alone. Aalto offers tools, access to homes, and insider information generally reserved for agents. Buyers can get the full story on any home, while sellers can price their homes like a pro and gauge real-time market demand, making the process easier no matter what side of the transaction you’re on — all while saving you money with lower fees and cash-back offers.
Are you ready to join Aalto’s mission of shifting the balance of power in residential real estate toward consumers? Get started on Aalto today!