Should I Offer Below the Asking Price for a House?

Should I make an offer below the asking price for a house?

By Brandon Cornett | © 2021, all rights reserved | Copyright policy
Welcome to another Q & A school term with the publisher of the Home Buying Institute. In this article, Brandon will be responding to a person who asked about making an offer on a theater. So let ‘s start with the wonder at hand. Reader question : “ When buying a house, I ‘ve been told I should make an offer that is below the ask price so the seller will negotiate somewhere in the middle. Is this a good strategy to use ? This is my first time buying a home plate, so I want to make certain I handle the offer correctly. ” I ‘ve actually received a similar interpretation of this interview from a unlike lector. But since it ‘s such a common concern among first-time home buyers, I ‘d be glad to answer it again. Let me come at it from a different fish this time. I ‘ll explain some of the basics of making an propose to buy a house, and then I ‘ll take on the character of the seller. You are the buyer, and you ‘re trying to make an offer below the asking price I have set. I ‘ll explain how a seller might handle such an crack.

But beginning, let ‘s talk about some of the basic concepts of purchase offers.

Every Pricing Scenario is Different

From what I ‘ve gathered, there is a principle of thumb floating around that you should always offer less than the asking price when buying a family. Some people have even assigned arbitrary percentages to this rule. For exercise, they might say you should offer 5 % below the asking price for starters. These “ rules ” are not only misguided, they are downright hazardous for the buyer. The argue is that they do n’t take singular price scenarios into account. You can not apply some arbitrary rule to every home-buying site. Consider the deviation between these scenarios : Some sellers price their homes realistically, based on comparable sales. Some sellers tend to overprice their homes, based on what they need to pay off their mortgages. And some sellers will actually price their homes below market value, in decree to sell angstrom cursorily as possible. Given these three different scenarios, how can you say that it always makes sense to offer below the asking price ? In accession to the differences in pricing strategies, you besides have huge differences from one real estate of the realm market to the following. In a sellers ‘ market, you would be anserine to offer less than the ask price ( if that price reflects the current commercialize measure of the home ). While in a buyers ‘ market, you have less to lose by offering below asking price. even if the seller rejects your initial offer, they will likely come spinal column with a counteroffer.

Two Different Situations, Two Different Offers

We just talked about two of the most important factors to keep in mind when making an put up. You need to consider how the base is priced in relative to its likely market prize. And you need to consider the measure of leverage you have, based on the forte of your local actual estate market. Keep those two factors in mind for just a moment. here are two scenarios where it may or may not make sense to offer below the asking price : Scenario #1 – Give It a Shot You ‘re in a buyers market. There are plenty of homes for sale, but not adequate buyers to absorb them all. As a result, many homes have been sitting on the grocery store for months. Sellers are frustrated and desperate to sell. You find a family that is listed for $ 275,000. You pull up a handful of comparable sales from the last month or so, and you find that the average sale price was $ 255,000. In this scenario, it would make sense to offer less than the request price. If the comps were very exchangeable to the target house, I would probably offer somewhere around $ 250,000. If the seller shoot that depressed without thus a lot as a counteroffer, they would be foolish. It ‘s a buyers market after all, so the adjacent crack might not come around for some prison term. Scenario #2 – Tread Carefully You ‘re in a sellers market. ( I know, it ‘s 2011 and there in truth aren’t any sellers markets correct now. But use your resource. ) There are plenty of home buyers but not enough houses to go around. Most homes are going under contract within a week of being listed. Sellers are getting multiple offers from buyers trying to outbid each other. You find a firm that ‘s listed for $ 275,000. You do some research and find that the median sale price from a handful of comps is $ 273,000 .
In this situation, it would be a badly estimate to offer below the asking price. late sales data would suggest that the seller ‘s ask price is realistic. additionally, you ‘re in the type of very estate market where people will try to outbid you. so if you do n’t make a full-price offer on that house, you can be fairly certain person else will. If you make an offer less than the asking price in this scenario, the seller will probably turn you down and take a more favorable offer. person will snatch that sign of the zodiac right out of your hands.

I speak from experience on this submit. When I bought my beginning theater in Maryland, it was a full seller ‘s market. We made the mistake of trying to negotiate a few times, and we had several homes steal justly through our fingers. We quickly adjusted our strategy and made full-price offers, ampere long as the marketplace supported the ask price. We were still up against multiple offers, but finally we got ours accepted. We merely had to realize the bargaining power was in the seller ‘s favor. These two scenarios illustrate the flaws in the arbitrary “ rules ” that say you should offer below asking price for a house. In scenario # 1 above, you could credibly get away with it. In scenario # 2, your offer would probably be shot down without therefore much as counteroffer. arbitrary rules are worthless. Every home-buying situation is different. Every price scenario is different. You need to consider how the home is priced, based on current market values in the area. You need to consider the real estate of the realm marketplace you are in, and how a lot bargaining power you have. This is how you make a bright propose on a firm. See also: How much should I offer for a house?

A Word About Comparable Sales

In the previous incision, I talked a distribute about comparable sales or comps. If you ‘re working with a real estate agent, he or she should pull up a list of comps for the sphere where you want to buy. A comparable sale is just a house that has sold recently in the sphere where you ‘re searching. It should be similar in style and price to the type of house you are considering. For example, if I ‘m looking for a two-story colonial-style home in Colombia, Maryland for about $ 375,000, I want to find recent sales data for two-story colonials in Colombia, Maryland. When I find homes that have sold in the $ 375,000 price range, I have a pretty good idea what kind of house I can get for the money. These comps are showing me what the commercialize will support in terms of the asking price. I can besides use them to determine when it makes sense to offer below the asking monetary value, and when it makes sense to make a full-price propose. The three most significant aspects of the comparable sale are proximity, similarity and timeliness.

  • Proximity refers to the distance between the comp and the target house you are considering. Home prices vary from one city to another, but they can also vary from one area to the next within the same city. So you want to find sales data for homes that are in the same area where you are trying to buy.
  • Similarity doesn’t need much explanation. You want to look at sales data from houses that are similar to the one you are considering. That’s what the word “comparable” means.
  • Timeliness simply means that you want to find the most recent data. Home sales from six months ago are not very useful when evaluating a seller’s asking price.

When you ‘re looking at former home sales that have these three qualities, you ‘ve found your comps.

Role Playing: You Will Offer Below My Asking Price

You mentioned that you ‘re a first-time home buyer. This means you have never sold a home before, so it may be hard for you to get inside the mind of a seller. So permit ‘s do some role-playing for a moment. You ‘re the home buyer, and I ‘m the seller who has the family you want. We are in a boring real estate of the realm marketplace that favors the buyer, but there is still a beneficial bargain of real estate natural process. So it ‘s not totally a buyers marketplace. As a seller, I know I have to play my cards correct if I want to get an put up. But at the same clock, I ‘ve seen homes selling in my region. So I know there are buyers out there. I ‘ve seen them come into the clear houses over the last few months. This scenario probably reflects many of the very estate markets in the nation correct now, in 2011. I realize I need to price my house realistically in order to get an offer. So I spend a set of prison term reviewing comparable sales in the area. I look at the homes that are exchangeable to mine, and then I factor in the singular features my house has. For model, I ‘m one of the alone homes in the region with a customs pool in the backyard. I price my home based on holocene sales data with a reasonable markup for the singular features of my house. Based on all of the homework I ‘ve done, I feel that I have a fairly fair asking price. I ‘ve even erred on the cautious side, because I want to sell the house promptly. Who wants to stay on the market for six months ? not me. My house is priced at $ 260,000. And then you come along. You ‘ve been told by a “ ally of a acquaintance ” that you should constantly offer below the asking price when buying a house. so after viewing my home a couple of times, you decide to make an offer for $ 245,000 — $ 15,000 below asking. Your offer is dear for 48 hours, so I have a couple of days to think about it. The following day, I get another volunteer from a electric potential buyer. This person offers $ 255,000 — $ 5,000 below my ask price.

What do you think I ‘m going to do now ? You guessed it. I will either ( A ) accept the second buyer ‘s offer outright, or ( B ) try to negotiate with the second base buyer. Your offer gets put on the side burner for now. I will tell your agentive role that we are in the procedure of accepting a higher offer. translation : “ no cover. ” I ‘ll keep your agent ‘s business card though, just in case the other buyers fall through at the last minute. But you can consider your offer rejected. Is this a realistic scenario ? Yes. In fact, it ‘s the claim scenario my wife and I went through when we sold our firm in Round Rock, Texas in 2010.

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