Notes & updates: None currently.

Deciding on an Offer Price

If you have found the right house and have the proper financial resources to purchase it, you must consider how much you are going to offer for the property. A fair price depends on several factors. Understanding those factors can help you come to the right dollar figure.

Advertised price. The seller estimates a dollar amount he or she believes the house is worth. Realize that sellers price houses very differently. Some sellers deliberately overprice, while others list close to what they hope to get, and a few cleverly underprice their houses hoping that potential buyers will compete and overbid.

Closing costs. When determining a dollar amount, consider your share of closing costs, which could be around 2 to 5 percent of the purchase price.

Market value of comparable houses. Know the selling prices of neighborhood houses similar to the ones you are interested in buying. For reliable comparable prices, remember the following basic guidelines:

  • Comparable transactions should have occurred within the previous six months; the more recent the better
  • Where prices fluctuate, comparable prices should be reflected in sales of the past month or so
  • Comparable sales should be for houses similar to the property in which you are interested in terms of age of the house, size of the house, and number of rooms
  • Comparable sales should be within about six to ten blocks of the house you are considering

Local real estate brokers should have reliable comparable sales data. You may find useful information online.

State of the local real estate market. A hot market sees house prices increasing. A cool or cold market sees prices decreasing. In aggressive areas, homes can sell quickly for 10 percent, 20 percent, or more, above the asking price as bidding wars erupt among competing buyers.

Seller’s needs. Price alone is not the sole consideration sellers have. Closing the deal quickly—for example, by obtaining financing or preparing inspections before presenting your offer—can be a highly motivating factor. This is especially true in hot markets. Your flexibility and sympathy to the seller’s needs by extending the closing date for a seller who cannot move immediately or by paying for repairs could make or break your offer.

Uniquely valuable to you. A moderate house listed at a fair price might be a steal if you have kids, the house is in an exemplary school district, and the plat has plenty of space to add a few rooms. For a couple not planning to have children, the same house might be overpriced. Remember your personal needs when judging objective market factors. Your needs may outweigh the fact that the property or the bargain is not ideal.

Pay up. While tactical considerations, including the temperature of the market or the seller’s needs—are important, your own, reasonable assessment of how much you are willing to pay will ultimately be the limiting factor. Pay only what you are willing to and can afford to pay.

Protecting Yourself from Failed Deals

Real estate transactions normally include contingencies, which require events to occur within a certain timeframe or the deal falls through. You may want to make your offer contingent on qualifying for financing, the house passing inspections, or you selling your existing house first. Note that the more contingencies you tie to an offer, the less inclined the seller may be to accept.

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