How Much Do You Offer for a Home When You Know Its Market Value?
Unless you intend to pay cash for a house, you will need a home loan. Before you start shopping for a house, meet with your lender to determine if you quality for a home loan and your spending limit. This doesn't mean you have to spend your limit. Ideally, you want to get the most amount of house for the least price. Making an intelligent purchase offer begins by knowing the current market value of the property.
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Market Value
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The market value of a house is what a buyer, not under duress, and a seller, also not under duress, agree it is. But real estate professionals can estimate this figure by analyzing what comparable properties in the neighborhood or vicinity sold for within the recent history, such as within the last six months. The market value can change for a variety of reasons, such as an announcement of a company closure, resulting in massive area job losses. If working with a real estate agent, before making an offer, ask her to estimate the current market value of a listing, and review the comparable properties used by the agent.
Asking Price
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The seller's asking price may or may not be at the current market value. For a quick sale, the property owner may be listing below market value. The seller may have a higher opinion of his property and list the property over the current market value.
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Higher Offer
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If you love the house and know someone else is going to make a full market value offer, you may not get the property even if you offer a higher amount. Lenders typically require an appraisal, and if the property appraises for less than the amount offered, meaning you offered higher than the current market value, the lender would not give you the loan, unless you agree to put up additional cash. Some sellers list properties above market value and refuse to accept a price lower than the listing price. Yet, when faced with a low appraisal, the seller must lower the price, lose the offer or convince the buyer to put in additional cash.
Lower Offer
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If the listing price is below market value, a buyer might consider making a higher offer, closer to market value, if it is a hot market, with ready buyers. When a seller receives multiple offers, it can turn into a bidding war, driving up the price even higher. Yet, if it is a slow, buyer's market, a buyer can feel more confident making a lower offer. Before making an offer below market value, consider the current market, the seller's motivation and your own desire for the property. A buyer who falls in love with a house, yet insists on offering far below the market value, may find he loses the home of his dreams.
How Low to Offer
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In Robert Irwin's "Buy, Rent and Sell," Irwin says he generally offers at least 5 percent under asking price when bidding on investment property, but for property priced under market value, he offers closer to the asking price. He warns against offering too low, such as 25 percent below asking price, as that is more likely to receive a rejection than counter. In William Pivar's "Real Estate Investing from A to Z," Pivar states that if a buyer is able to purchase property below 20 percent of the market value, the buyer makes a profit at the time of purchase. An investor has more latitude in making a lower offer, as the desire for the property is primarily financially motivated, and he may be willing to make a number of low offers on different properties before one is accepted. For the buyer shopping homes, whose primary objective is obtaining the property, offering closer to market value increases his chances of an accepted offer.
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References
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