Deciding exactly how much you should offer on a house often comes down to the market you’re in and the desire you have for this house. It's always useful to really think about how badly you want the property and if you're ok with losing it to a higher offer. But if you love the home and think the asking price is reasonable, it's best to make a fair offer and get the deal closed quickly.
Here’s our rundown on how much you should offer on the house based on your specific needs.
- Determine the Market Value
- Understand How Home Pricing Works
- Consider Your Goals
- Consult With Your Agent
1. Determine the Market Value
The first step towards deciding how much you should offer on a house is to determine the market value of the said house. Determining the fair market value of the home will help you to decide if the current asking price is reasonable and how much you should negotiate.
Your real estate agent should look at similar houses in the area that have sold on the current market to help you decide whether the asking price is too high or low compared to the value of the property.
2. Understand How Home Pricing Works
Savvy home sellers will consider the psychology of people interested in buying a new home when they price their property. It pays (literally) for you to think about the same factors. For example, if you or your agent discovers that a house is priced too low for the current market values, even though there doesn’t seem to be anything wrong with the property, you may anticipate a common selling tactic based on this below-market price. The seller may be wanting to encourage competition between willing buyers to drive up the price based on emotional bidding decisions.
A high price could also be a reverse strategy, a way to get you to buy a house based on the fact that you feel like you’re saving money. This works by encouraging you to make an offer around the actual market value of the house, which the seller will accept. You feel like you’ve gotten a deal when in reality, you may not have bought this house if it was priced competitively, to begin with.
3. Consider Your Goals
Another consideration when deciding how much to offer on a house is how badly you want the home. If you've just found a home that suits your needs but is one of many that could work, you might make a lower offer than if you've found your dream home, and you don't want to risk losing it. If you really want the house, the last thing you want to do is to get caught up in a bargain shopper’s mentality. Understanding your goals is instrumental in planning your next move.
4. Consult With Your Agent
After determining the market value of the house and deciding on how badly you want it, it's time to consult with your agent. They'll have a handle on the real estate market, and will be able to advise you on how much to offer based on market conditions and your goals.
There's no set percentage on how much below the asking price you should offer. If you've determined the home is overpriced you should consult with your agent and come up with a reasonable offer you're comfortable with. In some markets, a fair offer might be 5% or 10% below the ask, while in others it could be 25% or more below the asking price, especially if the seller used a "pie in the sky" pricing strategy.
A low offer might also be a good bet if the market is what’s called a “buyer’s market.” This means that there are a lot of houses for sale right now and not as many buyers. Sellers will be waiting for a chance to jump on an offer, depending on how much of a buyer’s market it is, maybe even one that’s well below asking price.
You may also want to offer a low offer just because you’re not that enthusiastic about the house. Maybe you feel it’s priced a little high, or you've found other options you'd also be happy with, or you simply don’t want it unless you can get a deal.
Additionally, it pays to look at the history of the listing. A seller will be more likely to accept a low offer if the house has been on the market for a while. They may figure that your offer is the best they’ll get.
An above-asking price offer might be a good bet if the market is a “seller’s market,” meaning that there are few houses and lots of buyers in competition.
This is where that question of what you want comes into play. If you want a house, especially a recently listed one, you may need to put up an offer above asking price to seal the deal. No one wants to spend extra money, but no one wants to lose their dream house either.
Of course, there’s always the third option: offering the asking price. If the market is balanced between buyers and sellers and the asking price is fair and reasonable, you may want to offer what they’re asking. This is especially true of a house that you want that was recently listed – they may be ready to sell right away at the price they asked for.
You can also be flexible with other aspects of the listing, such as the down payments, contracts, and other nitty-gritty aspects of the process as this can make your offer look better without adding any money to it.
Deciding how much to offer on a house can be troubling because you don’t want to lose the listing or pay too much. This is why this guide is intended to help you use the market to decide whether a low or high offer is most appropriate, or if you should simply pay the asking price. At the end of the day, there's a lot to consider, including if the desired property is a must-have for you, how easy it will be to find similar options, as well as sort out the seller’s potential motives in the asking price they’ve listed in the first place.
No one piece of advice is appropriate for all situations. Just remember that the main factor to consider when hashing out your offers is how much you want the house. If it’s your dream home and you don’t want to lose it, you may need to plan differently.