Sunday, July 29, 2012
How much should I offer?
You've finally found the home and with pre-approval in hand ask your Realtor to help you write an offer. Good for you! In the greater Seattle area, now is such a great time to buy with low interest rates and prices that are depressed from the height of the market in 2007. So what do you need to know? What comes next?
When my clients tell me they are ready to write an offer on a home, I ask the following questions:
1. What are your full legal names?
2. What is your address?
3. When would you like to close and move into this home (typically 45 days from the day we write the offer)?
4. How much will you be putting down on this home (generally we write a percentage,i.e., 20% down)?
5. How much will you be putting into earnest money (while typical is 3%, we see from 2% to 5% with higher percentages for competitive bidding situations)?
6. How much would you like to offer for this home?
Often my buyer-clients can answer the first five questions, but they need help on the sixth. "How much do you think we should offer?" they ask. That's when a good Realtor turns to the comparative market analysis and sees what other homes of a similar style, age and location are selling for. While active listings are helpful in determining price, the most accurate information comes from sold comparables. We try to look for homes that have sold within the last few months, especially since our market changed significantly this year from a somewhat balanced market to a seller's market with rising prices. Low inventory can make it a challenge to find comparable sales. Sometimes we need to go back to sales that occurred a year or more ago, then look at how the market has changed from that point forward, using sales data from Trendgraphix or the Northwest multiple listing service. It can be challenging to pin down an exact number, but an experienced agent has the benefit of working their market for years and having looked at a multitude of homes in the area. I can suggest a range for a reasonable offer, but I always point out that we can prove the home is only worth so much, but the seller can still refuse their offer.
I am currently working with a couple who wanted to buy a unique home. They were willing to wait for just the right place, passing by the suburban cookie-cutter homes for homes that offered some architectural interest. We found just the place: hidden in the woods with a triangular shape, multiple decks and a view of Lake Washington. They couple quickly decided this was their home and asked what they should offer. A market analysis was difficult since this truly was one of a kind. After some research I came up with a range, then asked the listing agent if she would share her comparable data to combine with my research. We learned that the home had been on the market two months with no offers, so we bid below asking price and waited. The sellers came back with a price that was countered again by my buyers. The sellers verbally accepted our offer. I urged the listing agent to get the signatures and come to mutual agreement, but the sellers had a medical emergency and a 12 hour delay ensued. When the listing agent was on her way to get signatures from the owners, another offer came in for full price and now we had to compete for this home. My buyer clients were not happy to have to bid for the home they thought they had below list price, but with the uniqueness of the home, they stepped up an made one final offer. They were happy to have won the bid, but this experience underscores that "time is of the essence" in a bidding situation.
When I have clients who decide to purchase a home, I always urge them to get their questions answered, then write the offer as soon as possible, for this very reason. Even if no other person has viewed the home, you never know when someone can make an appointment and decide, just like you did, that this is the home for them and submit a bid along with yours. When you have a competitive bidding situation, the price always goes up. The days of taking a good percentage off to try to "steal" a home are over in the greater Seattle area. Sellers are back in the driver's seat and for those homes that have a great location and great condition, prices are often going over asking price. How much over? It depends on the home and how many bids. I always ask my buyers to consider how much they want the home and there comes a point at which you think "that's too much." I ask them to imagine the other buyer getting the home for a price that they could say, "that's OK...I would not pay that." With escalation clauses, we can make an offer over a competing bid, up to your comfort range. For example, a buyer could offer $700K with an escalation clause of $2500 more than all offers, up to $755K." So if your competitor bids $725K, you end up getting the home for $727,500. Of course we ask to see the competing bid, so we know there really is someone we are competing against. For privacy reasons, names will be crossed out, but confidentiality does suffer in multiple bid situations.
So circling back to the question at hand: "What do I offer for a home?" The answer is both art and science with a great number of factors coming in to play. After considering location, condition and price in comparison to other homes, one needs to consider the market, if there are other offers, and the seller's motivation. This is where Realtors can be a great asset in analyzing the data, testing the winds and giving their professional opinion so you get the home you want for a price you are comfortable with.
Posted by Lauren Hunnicutt