Figuring out how much to offer on a home can be a delicate process. Homebuyers do not want to pay more for a home than it is worth. However, making an offer that is too low could result in missing out on the home altogether.
Here are a few factors for homebuyers to consider when determining an offer price.
Related: 6 Steps to Follow When Buying a Home
What is Your Maximum Budget?
Determining a maximum budget can prevent homebuyers from making an offer on a home they cannot afford.
When a homebuyer is preapproved for a mortgage, lenders determine how much buyers can borrow for a home. However, homebuyers are under no obligation to use the total amount allowed in their preapproval letter.
It is important to remember that mortgage payments are just one of many monthly payments for homeowners. Therefore, it helps to determine a monthly mortgage payment that leaves room for unexpected expenses.
It’s relatively common for new homeowners to spend such a large proportion of their income on mortgage payments, insurance, property taxes, utilities, and maintenance that there is little money left for other expenses.
Is it a Buyer’s or Seller’s Market?
After determining a maximum budget, it is important to understand the current housing market. For example, are homes selling above or below the asking price? Are buyers paying in cash or offering incentives, such as waiving home inspections?
Understanding what the housing market is like will help homebuyers determine what a property is worth.
How Much to Offer in a Seller’s Market?
The demand for homes is high in a typical seller’s market, and the supply is low, giving home sellers the option to hold off for higher offers.
During a seller’s market, homebuyers occasionally go over their budget to secure a home. With inventory low, bidding wars are not uncommon during these market conditions. To help homebuyers avoid a situation of spiraling offers, they can look for homes below their maximum budget, leaving room to bid higher if a bidding war ensues.
Of course, making higher offers isn’t the only way a homebuyer can make their offer more attractive to a seller. If homebuyers work with a real estate agent, they can help find other ways to make offers stand out to sellers. For example, homebuyers can offer to pay in cash, offer to pay a larger down payment, or limit contingencies. Homebuyers can also entice sellers by offering a quick closing and an escalation clause.
How Much to Offer in a Buyer’s Market?
In a buyer’s market, the supply of home’s on the market is typically greater than the demand. As a result, these market conditions allow homebuyers to make lower offers.
If a homebuyer is interested in a home priced in line with current market valuations, offering the listing price makes sense. However, if a home is priced above market value or has been sitting on the market for some time, buyers should consider offering below market value.
How Badly Do You Want the House?
When deciding how much to offer on a home, consider how much you love the home. Most homebuyers have a checklist of items they are looking for in a home, such as the number of bedrooms, square footage, or proximity to schools or amenities.
When a home checks all the boxes on your list, it can be worth offering the asking price or above. However, if a homebuyer finds a home in the desired location but does not check all the boxes, it is customary to offer a lower price.
The homebuyer’s budget, current market conditions, and how badly the buyer wants a specific home are all things to consider when making an offer. By choosing a suitable strategy, prospective homebuyers can ensure they can find value in the market.
Marimark Realty’s real estate agents focus on providing a personalized experience for buyers and sellers of real estate. As a full-service real estate agency, we help clients with luxury homes, homes for first-time homebuyers, commercial property, and investment property.
To begin the journey of purchasing or selling your home or purchasing commercial or investment properties, contact us at your earliest convenience.