A number of factors, such as the condition of the area real estate market, impact your ability to pay fair market value or to get a good deal on a home purchase. Those factors, combined with your motivation to buy the home and your budget, must be considered when deciding what price to offer on your potential dream home.
Current Market Conditions
In general, housing markets are described as a "buyer's market" or a "seller's market" to indicate who has the upper hand in negotiations. When home demand is relatively high compared to the availability inventory of homes, it is harder to get a good price. When you are in a small pool of buyers looking at a large inventory of homes in a price range, you have more ability to offer below the asking price, according to the National Association of Realtors. Your real estate agent is a useful resource in helping you analyze current market conditions.
Listing Price and Comparable Sales Prices
Though sellers typically keep their strategies secret, determining the pricing strategy of a home seller is helpful in making an offer. Your real estate agent should run an analysis of comparable home sales in your area, according to Austin, Texas-based agent Mary Battaglia on her website. This analysis reveals how the property's listing price compares to sales in the past six months of similar homes. If the home is much higher than recent sales, the seller is leaving room for negotiations. If the price is comparable or slightly below recent sales, you may not have as much wiggle room. Time on the market for the property is important as well. A seller who has been waiting months for a sale is usually more anxious for any offer than someone who just listed.
The condition of the property plays a role in a fair offer as well. The need for a new roof, updated fixtures or renovations throughout could contribute to a reduced offer. Battaglia recommended that buyers evaluate home condition as low, medium or high. Consider the value of recently added features, such as a new sunroom, as well. An agent's expertise and familiarity with the local market and home conditions are helpful in adjusting an offer based on condition.
Your Financial Situation
Regardless of your perceived value of a property, you should never offer more than you can afford. A lender's preapproval is useful in identifying how much you can afford to borrow, according to North Conway, New Hampshire-based firm JtRealty. This knowledge aids you in looking in the right price range. You also gain some bargaining power with documented ability to complete a purchase. Overextending on a home by getting too emotional in your offer can cause a lot of financial stress in the future.
A Balanced Strategy
After analyzing personal finances and market-based factors, pick a strategy that balances your desire for the home with efforts to get a good price, according to U.S. News & World Report. A lowball offer can offend some sellers, causing them to cut off any further negotiations with you. While the final choice on an offer price is your own, a real estate agent can advise you on what type of offer a seller would take seriously based on his evaluation of market conditions. Leave room for negotiations, though, unless you feel the list price is low and you don't want to miss out on the opportunity.
Knowing your bottom-line highest offer before submitting an initial purchase agreement helps you stay disciplined if the seller makes a counteroffer.