How do you know whether to come in high or low against the list price of your dream home — or whether the list price is exactly where your offer should be? —-
So you’ve found a house that you think will fit your lifestyle, and you’re ready to make an offer. Obviously, you want to come in with a bid competitive enough to land the place, but not overpay. So how do you know whether to come in high or low against the list price — or if the list price is exactly where your offer should be?
Well, part of the answer to that question is simply up to you: How badly do you want this specific property? The other part of it is about knowing the market and how to play the game. We’ve put together this primer to help you decide when to come in low, high, or right at list price, including expert tips to help you weigh all the factors.
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What goes into a home’s value or price?
Before determining how much to offer on a house, it’s helpful to have an understanding of what actually goes into a home’s value. Lots of factors are involved — and different housing markets will have their own unique quirks — but consideration will always be given to the following:
The cost and availability of raw land in the local market
The basics of the home itself, including its age, construction materials, square footage, amenities, and so on
The condition of the home — in other words, is it move-in ready or in need of immediate repairs?
Any improvements that have been made (think kitchen renovation, adding a deck to the backyard, or finishing a basement)
These factors will be weighed in comparison with other homes in the neighborhood and surrounding area to determine a property’s value. From there, the listing agent will help the seller determine an asking price for the home based on current market conditions.
So, what are market conditions?
In short, a seller’s market is characterized by low inventory and high demand, meaning that there are not enough homes for sale to match the number of willing buyers. This leads to multiple-offer scenarios and, often, homes selling for more than their listing price.
(According to a June 2021 housing snapshot from the National Association of Realtors®, the median home sales price was up 23.4% year-over-year, if that’s any indication of recent market trends!)
A buyer’s market is the opposite: There are tons of homes for sale, and buyers are spoiled for choice — if one potential home doesn’t work out, no problem, because there are plenty more where that came from.
Thus, determining whether a house’s current asking price is fair depends on the market.
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I’ve found a house and the price is fair; now what?
“An experienced agent who is active in the market will know what houses are selling for, what sort of offers people are writing, and they’ll know what it takes to be competitive.”
Bottom line? Having good information on the current market value of a home is essential in determining how much you should offer.
Be mindful of seller strategy
During your process of assessing whether the list price is fair and how much to offer, you should also try to get inside the seller’s head: There are reasons why they might have intentionally priced the house too high or too low.
Consider that a house priced lower than its true worth could be a tactic to get attention from more buyers — thus creating a competitive, multiple-offer situation that can drive bidders to get emotional and can sometimes lead to an ultimate sale price much, much higher than that tempting-looking list price.
“We’ve definitely seen sellers listing their house lower than its market value,” says Bragg, citing a home that could be listed for $315,000 but is put on the market at $299,000 as one example.
“Strategic pricing helps to maximize the number of people who see the property, which maximizes interest and can lead to more offers,” Bragg explains. “Sellers can usually negotiate better terms, and the price bids up to where they would have listed it — sometimes even higher.”
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Low, high, or list price: How much do you want this house?
Once you’ve determined whether the house is priced right, evaluate your own needs before coming in with your bid. Ask yourself:
How perfect a fit is this home?
Will you need to make any changes to it?
How much might those cost?
Is it in your budget?
If so, is it at the bottom, middle, or top of your budget?
Here’s when you might want to make an offer that’s lower or higher than the list price, or right at the asking price.
A low offer might be appropriate…
If you’re in a solid buyer’s market, sellers will be more likely to accept your lower offer — and you’re in a good position to make one. Or, you might come in with a low offer if you’re simply ambivalent about the house — and would only want to score the keys if you could get it at a steal.
Consider coming in low if you think the home is overpriced as advertised — and you and your agent have the comps to prove it. Or come in low if you’re prepared to go very easy on the contingencies.
You might also come in low if the house has been on the market for a long time. Or you might try a low offer if the sellers have already reduced the price at least once. That said, bidder beware: This approach could backfire. Many sellers have a floor they’re willing to accept, and an offer below that number simply won’t get you anywhere.
An asking-price offer might be appropriate…
If you’re in a balanced market or a seller’s market, you might make a list-price offer. Consider offering the list price if you really like the house, and think — based on those comps — that the asking price is fair.
It might be a good time to make an asking-price offer if the house was recently listed and there’s a lot of interest in it. Even if you come in right at the list price in this scenario, you can sweeten your own offer by being flexible with contingencies.
An over-asking offer might be appropriate…
If you’re in a strong seller’s market, you might need to be prepared to come in over the list price. And this is certainly the case if you think the house is underpriced based on the comps — or if the market is very hot.
And as of 2021, the market is definitely sizzling.
“It’s now a rarity not to have multiple offers,” says Bragg. “It’s sort of a given that if the house is priced anywhere close to appropriate, it’s going to have a few offers.”
Lest you think “a few” only means two or three — well, Bragg revealed that he’s seen “definitely more than 10 offers, even up to 20” in the 2021 seller’s market. Bring your patience and your perseverance if you’re buying in a hot market.
Thus, coming in with an over-asking offer may be an especially good idea if the house was recently listed and there’s a lot of interest. If you’re offering high, hold fast on contingencies to help make your offer more enticing.
Of course, another perfectly valid reason to make a high offer is when you just really love the house. Or, if for whatever reason — maybe it’s next door to your mom or best friend — you really care about buying this specific home, and you don’t expect a replacement to come along any time soon… or ever.
In cases like this, you’re basing your decision not just on the market conditions and potential return on investment — but your emotions, too. And that’s OK!
Whatever your motivation, your agent can guide you through the process of making an offer that feels right for you and your needs.
The No.1 rule in making an offer? There are no rules
Buying real estate may be a legal transaction, but it’s still a very human one. Work with an agent you trust, find a home you love, and — regardless of market conditions — make an offer that aligns with your budget and lifestyle above all else.
–Shared with love by the Valmy Team– your Texas realtor team. We would love to earn your trust and partnership, www.TheValmyTeam.com. All content copyright by the original authors.