How much do you offer on a property to get the best deal? Offering too low of a price can backfire and turn the seller off. Making an offer above the seller's bottom line and you are leaving money on the table. Here are ten tips to help you get the best deal.
1. Know what is important to the seller.
It isn't always about the price. Showing some flexibility on some terms can make a low offer much more attractive to a seller. Do they need to close by a certain date to close on their next property? Do they need a short rent back until their next home is ready? Are they concerned about having to make home inspection repairs? There are many terms that can go into an offer to make a low price more acceptable.
2. Research comparable sales AND non-sales.
Comparable sales: This is probably one of the more important criteria to consider. What are similar units selling for? Of course, interpreting the past sales can be part art and part science since no two condos are identical. In some buildings, a one-floor difference can be the difference between a monument view or a view into another building. Many buildings have one side that is better than the other for a variety of reasons - sunlight, view, noise, etc. Knowing these nuances can make a difference.
Was the sale a distressed sale (i.e. a foreclosure or short sale) and not in great condition? That needs to be factored in to the pricing.
Comparable non-sales: Just as important as what is selling, is what is not selling. Withdrawn or expired listings can shed some light on the high end of the range.
3. Research the listing agent’s sales history for patterns and sales ratios.
This might be hard to do if you are not a licensed agent and don’t have access to the same MLS data an agent has, but this is something I do with my clients.
I like to see the listing agent’s sales history. Are they a new agent without many listings? If so, maybe they recommended a lower price but didn’t know how to show the seller and would be open to a better explanation. Or maybe they just didn’t know to accurately price a home.
On the other hand, if they are an experienced agent and have a lot of sales in a particular building, they probably know all the nuances for that building and price their listings appropriately.
4. Look at the Days on Market (DOM)
Let’s face it. If a listing just came on the market, the seller is not going to be ready to slash the price. If it has been on the market several months, the seller might start to realize it is probably over-priced.
I’ve seen it happen before where an overpriced listing sits on the market for a while. The seller is not too motivated at first, but then something happens. Maybe that job transfer finally came through. Maybe that long distance relationship is starting to take off. Maybe they just found the perfect house to move to next and they don’t want to lose it. There could be any number of reasons. The important lesson to remember is that a seller’s motivation will vary over time.
Let’s face it. If a listing just came on the market, the seller is not going to be ready to slash the price.
5. Know if you are competing against other offers.
I always inquire whether there are other offers on a place before I write an offer. However, there is more to it than just asking the listing agent if there are other offers. An experienced agent will know how to read between the lines. Are they expecting an offer or do they actually have one in hand? Is there an offer deadline or will the seller review them as they come in? If they received an offer, is that offer still alive? Or was is a low ball offer received last month that the seller rejected out right.
6. Are there similar units available in the building?
If there are several similar units available, you can play them against each other. Let the listing agent know you are considering units XXX and YYY.
On the flip side, if it is in a boutique building with few listings or there is something that makes the unit unique, like a large terrace, the scarcity will add to its value.
7. Is it vacant?
Nobody likes paying on two mortgages and this could be a sign of a motivated seller. Try and find out where the seller moved to. Or maybe the seller is an investor and didn’t live there.
8. Market trends
There are so many different real estate market stats you can look that will make your head spin. What is important to look at are trends. Real estate markets are very seasonal and there are variations from month to month so don’t get to hung up on a stat from one month.
Some of the important stats I like to monitor are:
9. Lifestyle changes.
If the home is still occupied, I look for signs of a lifestyle change. Is there a baby on the way? That 1BR condo might get a little crowded quickly. Moving boxes everywhere? A sure sign they are motivated.
10. What did the current owner pay for the home and how much equity do they have.
Although what the current owner paid for the home is not relevant to today’s value, sometimes it does affect how much the seller will negotiate. If they just bought a few years ago and it hasn’t appreciated very much, the seller might have his purchase price stuck in his head as his bottom price.
There are also tools available to show how much equity an owner has in the home. Someone that owns a home free and clear has a different mindset than someone who has to bring money to the settlement table.
Every transaction has different circumstances and there are always a number of factors to consider. There is no ‘one size fits all’ strategy that works. I’ve listed a few things to consider above, but I didn’t even address buyer motivation and desires. This post is only looking at what price to offer, but there are many other considerations that go into an offer. In addition, the initial offer is only the first step in the process of negotiation.