How much should you offer on a home you want to buy? There is no “one size fits all” answer but ultimately the sales price is determined by how motivated the seller is. There are many variables: market condition, days on market, asking price, functionality/desirability, terms, etc.
Your Market Conditions
Let’s tackle those questions starting with what type of market you have. You either have a buyers’ market, balanced market, or a sellers’ market. There is a formula for absorption rate that determines market type. (For you analytical personalities the formula is # homes sold in last 6 months/6 = # of homes sold per month. The # of homes currently for sale /# homes sold per month = months supply of inventory.)
Less than 6 months = Sellers’ market = Prices are increasing more than normal appreciation
6 months = Balanced market = ~3-5% appreciation per year
More than 6 months = Buyers’ Market = Prices are decreasing
In a buyer’s market the buyer can come in low because there are options. In a sellers’ market with low inventory a buyer can expect to pay near or even over asking price and be ready for multiple offer situations. Homes sell quickly and for top dollar so be ready to go look at homes as soon as they get listed. Don’t waste time with lowball offers in a sellers’ market.
Days on Market and Asking Price
Sellers tend to be less flexible if the home is just listed. If the price is competitive there may not be much leverage for a buyer to negotiate with. Perhaps a good strategy here is to offer a fair price, maybe even asking price, in an effort to avoid a multiple offer situation.
If the home has been on the market for more than 6 months it most likely didn’t sell because it was overpriced. A big number for the days on the market gives the buyer leverage but it doesn’t mean the seller will be reasonable. In fact there is a good chance the seller won’t be reasonable or motivated since they haven’t reduced the price aggressively to create a quick sale, but at least you can take a shot with a lower offer here.
Functionality and Desirability
Is the home going to appeal to a wide spectrum of buyers? If yes, you have competition. If the home is a 4 bedroom/1 bathroom home on a busy road it may not appeal to a wide buyer pool. Figure out how much competition you’ll have as a buyer and go from there.
Terms
Lastly, we have terms. There is more to an offer amount that the purchase price. Most sellers care about their bottom line more than price. Do you need closing costs? Are you willing to buy the home as is? Are you asking the seller to pay for a home warranty? Do you want the refrigerator to convey? Does your closing date work for the seller? If you have attractive terms you may get a better price.
In conclusion there are many variables. Your buyers agent can help guide you a reasonable offer with their experience and knowledge. If you don’t have a buyers agent we can help you in the midlands of South Carolina. If you aren’t in SC we can help you find a good agent through our national network of agents. If you have questions email bmhoffman@gmail.com and it will be my pleasure to help out.
Brandon Hoffman, Broker|Owner
RE/MAX Connected – Serving the midlands of South Carolina
803-528-3336/ bmhoffman@gmail.com
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