Wednesday, April 3, 2013

Making an Offer

One of the hardest, most important decisions homebuyers face is how much to offer for their home. Supply, demand, foreclosure rates, mortgage rates – buyers think they need to run spreadsheets and do fancy math to make a smart offer.  But the fact is, there is a pretty short list of steps you need to take to make a smart offer – one that gets you a great value, but is also likely to be successful at getting the property.  Remember- a low offer does not make a great deal if you don't get the house!  Here are some steps to take before submitting an offer:

Step 1: What do the “comps” say?  When it comes to pricing a home, or making an offer to buy one, the ‘first thing” is the home’s fair market value. Both buyers and sellers should work with an experienced, local agent to understand what the home’s value is. Most agents will do this by offering you a look back at similar properties that have recently sold in the neighborhood.

Step 2: What can you afford?  It's a must to make sure that your offer price for any given home falls within the range of what is affordable for you.  This includes offering a price within the range for which your mortgage was preapproved, but also includes making sure that the monthly payment and cash you’ll need to close the deal (down payment + closing costs) are affordable.

Step 3: What’s your competition? This is another step at which it’s critical to check in with your agent. You need to know what level of competition you’ll face. In today’s market there are properties and neighborhoods in which multiple offers are not uncommon. Work with your agent to understand the list price-to-sale price  ratio , which lets you know how much under or over the asking price properties are selling for in your target home’s neighborhood.  Your agent can also tell you how many offers there are on a property and how many days a home has been on the market.

Step 4:  How much do they need to sell it?  Has the listing in which you’re interested been reduced at all?  By how much?  Has the listing agent informed you that her clients are highly motivated, flexible or have an urgent need to sell?   These factors can certainly work to your advantage in the negotiating stage.

Step 5: How much do you want to buy this house? This step is all about you – what’s your level of motivation? Within the range of the home’s fair market value, it may make sense to move higher within that range if you are highly motivated to get that particular property.
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