Deciding how much to Offer on a Home

If you’ve ever spent time bargaining in a Mexican street market, you may think you’ve honed your negotiating skills to a fine point. Haggling over the price of a curio, however, and negotiating the price of a home couldn’t be more different.

Let’s take a look at some things to consider when determining how much to offer on the house:

  • The market – Is it a buyer’s market or a seller’s market? Remember: in a buyer’s market, you are in the driver’s seat. In a seller’s market you’ll need to come in clean, with your highest and best offer.
  • Market value – Is the home overpriced? What percentage of the asking price are sellers in the market realizing at the close of escrow? Answers to both of these questions help determine an appropriate offer.
  • Concessions – Take into account any concessions the seller is offering,  such as new carpet or closing costs.
  • Condition of the house – A turnkey house deserves an offer close to asking price, whereas the buyer of a house that needs work deserves a price reduction.

Additional Considerations

Although it may not seem like it while you’re knee-deep in the house hunting process, the day will come when you find the perfect home and decide to make an offer to purchase.

Before you commit, there are a few things to consider:

  • The average monthly utility bills and maintenance costs may push your budget over the limit if you are buying at the top of your approval range.
  • Is the house priced properly? I’m happy to crunch the numbers to determine the home’s current market value and the percentage of list price that homeowners are realizing in the current market. This way, you’ll have a better idea on how much to offer.
  • Is the home located in a floodplain or other hazardous area? If it is, your lender will most likely require you to buy flood insurance, which adds to the cost of the home. A buyer who is purchasing at the loan limit may find the monthly cost prohibitive.

In a fast-moving real estate market you might be tempted to jump right in with a full-price offer. If you slow down, however, you may just save yourself from making a costly mistake.

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