After all your hard work searching, you’ve finally found your dream home, 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, then determine the best way forward with your offer. Of course you want to ensure your bid is competitive and will get the seller’s attention. Start by considering the market, are you in a buyer or a seller’s market? This determines whether offering low, high or list price is the best way to go.
A seller’s market in real estate occurs when demand for homes exceeds the inventory available. In other words 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 driving up the purchase price.
In a seller’s market, houses tend to sell for higher prices and are on the market for a shorter period of time. Buyers compete against one another for the limited supply of homes available. There are a few ways to make your offer stand out against other buyers in a sellers market. Be sure you are pre approved before submitting an offer, and consider if waiving certain contingencies is a risk you’re willing to take.
As a seller, these market conditions make for a great time to sell your home. With a larger number of buyers searching for a home, your odds of making more money on the sale increase. If you’re buying a home in a seller’s market, be aware that the seller will have the advantage overall.
A buyer’s market happens when supply exceeds demand in real estate. Ultimately, there are more people trying to sell their homes than there are buyers that want to buy those homes. This gives buyers an advantage over sellers in price negotiations and sellers may have to compete to attract buyers.
In this market, houses tend to sell for lower prices and sit on the market for a longer period of time before receiving an offer. Compared to a sellers market, the circumstances of a buyers market are flipped. For example, sellers are pulled into price wars with each other to entice buyers to make an offer. Often this can mean sellers seek to provide the best perks for potential buyers to attract more offers. This might mean including appliances in the sale or changing the move out date.
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. 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.
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. 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.
A couple of months over those minimums typically 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 toward 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.
Does the house appeal to the average buyer?
House appeal can be a combination of curb appeal, overall design and location attractiveness. This may be a general feeling that the 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.
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, they 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 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 can determine these things with the help of your agent, who 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. In some cases, the seller provides a full-disclosures, whether for selling the house “as is” or for other reasons, in the listing description, at a showing, and/or with to buyer’s agent.
Does this house have particular niche value for you?
You might absolutely need a finished basement, a work studio, 4 car garage, etc. If there are any non negotiable features in a new home, 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, take 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 – 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 offer low if you don’t love 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 – The house has been on the market for a long time. 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.
- 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.
- 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 think the price is fair.
- You love or need the house – If you really love the home or it has something you need that is difficult to find – like a workshop or that fourth bathroom, 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.
- 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.
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 can receive up to $6,000 cash back in commission refund to use as you wish. This refund isn’t taxed, use it furnish your new house, cover closing costs or in any other way you please! Our top-rated agents are here to 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.
Mike is the Market Director for Colorado at TRELORA. He is personally responsible for closing over 600 successful real estate transactions and has played a role in closing hundreds more. He started at TRELORA in August of 2016 and began his real estate career in Jacksonville, FL in February of 2011. In his tenure at TRELORA he has been a Buy Manager, Buy Agent, Listing Agent, and Field Agent before accepting his current position as Market Director in January of 2021. Mike has a Bachelor of Science in Finance and a Master of Science in Entrepreneurship both from the University of Florida. Go Gators!