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We’ve discussed in previous blogs how to calculate costs associated with owning a home in order to assess how much you can spend on a home. Many times, home buyers have a specific number in their head that they know they cannot exceed when purchasing a new home.
When it comes to making an offer for a home, many home buyers are not aware of where to start and may throw out the number we described above. This is not how a home buyer should negotiate a price because it leaves little room for negotiation. In today’s blog we will discuss how an offer is usually decided and the things to consider when negotiating the price of a home. One of the most important aspects to consider when considering what to offer for a house is the actual value of the home.
Of course, it can be difficult to formulate the worth of any property especially if you know little about real estate. This is when a buyer broker can be extremely helpful because they have access to all the information necessary to come up with a competitive offer. This includes comps, which are homes that are closely similar in size and location to the home that you are interested in, and the listing price and selling price of the property as well.
If working with a buyer broker, you can easily ask them what they would pay for a specific home, but if you recall from one of our previous blogs, a seller’s broker has a legal obligation to the seller and cannot give you this type of advice.
Therefore, if you are in a similar situation with a seller’s broker, the most you can do is ask for comps because they cannot advise you to pay anything but the listing price. Once you have a good idea of how much money similar homes are being sold for, the next step would be to compare these selling prices to the listing price of the property you want. If it is competitively priced then the listing price should be similar to selling price of the comps.
The listing price is usually higher than what the seller actually expects to receive from selling the home, so a good offer would typically be 5 to 10% less than the listing price depending on whether or not other home buyers are trying to purchase the same home. Naturally, the home buying process can take time, but it is important to always have the most recent comps because the real estate market is always changing. Deciding on how much to offer for a property can be a daunting task especially if you have little or no real estate knowledge.
This is why having an agent on your side is very beneficial. Nevertheless, being aware of how an offer is formulated is a helpful tool when it comes to the home buying process to ensure that you do not pay a penny more than necessary.
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