We found a house we love! How much do we offer for it?

By
Real Estate Broker/Owner with Pasadena Views Real Estate Team, Inc. BRE# 000872112

questionsI was just reading this question on Trulia.  It seems to be coming up over and over again in different variations:

  • We just found a dream home.  How low do we go?
  • Is there a standard formula for offering lower than asking price? 
  • How much lower can we offer without offending the sellers?

And, so on...

First of all, home buyers, make sure that you are working with a great Real Estate Agent.  You need that Real Estate Agents' help to ensure that you make the right offer.

In answering the above questions, I will assume that you found a home that you see yourself living in and are not buying to flip (update and resell).  Having said that what are the steps:

Have your Real Estate Agent run a Comparable Market Analysis (CMA) to look at what is currently on the market, what is under contract or is in escrow and what has Sold within the last 3 months in a 1/2 a mile radius from the home that you like.

  • The reason you want to look at Active properties (for sale on the market right now) is to understand how much inventory is there and how long have these homes been offered for sale.  This will help your Real Estate agent calculate the number of months of inventory and assist in coming up with the offering price strategy.
  • The number of homes under contract or in escrow will also show you how quickly these homes are selling compared to how many homes are on the market.  Critical in coming up with the offer price strategy.
  • Finally, the number of homes sold and the price per sq. ft.they sold for will help you come up with a Sale Price range for the property that you found.  I use a simple formula to come up with the range.  I first look at the lowest priced home per sq. ft., then the Average price per sq. ft. of all solds and the highest priced home per sq. ft.  Take each one of these numbers and multiply the sq. ft. price by the number of sq. ft. in the house that you want to make an offer on.  This will give you a range of offer price from low to middle to high.  Compare that range to the asking price.  Where is the home priced on this range? 

Next, take a look at the condition of the home that you like and compare it to the ones that are on the market.  It doesn't hurt to actually visit some of the homes that are currently available on the market.  This will give you a very good sense of how your dream home compares in price and condition to others.

Finally, before you come up with the asking price, your Real Estate Agent should sit down with you and discuss your other terms.  How strong are you financially?  What are the contingency periods for inspections, loan and appraisal?  You should already be fully approved, right?  I preach that all the time.  I will NOT work with any of my Pasadenabuyers that are not pre-approved.  That would be doing a disservice to my clients!  Ok, enough preaching and back to the subject.

The stronger you are financially, the more leeway you might have with the price.  Unfortunately, the weaker you are financially, the more scrutiny you will get and unfortunately, might end up paying a tiny bit more.

As you can see, there are so many different things to consider.  I've listed just a few.  So, buyers - find a good Realtor that can guide you through the process of buying a home.  And, listen to their advice!

Good luck in your home search!

 

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Show All Comments
Rainer
128,954
David A. Podgursky
Boynton Beach & Lake Worth Florida Real Estate Broker Associ - Boynton Beach, FL
PA

That question is a definite danger zone for inexperienced agents as well.  Ethically, we're only supposed to lead clients to water - not force them to drink....

good post ... you showed everything that goes into making a calculated and educated decision

Jul 01, 2007 10:02 AM #1
Rainmaker
182,817
Irina Netchaev
Pasadena Views Real Estate Team, Inc. - Pasadena, CA
Pasadena CA Real Estate

David, what an excellent point!  Real Estate Agents should provide guidance based on hard facts and market trends.   It is not reasonable to expect, nor is it smart, for the Agent to come up with the actual offer price.  There are so many other client driven variables that Realtors might not be aware of.

Thanks for visiting!

Jul 01, 2007 10:21 AM #2
Rainer
5,979
Scott Lockhart
Showcase IDX - Atlanta, GA

(layman's view) The key is pricing a home competitively on the market that allows for a bit of wiggle room as everyone likes some kind of discount to feel like they got a deal. The problem I have heard is that many agents price too high at the get go and don't get to the negotiation stage before the listing expires and its too late. I would recommend taking a CE class on pricing - they do exist at most local boards. What is troubling is the thought of a standard offer with a standard markup that builds in a standard "discount" - this cannot always apply and could be the source for many misinterpretations of the actual value to sales price of a listing to consumers and agents alike. But I think that a fair few agents do this...

Scott (Real Estate CTO) Lockhart

Jul 01, 2007 10:27 AM #3
Rainer
200,847
Mana Tulberg
805 County Real Estate - Camarillo, CA
Real Estate Agent - Camarillo CA
Irina, This is a wonderful and helpful post for the homebuyers. I can't tell you how many times I've been asked that question and my answer is well lets go and study the CMA.
Jul 01, 2007 10:34 AM #4
Rainmaker
182,817
Irina Netchaev
Pasadena Views Real Estate Team, Inc. - Pasadena, CA
Pasadena CA Real Estate

Scott, thank you for your input.  As I was reading your comment, it truly brought home how different agents price their homes.  As a listing agent in Pasadena CA, I try to avoid pricing a home to negotiate down.  I strongly believe that negotiating up will bring the most $ to your seller. 

As you said, there are realtors that price too high, others allow some wiggle room and others price at where they think the property will sell or a bit below.  Since there are so many different approaches taken by different realtors, a buyer should never assume that they can just make an offer based strictly on the sales price of the listing.  Reviewing the comps carefully and understanding the local market will allow them to make an intelligent decision on what the house should be worth and what it is worth to them.

Jul 01, 2007 11:36 AM #5
Rainmaker
182,817
Irina Netchaev
Pasadena Views Real Estate Team, Inc. - Pasadena, CA
Pasadena CA Real Estate
Mana, my friend, thanks for visiting!  Yes... study the CMA and layer that with your experience of the local market place.  I wish more agents would do that.
Jul 01, 2007 11:37 AM #6
Rainmaker
276,010
Kelley Eling
Marin Modern Real Estate - San Rafael, CA
Marin County, CA Real Estate
While it may be true in your area, pricing by square footage doesn't apply in my area.  One home could be brand new or completely remodeled, right next door to a real fixer or tear down.  The price per square foot is going to vary greatly.  Not to mention, the square footage reported is often inaccurate. 
Jul 01, 2007 11:55 AM #7
Rainmaker
182,817
Irina Netchaev
Pasadena Views Real Estate Team, Inc. - Pasadena, CA
Pasadena CA Real Estate

Kelley, real estate is a local business.  That's why it's critical for buyers to work with an experienced and knowledgeable Realtor in their area.  Pricing by sq. ft. should never be a stand alone tool.  It's a way to get a foundation to build on - condition, age, area trends, etc.

Thanks for visiting!

Jul 01, 2007 11:59 AM #8
Ambassador
1,831,417
Jeff Dowler CRS
Solutions Real Estate - Carlsbad, CA
Carlsbad CA Homes for Sale (760) 840-1360

Great post, Irina. Having a variety of data points to consider is so important, as is the more subjective feeling of what the home is worth to the buyer. I have had buyers ask if 10-15% below asking is the standard starting point! UGH. I am always very careful about price per SF since it can vary so much, and short sales and foreclosures, or other distress sales can throw off the number for homes that are the same floor plan and square footage. I hate it when buyers want to rely on that only as their decision point on making an offer. And for those who just want a great deal, the CMA is proabbly not going to have much impact.

Jeff

Jul 01, 2007 01:42 PM #9
Rainmaker
182,817
Irina Netchaev
Pasadena Views Real Estate Team, Inc. - Pasadena, CA
Pasadena CA Real Estate
Jeff, thanks for your input!  There are actually agents (one in particular that I was reading on Trulia) that was recommending starting at 5% below asking, but possibly going down 30%.  It's astounding that agents provide this type of general information without any specifics of the home in question.  Just sad...
Jul 01, 2007 01:46 PM #10
Ambassador
1,831,417
Jeff Dowler CRS
Solutions Real Estate - Carlsbad, CA
Carlsbad CA Homes for Sale (760) 840-1360

Irina:

5% below asking is probably reasonable, maybe even a little lower, given that homes are selling, on average for 95% of asking. But I have yet to see an offer get accepted for ore than 10% below asking in my market (other than in high-end homes), and the danger is that while the seller wants to sell you risk alienating them so that they do not even want to talk. Depends on the situation, of course, and the negotiating skills of the agent. And so many other factors can enter into the equation - location, condition, time on market, etc.

Jeff

Jul 01, 2007 02:23 PM #11
Rainmaker
182,817
Irina Netchaev
Pasadena Views Real Estate Team, Inc. - Pasadena, CA
Pasadena CA Real Estate
Jeff, yes... reasonable it could be given you know all the other variables as you pointed out above.
Jul 01, 2007 02:35 PM #12
Rainer
33,677
Jack Haydon
Charles Rutenberg Realty - Clearwater Beach, FL
Clearwater Beach Condos - Real Estate Homes for Sale

Irina,

Great post! Your buyers are fortunate to have you consulting with them.

Jack

Jul 01, 2007 03:16 PM #13
Rainmaker
182,817
Irina Netchaev
Pasadena Views Real Estate Team, Inc. - Pasadena, CA
Pasadena CA Real Estate
Jack, thank you!  As they are with you and Cyndee, the Clearwater Beach experts.  :-)
Jul 01, 2007 08:53 PM #14
Rainmaker
448,954
Cyndee Haydon
Charles Rutenberg Realty - Clearwater, FL
727-710-8035 Clearwater, Beach Short Sales Luxury Condos &Homes
Irina - What a great post detailing what goes into making an offer - it's amazing how many real estate agents in Clearwater don't approach it like this - sound like it may be the same in Pasadena CA - gave it a 5!
Jul 02, 2007 10:08 AM #15
Rainmaker
182,817
Irina Netchaev
Pasadena Views Real Estate Team, Inc. - Pasadena, CA
Pasadena CA Real Estate
Cyndee, deciding on the price to offer for a house can be challenging in this ever changing market.  But, following a few simple steps gives agents and our buyers some guidelines and a basis for a price that can then be communicated to the seller.  Thanks for the 5!  :-)
Jul 02, 2007 10:18 AM #16
Rainmaker
182,817
Irina Netchaev
Pasadena Views Real Estate Team, Inc. - Pasadena, CA
Pasadena CA Real Estate
Cyndee, deciding on the price to offer for a house can be challenging in this ever changing market.  But, following a few simple steps gives agents and our buyers some guidelines and a basis for a price that can then be communicated to the seller.  Thanks for the 5!  :-)
Jul 02, 2007 10:18 AM #17
Ambassador
551,122
"The Lovely Wife" (Broker Bryantnulls Wife) The One And Only TLW.
President-Tutas Towne Realty, Inc. - Kissimmee, FL

Irina...

You my dear are getting really really good at this blogging thing. Great Consumer post :)

I could not find one thing that I disagee with :)

TLW...ROAR!

Jul 03, 2007 12:08 PM #18
Rainmaker
182,817
Irina Netchaev
Pasadena Views Real Estate Team, Inc. - Pasadena, CA
Pasadena CA Real Estate

TLW, what a great compliment!  Especially, coming from you!

Thank you so much!!!

Jul 03, 2007 03:16 PM #19
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Rainmaker
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Irina Netchaev

Pasadena CA Real Estate
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