After all your hard work searching, you’ve finally found the house you want, and you’re ready to make an offer. Few things in life are more stressful and exciting than this time, and rightfully so. But now that you’re here, what is a fair price to pay?
How to tell what market you’re in
The first thing you need to know is what kind of market you are in from a general standpoint in order to figure out your best way forward with your offer. Are you in a buyer’s market or a seller’s market?
A buyer’s market occurs in real estate when supply exceeds demand, and there is more inventory of houses available than there are people who want to buy. In other words, this means that there are more people trying to sell their houses than there are buyers that want to buy those houses. This gives buyers an advantage over sellers in price negotiations. And a supply increase with constant demand necessarily puts downward pressure on prices.
In a buyer’s market, houses tend to sell for lower prices and sit on the market for a longer period of time before receiving an offer. The competition in the marketplace exists between sellers, who often must engage in price wars with each other and provide better perks to entice buyers to make offers on their homes.
A buyer’s market is a great time to buy a home, as you could potentially get an excellent deal and buy your house for lower than asking price. And remember that if you’re trying to sell a home in a buyer’s market, the buyer will have the advantage.
A market will change from a buyer’s to a seller’s market, or vice versa, when the level of supply or demand moves without a similar change in the other, or when the two move in opposite directions.
A seller’s market in real estate, on the other hand, occurs when demand exceeds supply, or there are more buyers looking to purchase homes than there are available homes on the market. This can often lead to multiple buyers interested in a single property, resulting in bidding wars.
In a seller’s market, in contrast to a buyer’s market, houses tend to sell for higher prices and are on the market for a shorter period of time. And rather than sellers competing to attract buyers, the buyers compete against one another for the limited supply of homes available.
A seller’s market is a great time to sell your home as you could secure a sale price that’s higher than your listing price, or at least more than your bottom line – the lowest price you’d be willing to accept for your home). If you’re buying a home in a seller’s market, be aware that the seller will have the advantage.
What makes a seller’s or buyer’s market?
Inventory. Real estate inventory can vary not just from state to state but down to the neighborhood too, so it’s important to look at what’s available at a local level, particularly in a city metro area. Some say it’s a sellers market if the local inventory is sufficient for less than 5 months’ worth of sales, some say 6 months. But it also depends on the area. Our local Trelora experts in Denver say 3 months worth of housing or less is a seller’s market.
And then usually a couple of months over those minimums mean a balanced market, which favors neither buyers nor sellers. Anytime you have more than the balanced market inventory, which could be over 5-7 months of inventory, then the market leans to favoring the buyer.
Strategies on what price to offer
After determining what kind of market you’re in, you’ll want to consider a number of additional factors while preparing to give your offer on a house you like. Here are some things to weigh.
Did you check comparable houses in the area?
Otherwise known as “comps,” these are the amounts that comparable houses have sold for recently in the same area. If you’re using an agent, a good agent can research this for you in detail as well as how your particular neighborhood and city are trending lately as opposed to months ago. This is how to tell if your home is priced fairly or not, right now.
Does the house appeal to the average buyer?
House appeal can be a combination of curb appeal and overall design and location attractiveness – this will be a general feeling that this house is cute and in a great area and could potentially be presented with more than one offer. You or your agent can check online listing services to see how many times this place has been “saved” in searches.
Does the seller have any motivating issues?
The seller may have a few factors influencing them, such as a desire to move quickly or to unload a house that’s been on the market for a long time. You and your agent can determine these things – your buyer’s agent can ask the seller’s agent questions, and you can see online how long a house has been listed.
What’s the house’s physical condition?
You might not be able to determine everything about this aspect of the house you like until after a formal inspection, unless the seller is honest and provides full-disclosures, whether for selling the house “as is” or for other reasons, in the listing description, at a showing, and/or with your buyer’s agent.
Does this house have particular niche value for you?
You might absolutely need a mother-in-law basement, 6 bedrooms, a work studio, 3 car garage, etc. If there are factors to consider especially, and if you need something in particular to satisfy your needs for buying a house, this could definitely influence your offer.
And most importantly, what you can afford to pay?
After a careful examination of your budget and existing debt, and taking into account the ongoing costs of home ownership and how much it costs in general to buy a house, you should take this aspect of your offer most seriously.
When is a low offer, asking price or high offer appropriate?
- Buyer’s market – If you’re looking to buy in a buyer’s market, sellers will be more likely to accept a lower offer since there is less demand overall and greater supply of inventory. Or, you might decide to come in with a low offer if you’re not super excited about the house, but maybe you could nab it if you get a great deal.
- Overpriced compared to comps – If you and your agent think the house is overpriced compared to comps, then you might want to make a low offer. Or come in low, if you’re willing to let certain contingencies go.
- High days on market – Or maybe the house has been on the market for a long time. And you might try a low offer if the sellers already reduced the price at least once during its time on the market.
- Low appeal – If the property doesn’t have great appeal and needs some love but isn’t already being appropriately priced “as is,” a low offer may get you the job done.
All this being said, prospective buyer beware, as many sellers have a low price point they’re willing to accept, and an offer that goes below that point might not benefit anybody.
- Balanced or seller’s market – In a balanced market where prices are not going up or down, and inventory is balanced between supply and demand, or in a seller’s market where there is more demand than supply, you might consider making a list-price offer.
- Fair price compared to comps – Consider offering list-price if you really like the house, and you and your agent have looked at comps and think the price is fair.
- Low days on market – If the house was recently listed, and there’s already buyer interest, it might make sense to make an asking-price offer. If there are multiple offers, you can still sweeten the deal by going easy with contingencies.
- Strong seller’s market – If demand is much higher than supply in your market, you might need to come in over list price with your offer, especially since there will likely be competition between buyers.
- Underpriced compared to comps – If you and your agent think the house is underpriced based on the comps, you may wish to make a higher offer than listing price.
- Low days on market, high interest – You might also want to offer high if the house was listed recently, and there’s already a lot of interest in it. But try to hold fast on contingencies.
- You love or need the house – If you really love the place, or it has something you need that is difficult to find – like a workshop or a basement mother-in-law, then you might choose to go with a high offer. If your emotional need to purchase a particular house is high, then chances are you won’t regret that later but only if it’s still within your budget.
The right professionals to help you with your offer
Buying with Trelora gives you a distinct advantage because we split our buyers’ agent commission with you 50/50, which means you’ll have an average of $7,500 in commission refund to use as you wish. You can use that refund to furnish your new house or cover closing costs. But also we have top-rated agents that provide exceptional service, whether you need to search for the right house in any type of market, consider an offer, run comps, and close the deal.