When deciding how much to offer on a house, factors like the current state of the market, the type of market, and neighborhood market data should all be considered, among others. While we usually write articles on topics such as the best home warranty, we decided to switch it up a bit. We talked to four real estate experts to get the nine most important factors to consider when deciding how much to offer on a house.
How much to offer on a house
Contrary to what some may believe, paying the asking price, or even over the asking price, of a home is not necessarily a bad deal for the buyer. If a property is listed close to the actual market value of the home, it’s recommended that the offer be close to the listing price—many properties are priced well and fairly. The best way to determine how much to offer on a house is to meet with an experienced real estate agent or broker. But we’re also about answers right now, so we went to four experts to get the scoop on offer prices.
9 factors to consider when determining how much to offer
1. Your budget
Determine how much you can realistically afford and set a dollar amount that you won’t exceed. According to Glenn Phillips, CEO of Lake Homes Realty, a licensed full-service brokerage that operates in 21 states, “Nothing ruins the joy of a new home like the burden of unmanageable debt. Or even worse, setting yourself up for an eventual foreclosure, which will damage you for years.”
If you offer more than you can afford, even if you’re approved for more, your monthly mortgage payments will be higher, making it more difficult to pay off your home.
2. Type of market
When determining how much to offer on a house, consider whether it’s a seller’s market or buyer’s market. In a seller’s market, it’s riskier to go below asking price because inventory is low and multiple buyers will likely be interested in the same property. Buyers should be reasonable yet competitive in order to be considered: one mistake that many homebuyers make in a seller’s market is offering too low. A buyer needs to make a strong offer since the seller could have multiple offers on the table.
According to April Palomino, licensed realtor with Coldwell Banker Residential Real Estate, “We all want to get the most bang for our buck and we love saving money when we can. But, keep in mind, the seller wants the most money from their home as well. So don’t put in an offer that is way too low or could be considered insulting. Even on a cash only sale, you want your offer to be strong.”
In a buyer’s market, homebuyers can be more flexible with their offer since inventory is high and houses tend to sit on the market for longer. Because sellers are likely to see fewer offers, most are more willing to negotiate price.
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3. Comparative market analysis
A comparative market analysis (CMA) is a widely used mathematical examination that estimates the true value of a property and helps you learn how much to offer. It breaks down a property into its essential characteristics (bedrooms, bathrooms, square footage, etc.) and compares it to nearby homes with similar characteristics that have been sold recently (usually within the past six months to a year).
Ask your real estate agent to conduct a CMA. The final report will typically list the status and specs of each comparable property, the listing price, the sale price, the number of days the property was on the market, and calculations regarding high and low sales price, average sales price, and price per square foot. According to Brenda Di Bari, a licensed real estate broker from Halstead Real Estate, “This is perhaps the most important element of deciding the right price to pay for an apartment [or home] and it is the element that no seller can argue with.”
You can also conduct your own rough comparative market analysis using Redfin.
- Enter the zip code of the home you’re going to make an offer on.
- Scroll down until you find Listing Status and turn the Sold toggle on.
- Filter the neighborhood’s results by sold within the last 3 months.
- Input the house’s square footage and bedroom and bathroom counts.
- Browse recently sold homes and see how comparable they are to the one you’re making an offer on.
Photo by Naomi Hebert
4. Neighborhood market data
In addition to a comparative market analysis, looking at how fast homes in the neighborhood are selling can help you determine how much to offer on a house. “If homes have competing offers and are selling within a few days, then be prepared to offer full price or slightly better (assuming the home is not overpriced based on the research you’ve done on the neighborhood,” says Glenn of Lake Homes Realty. “If homes for sale are sitting for months, then be more aggressive, but not so low-ball that you’re not taken seriously.” Glenn recommends calculating a price based on similar homes that have sold and coming in 4%–7% below to begin negotiations.
Glenn also advises to not be fooled by what other nearby homes for sale have as their sale price. “These homes have not yet sold, and their listed price is rarely what they sell for eventually. Either through public records (visit your court house) or through a real estate agent, evaluate what similar nearby homes have sold for and how recently.”
5. Financial profile
According to Brenda, “The more solid your financial profile is as a buyer, the stronger you are as a candidate to have your offer accepted. Cash is king true enough, but a person getting a mortgage can still be strong, especially if they are able to waive the financing contingency (meaning they will close on the property even if they are unable to obtain the financing they want).”
Presenting yourself as prepared and able to close on a deal is important to a seller. “Having your competent real estate broker, real estate attorney, mortgage broker, and perhaps home inspector in place and [being] ready to move quickly will make your offer very appealing to a seller and their broker. Preparing a letter of presentation of yourself and your interest in the seller’s property will also put your offer in a favorable position,” says Brenda.
6. Physical condition of the home
Before making an offer, you want to evaluate the physical condition of the home. Is it in excellent condition, average condition, or poor condition? Carmen Palma, a licensed real estate salesperson at Regal Real Estate Professionals, says, “If the house has structural or mechanical issues or substantial cosmetic problems, you may have the opportunity to submit a less-than-full-price offer. Depending on facts and circumstances, you may want to use a 10% reduction in price as a starting point for negotiations.”
If the home is in great condition, has desired upgrades, and is located in a hot market with multiple offers on the table, the offer should be at list price or above.
You can best determine the condition of the home by hiring your own home inspector. The seller’s willingness to repair any problems uncovered by the inspector will determine whether you should seek additional price adjustments.
7. Seller motivation
Every so often, a seller has already bought his or her next home or is relocating to a new area. They will typically be forced to sell their home quickly or face the prospect of making two mortgage payments at the same time. Most sellers want to avoid this situation and may be willing to lower the home’s price by a few thousand dollars. According to Brenda at Halstead Property, “This may not be information you can know, but sometimes asking the listing agent yields surprising results.”
8. How long the listing has been on the market
How long a house has been listed on the market can help you determine how much to offer on a house. The longer a house has been on the market, the less of an advantage the seller has on a negotiation and the more flexibility you have to make a lower offer. However, you should never go more than 25% below the listing price—you don’t want to insult the seller or not be taken seriously.
According to Brenda, “A seller is less likely to consider offers that come in below their asking price if they have just come to market. However, as time passes and offers don’t come in, or are below what a seller hopes to sell for, they will usually be more receptive to lower prices or riskier conditions (such as financing contingencies or buyers with less assets).”
Carmen at Regal Real Estate Professionals has a similar take. “If you’ve found your dream home in pristine condition and it has only been on the market for a few days, then you may want to consider placing a full price offer or risk losing it to another potential buyer.”
9. How badly you want the home
If you are going to regret missing out on the home, consider offering the exact listing price—or a bit more—to seal the deal. However, Glenn from Lake Homes Realty emphasizes that you shouldn’t let emotions take over when considering price. “This is a business transaction for a property you will want to enjoy. If you emotionally ‘have to have this house,’ you will lose bargaining strength and overpay,” says Glenn.
Remember: Submitting a low offer is always a risk. Be prepared to negotiate if your initial offer is rejected.
A home warranty from a reputable company can help minimize the stress of moving into a new home. Read some of our in-depth reviews, such as our American Home Shield review or 2-10 Home Buyers Warranty review.