Making and Negotiating an Offer

So you have found the perfect home.  What should your offer be?  Often times the answer is not clear-cut.  Every house is unique and every combination of buyer and seller is unique.  This is definitely not in area where one can say offer 20% off the asking price.  It’s just a lot more complicated than that.

Many factors should be considered going into your initial offer.  Some factors you will know like what the comparable properties have sold for.  Some you will not know like what is the Sellers bottom line.  The most important factor is the obvious market price of the house.  The seller can ask more or less than market.   Depending on the seller’s situation market price may not be the most important factor.  While the seller's objective is to get the most for their home, a decision to accept, counter or reject your offer may be affected by other issues unrelated to a market price such as what they owe on the home or how fast you can settle.  Knowing this information might just translate into a better deal for you.

You should already have a sense of value after looking at many homes both online and in person.  The simple process of just looking at homes is usually educational.  Many times you have a sense of “is this home overpriced or under-priced” almost as soon as you walk through the front door.  Trust, but verify, your sense of value.

Develop a Strategy

A negotiating strategy needs to be developed.  If your first offer is accepted by the seller you will second guess yourself and wonder “should I have offered less.”  The object is to engage the seller and begin a negotiation.  Of course in a "bidding war," you are going to have to make an offer that you are comfortable with so that you don't second guess missing out for a few hundred or thousand dollars.

In order to begin to develop a strategy, you need to have recent sales of comparable properties in the area.  This is the raw data needed to develop your negotiating strategy.  Examine an MLS history report to determine how long the house has been on the market and if/when price reductions took place.  If the home has been on the market for 10 days or there has been a significant price reduction in the past couple weeks along with 35 REALTOR business cards on the counter, chances are the seller has under-priced the house and it should sell quickly.  You may even be looking at competitive bid situation.  Most likely this home is a good deal even at the asking price.

Motivational Clues

When you walk into the house there can be tell tail signs as to the seller’s situation.  Is the house empty?  If it is, the seller may be paying a mortgage, real estate taxes and insurance which can really add up.  A quick check of the public records can tell you what the seller paid for the house and what the mortgage is. This can give you a rough idea of their monthly payments.  The object here is a seller making payments on an empty house may be willing to give up a few extra thousand dollars for quick close.  Time after all, is money.

Another area to take notice of when looking is the closets.  Are they empty?  Is the closet half empty?  Are there any family photos around?  If there anything in the refrigerator?  There may be clues of a family situation that tells the seller is motivated.

Continue on to Making and Negotiating an Offer Part 2 >>