How Do I Know How Much to Offer?
You certainly don't want to pay too much for a home but there are some facts you need to consider when making an offer. First off, I have many first-time buyers coming in with a pre-conceived idea that they should offer 5% or even 10% under the asking price. They were told to do this by family or friends. In most cases, these family and freinds have not purchased property in a long time.
Your Agent Should Do a CMA For You
A CMA is a Comparative Market Analysis, which is what we prepare when we go to list a home to find the best price or price range. The same thing should be done for a buyer, especially when a buyer is in doubt as to what they should offer.
If the lowest priced property (that is similar to the place you are bidding on) is $200,000, and that property doesn't sound like it was in as good shape as the property you're interested in, then you should offer more than $200,000. You certainly don't want to offer lower than the lowest priced property (these are based on sale price, not list price).
You Have a Good Comparison Point Already
Unless this is the only property you viewed, you have already seen other homes in your price range but you decided this was the place for you. You liked it enough to write up a contract and you would hope to get this contract accepted. Other homes just weren't as nice (or weren't for you for whatever reason) in a certain price range.
If this was the best home for you in your price range and you truly want to be able to live in it, you should be very wary of coming in with a lowball offer. You could lose this home to another buyer that came in with a more reasonable offer.
The Hazards of Lowball Offers
I have personally seen sellers refuse to negotiate with offers that were low enough to offend the seller. One of my sellers came back at full price when confronted with an offer he felt was insulting. The next offer was still under his asking price, but it wasn't as low as the original offer and I was able to get him to negotiate until an accepted price was reached.
Even though we try to explain to a seller that they should not get emotional, we are dealing with human beings. Many of these people have emotions about their homes and can become rigid when they feel a buyer has come in with a lowball offer. Some sellers would rather wait for the next buyer than to deal with the lowball buyer. We cannot force a seller to negotiate.
Find Out What the Current Market Is
Even though our market is slowing down a bit, it is still active and in the mid to lower price ranges you have a very good chance of running into multiple offers. I recently listed a home for $199,900. After 7 offers the seller accepted a cash offer of $210,000. The lowest offer of the 7 was one for full price of $199,900. That buyer didn't have a chance.
I will explain later that it is not law that a seller's agent has to disclose that multiple offers are on the table. It is an ethical thing to do and I think it's always in the seller's best interest to do so, but not all listing agents agree. So you might not be aware that there is more than your offer on a property.
The Negotiating Game
Sometimes I feel like some buyers and sellers become enmeshed in a negotiating game where they both feel the need to "win." By law, the listing agent must disclose all offers to the seller. So even if a seller tells us that $250,000 is his lowest price and not to come back with anything lower, you can still make further offers and the listing agent is obligated to pass those offers on.
In most cases, continuing to underbid the seller's bottom line just antagonizes the seller. Unless I have good ammunition (a CMA that proves the price is still too high), constant back and forth underbidding will not guarantee you will ever get the home.
During Negotiations, the Property is Still Active
Coming in low and continuing with negotiations over days or possibly weeks just keeps the seller's property active on the market and another buyer can come in at any moment and make a better offer that does get accepted. In fact, if you have made the seller unhappy with the negotiation game, they are more likely to accept another offer that comes in at a more reasonable price.
In fact, your low offer might have set the seller up to accepting a lower price than originally planned, but with a different buyer! If you need to win the price game then be aware of what you could lose in the process, which could be your dream home.
The Appraisal Will Make Sure You're Not Paying Too Much
If you're still worried about paying too much for your property, the appraisal will tell you if you did or not. For those buyers coming in with a very high down payment, a low appraisal will not stop the deal. If you're a first-time home buyer with a minimum down payment, the appraisal could affect the outcome of the purchase. I'll go into this later, but in many cases the appraisal will be your safeguard against overpaying for a home.
If you have any questions or comments regarding this FAQ please Contact Me or give me a call at 708-536-8200.