Once you’ve finally made the decision to buy your first home, you’re probably overcome with excitement for the house hunting journey… but when you find a home you love, how do you know what the offer price should be?
Of course a realtor will guide you, but you want to feel empowered and understand for yourself how to go about making this huge purchase in the best possible way.
Here are the 5 things you should take into consideration when determining what the offer price you should be:
- Understanding what the seller actually wants. There are multiple elements to consider which will affect the price you offer. It is not just an offered price, which is haggled over and then agreed upon, it often comes down to understanding what the seller values most. Sometimes you can compromise on timing. By closing really quickly or giving the seller an extended closing to accommodate their life circumstances. A seller may be open to a lower price to best meet the timing of what is happening in their life.
- Determine the fair market value. When you’re looking at deciding what price to offer, you need to find out what the fair market value of the property is. If you’re working with a realtor, you should ask them for comparable properties Be careful not to be given the comparable properties listed. This is different than sold. This will give you a good benchmark for understanding what you should consider when it comes to putting in your offer price. Another great tool to give you insight on the value of the property is by getting a Purview report from your mortgage broker. This report includes the history of the property, comparables sold from both private and public listing, the estimated value of the property as well as the estimated equity in the property. If you’re working with a mortgage broker who doesn’t know what this report is, consider switching to another broker.
- What is happening in the local real estate market. How much you offer on a given property will largely depend on what is happening in the market. If it is a buyer’s market then you’ll likely be able to make your first offer below fair market value, if you’re in a sellers market, you’ll likely have to make an offer that is higher than fair market value, especially if there are bidding wars on all properties.
- The condition of the property. It’s extremely important to assess the condition of the property. Does it need renovations? Depending on the extent of renovations needed, you might be able to offer a lesser price. Many people don’t realize that the price is actually not firm until you lift all of your conditions. I recommend that you have a thorough home inspection and make sure that your inspector actually generates a series of quotes estimating time-frames that different aspects of the property needs fixing. Even if you have agreed on a price you can always go back to the owner showing them the upgrades that you will have to be doing.
- How badly do you want this property? You’re going to be living in this property and you’ve got to love it. If you come across a property especially in a market where there’s not that many available that has all the aspects that you are looking for like location, size, design etc., and you go too low on the offer, you might regret it down the road. Perhaps a few thousand more might have been worthwhile. In this case, put in your best offer. If however there are many properties available that would suit you or that you would be happy to live in, then you have more room to negotiate.
Determining your offer price is more of an art than a science. There are many factors to take into consideration but at the end of the day you want to be happy with your choice and decision. If you are on the hunt and you’re looking for a place to buy your first home take all of these elements into consideration. You’ll be happy that you did, ensuring that you have paid the right price for a place you love.