Buyers always rack their brains wondering how much to offer on a home. They can be overcome with mixed emotions of not wanting to overpay, but not wanting to lose a property either. Over the last two years, many buyers have started the home-buying process with the intent of driving a hard bargain and really getting a seller down. But after losing a house or two, their philosophy begins to change, and they realize they will need to pay in order to get what they want.
The truth is, there is no exact answer. Every situation is different. There are three main factors that need to be taken into consideration before you decide what an appropriate offer would be.
■ Listing price: If a property is listed close to the actual market value of the home, then the offer should be close to the listing price. If it is priced high, then the buyer should consider offering much less. If the listing price is low or even below the market value of the home, then the buyer will need to offer over asking price to obtain the property.
■ Inventory: If the number of homes for sale is low, then buyers need to remember that they are probably not the only ones looking at the property. Inventory tends to be lowest in the winter. On the flip side, if there are a lot of homes to choose from, the buyer may be able to get away with offering less.
■ Time on market: How long has the property been for sale, and how long it has been on the market at its current price? If the property is new to the market, you will probably have to pay more. If it has been listed for a while at the same price, you can often offer less.
Generally speaking, geography really does not matter. All of the factors I have listed above should be taken into consideration everywhere, and bidding wars can and do happen anywhere. Buyers should keep in mind, however, that bidding wars have been much more prevalent closer to Boston and occur a bit less often in the suburbs.
Contrary to what some people believe, paying asking price or even over asking price is not a bad thing at all when warranted. A listing price is only a target number that the seller and their agent either think a property is worth or hope to get. It by no means says that a property is worth that amount. In some cases, sellers and listing agents intentionally underprice to ensure a fast sale and a bidding war. Under certain circumstances it can be a terrific strategy.
For example, let's say a home just came on the market for $500,000 in February in a neighborhood where many homes have sold for between $500,000 and $600,000. In addition, there are no other homes like it on the market, and it is a really nice property. This home has three factors that indicate that it might sell over the asking price: It is priced on the low side, was just listed, and has no competition. If you are a buyer who really wants this home, you should strongly consider offering over the asking price.
Another example, let's say a home was listed 30 days ago, and it is priced at $400,000 in a neighborhood where most of the properties are selling for between $350,000 and $370,000. This is a home that probably will not sell at asking price, and a buyer should probably offer about $350,000.
The best way to figure out what to offer is to have a good buyer's agent who will give you expert advice and assist you in researching comparable properties so that you can make a realistic offer.