When we work with somebody buying a home in Tallahassee, we are often asked what to offer on a home when they find "the one."
The answer requires market awareness, and this article shows exactly how you should calculate the amount to offer a home seller.
Be Prepared Before You Go Home Shopping
Before you go out looking for homes, you should understand what this article covers.
Preparation is the key to ensure that you do not end up over-paying for a home. It has been shown that 80% of homebuyers end up wishing they had known significantly more about the home buying process (meaning they were unhappy with the home that they purchased within 1 year after closing), so preparation is key.
Preparation includes many things, and these will be explained to you when you sit down to discuss your plans with a world-class buyer's agent. Remember, the seller is picking up the tab for your agent, so go out there and choose the absolute best agent that (the seller's) money can buy!
3 Critical Steps In Calculating The Best Offer On A Home
Hire The Best Team Of Buyer's Agents In Your Market - Real estate agents are licensed to perform many tasks. They can work with home sellers, they can work with tenants. They can lease out warehouse space, they can help farmers buy more land. The list goes on and on.
So why is this important?
Because if you are preparing to buy a home, shouldn't you be armed with a team of experts who spend all their time helping people buy homes (specifically in the area and of the type that you want to buy)? Would you hire a carpenter to build a brick wall? Just because the carpenter says he can do it does not mean he is the best person for the job. This is so true in real estate. Most real estate agents are happy to help in any transaction for which they can get paid, but the reality is there are very few that are specialists. You deserve a specialist, and you can even get the seller to pay for it!
Discuss Real Estate Supply & Demand With Your Agent - The "math" portion of calculating the best offer on a home is purely based upon your agent's estimate of the competition. Just like in any sport, you want to position yourself as strongly as possible in every circumstance, but not overly so. For example, if you are making an offer on a home that you are sure that nobody wants, you have little downside in making a low offer. But unfortunately, the contrary is also true. If you are offering on a home that you are sure is receiving other offers, you have to make a very strong offer.
It has been my experience that few agents in Tallahassee are true students of the market, studying supply and demand dynamics for every area and price range in which they work. You can download the same report that top agents view each month right here. Use this report to practice understanding where and what is going to require a strong offer, versus the opposite where a weaker offer might work to your advantage. Remember, this is why the first step ... hiring the best team of buyer's agents ... is so important. Your buyer specialists should be advising you on supply and demand for homes similar to the type and location that you want to buy.
Understand The Difference Between List Price And Market Value - Just as we recommend you work with a team of buyer specialists when buying a home, we recommend that home seller's work with a team of home selling specialists when they need to sell a home. Fortunately for you, most do not. Most hire the first agent with whom they speak about the job of selling their home, thus they are neither marketed correctly nor are they advised in a tactically sound manner.
So what's so important about the difference between list price and market value? Well, let's say there is a $300,000 home listed for sale. You and your agent look at supply and demand and assess comparable homes that are available as well as those that have recently sold. If you believe the home will sell for $325,000, does it make sense to offer an amount less than $300,000? And contrarily, if you believe that same home will sell for $250,000, does it make sense to offer $315,000?
The key to calculating the amount to offer on a home is KNOWING what the home will sell for if you do not get involved to buy it. If other buyers would pay $300,000 for the home, then you know the target amount that you are going to likely pay. It is against this number that you determine the opening bid, and it is the estimate of your competition that determines how high you should bid against that number.
Note: The asking price is irrelevant to what you should offer, it is the value of the home that should guide you on making the initial offer. It can be very wise to offer above asking price just as it can be prudent to offer below asking price. Each seller will determine, through their asking price, where your opening offer should be.
How To Be Confident With The Amount You Offer On A Home
I just don't know how a homebuyer can confidently make an offer on a home without first having the knowledge that a world-class buyer's agent brings to the table.
If the agent is not negotiating several contracts each month, how is this agent going to stay current on the changes that continue to occur in the market? Remember, values rise and values fall, they do not stay the same. A great team of buyer's specialists will prepare you for what you'll be facing in the market when it comes time to buy a home.
If you are preparing to buy a home within the next two years, why not sit down and discuss the best way to prepare to get a great deal. We're happy to have a no-strings-attached discussion with you and help you best prepare to make the right offer on a home when the time arrives.
Joe Manausa, MBA is a 27 year veteran of real estate brokerage in Tallahassee, Florida and has owned and managed his own company since 1992. He is a daily blogger with content that focuses on real estate analytics and providing his clients with a tactical advantage in today's challenging market.