Picture this: You’ve spent weeks (or months) seriously house hunting and you’ve found the perfect home for you and your family. You want to put in an offer, but how much should your offer be? You want the most competitive offer, but you don’t want to overpay. This can be difficult in a hot and competitive market like Boise. Consider the following 6 tips and 3 offer strategies before submitting your offer to the seller.
Know the market
You probably learned this as you started your home buying journey, but it bears repeating because it dictates the entire home buying and selling process: Is it a buyer’s or seller’s market?
- A buyer’s market is when an area has more homes listed for sale than active buyers. High supply and low demand gives buyers the advantage to leverage the market in price negotiations.
- A seller’s market is the opposite. Low housing supply and a high number of buyers leads to increased home prices with sellers less willing to budge on the listing price. Bidding wars are also more common in seller’s markets.
One effect of the nationwide COVID-19-indiced house buying boom is the exacerbation of the affordable housing shortage. Offers at all prices, from starter homes to multi-million-dollar luxury properties are getting beaten out by $20,000-$40,000 offers. Many of them cash offers with no contingencies. It may take many offer rejections and bidding on a lot of properties to finally get the winning bid.
Trust your agent. They represent your best interests and are doing everything in their power to help you find your new home. In a market like Boise, patience is the operative word.
Use comparable sales in the area
Comparable sales in the area, also called “comps”, are homes that have recently sold in the area surrounding the house for sale that are similar in lot size, square footage, schools, neighborhood, and amenities. This is information your real estate agent can access using the MLS to give them and you an accurate picture of the real estate market on the neighborhood level. This is due to listings displaying the listing price, but not the final sale price (which is more indicative of the home’s market value).
Consider the home’s condition
Compare the home you want with the comps to get a better idea of the home’s overall value. One consideration is the appliances in the comps. If the home you want has an older washer and dryer or refrigerator, these can bring down the home’s value a tiny bit. You may be able to negotiate a little on the price to offset the replacement of the aging appliance(s) in the near future.
Try to learn the seller’s motivation for selling
Understanding the seller’s reasons for selling their home can be a benefit for you as the buyer. If the sellers got a new job out of state or a long way away, they may be looking to sell fast to get into the new house. This can benefit you, since they may take a good deal that can close quickly. Conversely, if the sellers are retired and looking to downsize from a house that is nearly or completely paid off, they will probably not be in a rush to sell. Ask your real estate agent to ask the seller’s agent about the seller’s motivation. The more information you have access to, the better off you are.
Know your reasons for buying a house
Before you write an offer, take a second to think about why this home suits your needs and why you are looking to buy a house in the first place. So you plan to stay in the area for 10+ years and put down roots; or are you planning a short-term buy and selling when the market improves? These are considerations to make before making an offer.
Follow your budget
If you are in a position to make an offer, you should already be pre-approved for a loan. The Pre-approval gives you a budget for home prices and mortgage payments based on your income. Being pre-approved is already a green flag on your part because it shows the buyers you are serious about buying in the immediate-term. Just because you have a maximum budget does not mean you can/should hit that maximum. You don’t want to be house rich but money poor, barely able to make the monthly payments.
After considering these 6 factors and armed with research and data, you are ready to make an offer, but how much should the offer be in relation to the listing price? Here is an explanation of the three levels of offers.
When should I make an offer under the listing price?
Make a lower offer if:
- You are in a buyer’s market, and therefore have plenty of home options to pick from.
- The seller needs to sell quickly.
- The home needs repairs. You can get this information from the home inspection as well as from touring the home.
When should I make offer at the home’s listing price?
Make a listing price offer if:
- The home is the perfect fit and you want to be seriously considered as a buyer.
- The market has such low inventory that low balling isn’t an option at all. Boise’s real estate market causes this occurrence, often at lower price points. This can be difficult for first-time home buyers who have a lower maximum.
When should I make an over the listing price?
Make an over-price offer if:
- The house is a must-have and you want it no matter what.
- The listing price is well within your budget and you have room to go up and still afford payments.
- In an undersupplied market like the Boise area, be prepared to start bidding over listing and going up from there. Make sure to not over-extend your budget.
Keep in mind that making making an offer over listing can trigger a bidding war if there are multiple interested parties with room in their pocket books in a seller’s market. Also, lenders may add a contingency to appraise the home to make sure they aren’t lending out more money than the house is actually worth. The banks don’t want to overpay on a house that is actually worth a lot less than you paid for it.
Bottom line: Buying a house is both exciting and stressful. Even though it can be hectic in a hot market like Boise, make sure you understand how to make a smart offer that makes financial and personal sense.