5 Questions to Ask Yourself Before Setting Your Offer Price
On An Asheville Area Home
Today’s buyers do more legwork than any other generation of
home buyers, on everything from mortgage rates and programs to neighborhoods
and schools, to comparables for the home they want, because so much more of
this information is freely and easily accessed online. But none of that information diminishes the
anxiety around making the final decision what number to ink onto an offer for a
home. In fact, this inundation of
information can shift a normally sane buyer into overwhelm and overload, and
actually interfere with smart decision-making.
And the decision of what to offer to pay for a particular home
is particularly high-stakes – one you don’t want muddled by panic or irrelevant
inputs. On this one number hinges whether a particular home becomes your home -
or not. It also represents a near-final
step in one of the biggest financial commitments you’ll ever make.
No pressure.
If you feel like the final dollar amount selection is a
little bit of a stab in the dark, on a subject you’d rather be able to handle
confidently and with precision, let’s talk. Here are five questions you should
ask yourself to collect the targeted and essential information you need to pinpoint
your exact offer price:
1. How
close/recent/similar are the comps – and what story do they tell? Your agent will present you with the recent sales
prices of similar homes near your target home (assuming you’re in an area where
there are recent sales). This information, in conjunction with the listing
price should begin to narrow your thoughts on offer price into a ballpark price
range. But once it’s time to pin down a
precise offer dollar amount, it behooves you to look beyond the sales prices of
the comparables and to work with your agent to suss out the story they have to
tell – and what implications that story has for your own offer price.
In particular, you’ll want to look at the listing details
and even the photos of the comparable properties to understand which ones are
truly similar – or dissimilar – to the property you’ve targeted, beyond the
basic specs. If a home that has the same
number of beds, baths and square feet as ‘yours’ had archaic, out-of-date
kitchens and bathrooms and a massive electrical pole in the front yard when it
sold six months ago, it might not be as good a comparable as a home that just
sold 3 weeks ago with similar upgrades and updates to your target property,
even if the latter comp has one less bathroom than yours.
Also, look for the bigger picture story that the comps are
telling you. Did all the most similar
comps sell for more than, less than, or right at the asking price? If they all
sold for 5-10% over or under asking, that suggests the direction you might need
to move from the list price. How long did it take for them to sell, and how
long as your target property been on the market, by comparison? If everything is selling in 30 days, and the
house you’re trying to buy has been on for 75, the takeaway might be that you
can be more aggressive in offering a price below asking than you might if the
place has only been on 20 days.
I can’t emphasize enough how critical it is to collaborate
with your agent when it comes to gathering this fuller picture and story from
the data on recently sold nearby properties and applying it in the course of setting
your own offer price.
2. What kind of shape is the place in? Fixer-upper homes may not qualify for
low-down payment FHA financing. That can force you to come up with a larger
down payment or evaluate the feasibility of obtaining a rehabilitation loan. On
the other hand, if you had planned to put a large amount of your cash savings
down on a home that needs a lot of fixing, you might want to conserve some to
fund repairs. In these cases, it’s very
helpful to review any disclosures or reports the seller has made available. It’s
also essential to include your mortgage broker in the offer-price setting conversation,
as condition issues might impact the loan programs available to you and, thus,
the down payment, closing cost and monthly payment required at a given
offer/purchase price point.
I’ve seen buyers that had planned to buy a fixer shift their
offer price upwards because they knew a home was in move-in condition, and vice
versa – people who had planned to buy a non-fixer end up coming down on their
target price to hit the rehab loan guidelines and/or conserve down payment cash
and redirect it to post-closing repairs.
It’s wise to have a quick conversation with your mortgage
pro before you decide upon your final offer price in any event, but it’s
particularly necessary if the place has obvious condition issues.
3. What’s the competition like? If you’ve ever watched an auction on
television, you’ve gotten a glimpse into the difference between making an offer
on a home where you’re the only buyer, and making an offer on a home where even
1 or 2 others are vying to get it. And
that difference can usually be measured in thousands of dollars. It’s a simple, but profound truth: if you
know there are other buyers competing for a property, you’ll likely want and
need to offer more for it than you would if the players were limited to just
you and the seller.
And the more buyers are bidding, generally speaking, the higher the victorious offer price is likely to be.
How will you know what your competition is like? Ask your agent – and they’ll likely give the
listing agent a ring, let them know you’re serious about making an offer and
feel out whether there is competition or not, and how fierce it is.
The most frequently asked question I get about how this
works is this: don’t listing agents just
lie and say there are more offers than there are? It’s possible, but improbable. Every agents know that some buyers can’t or
won’t bid more than asking on a given home. Accordingly, every listing agent I
know would rather have a sure offer from a buyer who loves the place than risk
running that buyer off by fabricating multiple offers that don’t exist.
4. How much do you want it? Your personal desire and motivation level to
get a particular property is an absolute must to factor into the offer price
decision-making mix, especially when you get close to putting a final number of
dollars and cents on the table. Of course, your home is an asset and a major
investment, so your offer price is a decision about which you want to be smart,
logical and deliberate. But we’re also talking about the place that will serve
as the backdrop and environment for your everyday life, and your family’s lives,
too. To ignore the emotional impact and logistical
implications of the place you live when you’re deciding what to offer is to
make the decision based on an incomplete portfolio of information. (And that’s also how so many buyers who lose
properties end up regretting their offer price, wishing they had offered just a
smidge more for “the one that got away,” sometimes for years on end)
The need to tweak your offer priced based on your motivation
level (within the range of what you can afford, of course) is particularly true
when it comes to multiple offer situations. Would you regret it if another
buyer got the place at X price? Then you should offer X price. Would you be disappointed, but totally
comfortable with knowing you’d offered as much as the place was worth to you,
if the seller turned down your offer at Y price? The price at which you can
answer that question with a ‘yes’ is a good boundary for the absolute max you
should offer.
When you are actively bidding in multiple offer situations,
you might never get the opportunity to nudge your price upwards or go back and
forth with the seller. Asking yourself
these questions can help you pinpoint your precise, best offer so you can make
it, then let the chips fall where they may, without regrets.
5. What can you truly
afford? No,
really. It’s not that you
haven’t asked yourself this question, worked through your monthly financials,
pored over the numbers with your mate, your financial planner and your mortgage
broker
ad nauseam. It’s more that a lot of time can elapse
between that deep financial dive and the time you actually have to decide how
much to offer on a particular home. And in that time,
lots of variables might have changed:
·
Interest rates might have changed.·
You might have decided you need to move your
price range up, because you can’t find anything that works in a lower range.·
You might have realized you need to offer more
than the asking price, due to the competition.·
Your expenses might have changed, because you
had to put a kid in daycare or start some new service up.·
Your cash cushion might have changed, because you
had to repair your car or fix something at your existing house.·
Your cash needs might even have changed, as you
realize the home you are trying to buy needs a lot of work that will take a lot
of cash.
And so, throughout the course of a house hunt, it’s not at
all bizarre to experience price range creep. The best practice is to walk
through the comps with your agent, determine their story, get as much
information as you can about your competition and the home’s condition and get
clear about how much you want the place then, just before you finalize your
offer price, touch based with your mortgage broker or banker and tell them what
you’re planning to offer. Ask them to give you an updated set of numbers,
including what your down payment, monthly payment and cash to close would look
like at that price, based on today’s interest rate.
Then, you’ll be in a position to make that offer
confidently. I can’t promise you’ll have
no anxiety at all, but you’ll certainly feel less like you’re taking a stab in
the dark and more like you’re positioned as well as you possibly could be.
Are you ready to let one of our agents get to work for you? Call The Puffer Team today at 828-771-2300 or visit our website,
www.homefinderasheville.com.
