The long, tiring search is over and you’ve kissed a lot of frogs. You’ve found your dream home and want to make an offer on the property. But how do you know how much to offer and if you’re getting the most value for your money?
The offer phase of purchasing a home isn’t always straightforward and you need to at least know the market on homes in that area so you can determine if you’ll be getting the fair market value for that home.
Too Much vs Too Little
Lowballing is a common term in the world of real estate. It means that you’re offering to buy the house for a number that’s far below the market value. You can try this, but you run the risk of insulting the seller and losing the home for good.
On the other hand, if you don’t know the fair market value of the home you could overpay by thousands of dollars. To zero in on the market value of the home you’ve chosen, you should first know if you’re in a seller’s or buyer’s market.
Buyer’s or Seller’s Market?
A buyer’s market means that there are plenty of homes for sale, but a shortage of buyers. This gives you more power to bid lower than the asking price and to even ask the seller to pay for some or all of the closing costs. In a buyer’s market, you’ll find the seller more willing to negotiate.
If you’re in a seller’s market, there is a shortage of homes for sale and you’re likely to have several potential buyers making offers at the same time. A seller’s market is a little tougher to negotiate in because you may need to compete with other buyers.
In my area, it is currently a seller’s market. Houses are selling for top dollar, just a day or two after being listed on the market. Usually, if a home has a contract on it, buyers will move on to homes that are fully available, but in this seller’s market, contracts are 4 and 5 deep on homes. Buyers are hoping that the contracts ahead of theirs will fall through.
It’s sometimes devastating to a potential home buyer when their good-faith offer is rejected – especially without a counter offer. This could happen when the seller receives many offers and your offer was much less than the others. Or, the seller may back off of your offer just to see if he can eventually get a better one.
All may not be lost, even if your offer has been rejected by the seller. The seller may not have accepted any offer on the home and you may still have time to negotiate by moving rapidly with a higher offer. This may result in a bidding war that your real estate agent will need to help you with.
A buyer’s agent is extremely helpful if you’re a first-time home buyer. He or she will be familiar with the local market and be able to negotiate the best deal on your behalf. You’ll learn a lot during this process, which may be helpful to you when you decide to sell.
If you’re working in a seller’s market and there’s a real shortage of homes in the area, you may still be able to get your dream home. Find a home you really love in an area you’re interested in and write a letter to the homeowner.
It’s a true leap of faith to try this method, but it’s worked for thousands of buyers and it just might work for you. Even if you receive a “not interested” reply, at least you’ll know you tried.
Never rush to make an offer in any market until you’re sure the home is right for you. Unless you do the proper research on the home, you may be rushing in to a situation that you’ll later regret.