The second most important part of the home buying process is making the seller an offer.
(The first is identifying the best mortgage program for your circumstances, which can save or cost you thousands of dollars over the years you own the house.)
For those who have not purchased property before, there is much more to making an offer than proposing a price to the seller.
Despite that, let’s start by talking price. The first thing to know about the offer price is that it’s the last thing about the offer to be determined. That’s right, the thing you are most focused on is the final item to consider in the offer process.
Why? Because price isn’t the only factor to be considered. The other negotiable points are:
- length of your inspection period (or diligence period, in some states)
- closing date
- type of financing
- when you’ll take possession of the property
- amount, if any, of seller paid closing costs
- whether or not the seller will provide a home warranty
- payment of confirmed and/or proposed assessments
- home owner association transfer fees
- personal property, such as furniture
- amount of earnest money deposit
- in some states, amount of diligence fee
- “must-do” repairs
It’s impossible to determine a viable offering price until you decide what you will concede to or ask of the sellers regarding these items.
Still, we’re way ahead of ourselves. Once you find “THE” house and considered the items above, you and your buyer’s agent will want to research:
- How long have the sellers owned the house?
- How much did they pay for it?
- Do the sellers have a mortgage and how much is it?
- How long has the property been on the market?
- Is this the first time this seller has listed this property? (Have they tried to sell it previously?)
- Why is the seller selling?
- Where is the seller going?
- Has the seller made any comments on the sale of the house on his/her social media accounts?
- Do the market statistics show that the area is a buyers’, sellers’, or balanced market?
- Are there any neighbor issues, such as unresolved storm drainage, pot-holes, amenities in poor repair, etc.?
- How many other homes are for sale in the neighborhood?
- How often do homes in this area become available?
- What have others homes sold for in this neighborhood or nearby neighborhoods?
- Where those homes more or less appealing than this one?
- What is the nature and financial health of the home owners’ association?
- What are the neighbors like?
- How convenient are amenities such as grocery stores, banks, restaurants, etc.?
- Is there anything about the property that will make it difficult to secure financing?
Once you know the answer to most of these questions, then you can determine a reasonable asking price. By reasonable, we mean one that’s likely to be accepted.
The more you ask of the seller (ex: closing costs; a hurried or delayed closing date; or personal possessions) and/or the hotter the demand for homes in that market, the more you can expect to pay. The less you request of the seller and/or the softer the demand for homes, the less you can expect to pay.