When it comes time to actually make an offer on a home, you might wonder how you can possibly decide what to bid. Bidding on a home is more of an art than a science: There is no exact formula to follow and a seller might accept an offer purely based on an emotional response.
However, understanding the factors you should consider and what role they could potentially play in deciding your housing fate can help you make the best decision.
Making an offer on a home might feel like a job application, where you submit all the important information and hope that the interview went well, but, at the end of the day, the decision lies solely in the hands of the seller (or employer).
You might not get the first home you put an offer on; in fact, it might take several offers if you live in a competitive market.
Research Comps in Your Area
The first step when considering an offer is to do research. Sure, your home search undoubtedly involved plenty of research on neighborhoods, styles, prices and more. But now that you’re interested enough to consider making an offer, it’s time to research this particular property and circumstances in-depth.
First, review all the comps, or comparable homes recently sold in the immediate area. Your agent should be able to provide you with the data, including pending sales that show the most recent data possibly available with the actual sale price and even the number of offers received.
In reviewing the comps, take into account any differences with the home you want. Have they made any updates or renovations or is there anything unique about the property?
You should be able to identify both a lower and an upper limit to the price range your home falls into, which can help you gauge your offer.
Find Out the Seller’s Motivation
If you know why a seller is selling, you might get a glimpse into the motivation and your potential for a better offer. Find out how many days the home has been on the market (DOM) to see if a seller might be more motivated to accommodate lower offers after waiting a while.
If the seller already purchased elsewhere and is currently paying two mortgages, the quickest sale is probably best for that seller. Of course, in a competitive seller’s market, the best offer tends to win out regardless of the seller’s current situation.
Stick to Your Budget
Whatever information your research can gather, remember your budget. Your offer is not just the price you will pay between the down payment and mortgage; you are taking on the ownership and maintenance of a home that requires constant financial upkeep.
Also, remember the closing costs that you will be responsible for and incorporate the many costs like homeowners’ insurance or HOA fees, and then stick to your original budget. This can add a few thousand dollars to the potential purchase price.