By Dian Hymer
One of the most difficult aspects of making an offer to buy a home is figuring out what price to offer. Ideally, you want your offer to be good enough to attract the seller's attention, but not so high that you overpay for the property. What's the magic number?
Different markets require different strategies. In a buyer's market, you often have the luxury of offering below the list price. You and the seller can then negotiate until you reach a mutually acceptable price.
A seller's market, as we are now seeing in many areas, is a different story. If you're in a multiple offer competition with other buyers, you may not have a chance to negotiate with the sellers. In this situation, your first price may have to be your very best offer.
Regardless of the market conditions, you need to understand local market value to feel comfortable with your offer price. The best way to learn market value is to look at a lot of listings of the kind of home you hope to buy. These might be homes you see at Sunday open houses, or listings that you see with your real estate agent.
Let your agent know the addresses of any listing you see that might work for you. Ask the agent to let you know the sale prices when the transactions close. Keep a record of these listing and sale prices. You can refer back to this data when you decide to make an offer.
House Hunting Tip: It's useful to look at the relationship between the list price and the selling price of listings you've seen. For example, if homes are selling, on average, for 97 percent of the list price, you might use this percentage as a gauge. If you think a property is well priced, you could offer 4-5 percent below the asking price and plan to negotiate a price that's approximately 3 percent below the list price. Your agent can provide you with additional comparable sales information for sold listings that you didn't see.
What do you do when there aren't any guidelines? In a hot seller's market, properties often sell for considerably more than the list price. A seller in Arlington, Va., recently listed his home for $399,000. He received 12 offers and the home sold for $472,000. A Berkeley, Calif., home seller recently received 6 offers on a home listed for $659,000. The property sold for $810,000. It was hard to predict in advance how high either of these properties would sell.
In both of the above examples, the winning buyers made relative bids. With a relative bid, the buyers agree to pay an additional amount over the highest offer the seller receives. For example, you might include a clause in the purchase contract that states that the buyer is willing to accept a counteroffer from the seller for a price that is $10,000 above the highest offer. To be safe, the clause should include the highest price you'd be willing to pay.
Some buyers and sellers don't like relative bids. A disadvantage to the seller is that it requires a counteroffer. A seller might not want to risk countering a lower offer when he already has a bona fide offer from another buyer for a higher price. A disadvantage for the buyer is that you reveal that you'll be willing to pay a higher price.
The Closing: There's an element of guesswork involved in multiple offer bidding. It helps to work with a trustworthy agent who knows local market value and who can advise you how much to offer.
. Questions of a Do It Yourself nature should be submitted to our "