Major Factors
Influencing your Offer Price
How
Property Condition Affects Your Offer
Since you have
toured the property you are interested in, you should know
how it compares to the general neighborhood. All you have
to do is put the home in one of three categories - average,
above average, or below average.
When evaluating
a homeÍs condition, there are a number of things you should
consider. Structural condition is most important - items
such as walls, ceilings, floors, doors and windows. Then
paint, carpets, and floor coverings. Pay special attention
to bathrooms and bedrooms and whether the plumbing and
electricity work efficiently. Look at the fixtures, such
as light switches, doorknobs, and drawer handles. The front
and back yards should be in reasonably good shape.
The missing
ingredient will be information on the condition of the
homes from your comparable sales list. Provided you chose
the right agent to represent you, they will have actually
visited most of those homes and be able to provide key
insights.
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How
Home Improvements Affect Your Offer Price
Even when comparing
exact model matches within a tract of homes, you should
note whether the previous owners have made any substantial
improvements. Cosmetic changes should be largely ignored,
but major improvements should be taken into account. Most
important would be room additions, especially bedrooms
and bathrooms. Other items, like expensive floor tile or
swimming pools should be taken into account, too, but should
be discounted. A pool that costs $20,000 to install does
not normally add $20,000 in value to the home. Rely on
your agent to give you guidance in this area.
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How
Market Conditions Affect Your Offer Price
A hot market
is a "sellerÍs market." During a sellerÍs market,
properties can sell within a few days of being listed and
there are often multiple offers. Sometimes homes even sell above the
asking price. Though most buyerÍs want to get a "deal" on
a home, reducing your offer by even a few thousand dollars
could mean that someone else will get the home you desire.
A slow market
is a "buyerÍs market. During a buyerÍs market properties
may languish on the market for some time and offers may
be few and far between. Prices may even decline temporarily.
Such a market would allow you to be more flexible in offering
a lower price for the home. Even if your offered price
is too low, the seller is likely to make some sort of counter-offer
and you can begin negotiations in earnest.
More often than
not, the market is simply "steady," or in transition.
When a market is steady, no real rules apply on whether
you should make an offer on the high end of your range
or the low end. You could find yourself in a situation
with multiple offers on your desired house, or where no
one has made an offer in weeks.
Transition markets
are more difficult to define. If the economy slows unexpectedly,
as it did in the early nineties, people who buy on the
high end of a sellerÍs market (like the late eighties)
could find their home loses value for several years. So
far, no one has proven reliable in predicting when markets
change or how good or bad the real estate market will become.
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How
Seller Motivation Affects Your Offer Price
Truthfully, it
is rather rare that a sellerÍs motivation will dramatically
affect the price of a home, but it is often possible to
save a few thousand dollars. The most common "motivated
seller" is someone who has already bought his or her
next home or is relocating to a new area. They will be
under the gun to sell the home quickly or face the prospect
of making two mortgage payments at the same time. Since
that can drain a bank account quickly, most sellers want
to avoid such a situation and may be willing to give up
a few thousand dollars to avoid the possibility.
There are also
family crises that can motivate a seller to make a quick
deal. However, when you see a real estate ad that mentions "divorce," "motivated
seller," "relocation," or something to that
affect, beware. Although the facts may be true, that does
not necessarily mean the seller is motivated to make a
quick and costly sale. Most likely, the ad is more designed
to generate phone calls and leads rather than sell the
home.
However, there
are times when a seller is truly distressed, willing to
make a quick sale and sacrifice thousands of dollars. With
the sellerÍs permission, the listing agent will post this
information along with the listing in the Multiple Listing
Service. They may also inform other agents during office
and association marketing sessions or by flyers sent to
other real estate offices. Provided this information has
been made generally available to Realtors, your agent should
know when a seller is truly motivated and when it is just "puff" designed
to illicit interest in a property.
The exception is
when an agent is selling a home they have listed themselves
or selling a home that was listed by another agent from
their own company. In such a situation, the agent may be
acting as an agent for the seller, or as a "dual agent," representing
both you and the seller. In such a situation, they cannot
legally provide you with information that would give you
an advantage over the seller.
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The
Final Decision on Your Offer Price
Comparable sales
information helps you to determine a base price range for
a particular home. Adding in the various factors like property
condition, improvements, market conditions, and seller
motivation help determine whether a "fair" price
would be at the upper limit of that range or the lower
limit. Perhaps you will feel a fair price is outside of
that price range.
The "fair" price
should be approximately what you are willing to agree on
at the end of negotiations with the seller.
The price you put in your offer to begin negotiations
is totally up to you and depends on your negotiating style.
Most buyers start off somewhat lower than the price they
eventually want to pay
Although your
agent may provide advice and guidance, you are the one
who makes the decision. The price you put in the offer
is totally up to you.
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