By Tara-Nicholle Nelson | Published: 11/01/2007
Step 3: Facts Specific to This Property and This Seller
DOM (Number of Days on the Market) -- Savvy homebuyers often get in the habit of asking their Realtors how long each and every property they see has been on the market. This information is much more useful once you know the average number of days on the market from your CMA (Comparative Market Analysis). If the home you are preparing to offer on has been on the market any more than a couple of weeks beyond the average DOM in your area, the seller's motivation level is likely to be higher, and the market has begun to "educate" the seller that the list price might just be too high. Whether you are buying in a buyer's or seller's market, a much longer-than-average DOM is a signal that there may be an opportunity for you to purchase the property at or below the list price. This is not always a slam dunk; some sellers will refuse to lower the price on an overpriced home for two or three times the average DOM out of stubbornness or desperation. If, for example, the average DOM is 35 and the listing has been on the market for 150 days, you might make a lower offer knowing that the seller is simply unreasonable. On the other hand, your offer might be the first thing that has come to them in a long time, so it might just be worth a shot!
Seller's Priorities & Motivation -- Every once in awhile, it turns out that some other thing is more important to the seller than just money. If that is the case, your Realtor will be able to learn that from their pre-offer interview of the listing agent. For example, if the seller has already bought another house and is presently making mortgage payments on both, a $400,000 offer that can close in 15 days might be more attractive than a $410,000 offer that closes in 45 -- really! Or if the home is being sold by the out-of-state family of a person who has passed away, offering to take the home in as-is condition (including all the furniture, etc. they don't want to move) and to close escrow really fast can be a strong incentive for the sellers to accept a lower offer. And a seller who needs the money from this sale to close escrow on a home they are building may not be able to move out until three or four weeks after you close escrow on their present home. Folks like these are much more likely to accept an offer that includes a period of time after you close escrow where they can rent their home back from you, usually at the same price as your mortgage payment, prorated for every day after COE (Close of Escrow) they stay in the home.
Now, don't get carried away with this; sellers aren't going to drop the price $100,000 because you make it easy for them not to have to move Aunt Fanny's furniture. But you might make it a lot easier for them to accept an offer $5,000 less than what they were hoping for, or to accept your offer over an equal or slightly higher priced one that doesn't have such desirable terms, and that can be a wonderful thing!
Competition -- Yours & the seller's -- Look at that CMA one last time. How many active, closely similar comparables are there within that 1/2 mile radius? In addition to tipping you off to whether your market is a buyer's or a seller's market, the number of active comps also indicates how much competition the seller has. The more active comps there are, the more your seller will be anxious to get an offer, period, and be open to your offer around or below the list price.
Probably the single most important thing to know when you're making your final decision as to how much to offer on a property is whether you have any competition -- whether the seller will be considering any other offers at the same time as yours. When you are competing in a multiple offer situation, many (but not quite all) bets are off, and a new set of offer price formulating rules are activated:
(1) Make your best offer on your first offer -- Do not assume that the sellers will just make a counteroffer to try to get you to pay more money. When all the buyers' agents involved are aware that there are multiple offers, the buyers who really want it will generally offer the highest price (a) they can afford and (b) they believe the property will appraise for. (Obviously, you must stay within the price for which you are pre-approved or get pre-approved for a higher price range and make sure you are comfortable with the monthly payments at the new, higher price.) If your offer is $5,000 above the asking price and someone else's is $50,000 above, the chances that the seller will issue you a counteroffer are between slim and none.Ultimately, no matter whether you are the only offer or one of 10, whether you are in a buyer's market or a seller's market, the final decision as to the price you should offer is up to you. The price you choose should reflect how badly you want the property and/or how high you would like to stack the deck in your own favor. In fact, I have had clients strategically decide to make offers slightly above the asking price even when there were no other offers on the table, to induce a seller to forego another open house or to quash any hesitance the seller might experience at pulling their home off the market after only a day or so.
Many homebuyers worry a lot about "overpaying" for a property, by which they usually mean offering to pay a certain price when the seller would have accepted less. The bad news: this risk can never be entirely eliminated, because no seller is going to tell you the truth about the least they will accept. The good news: so long as the price you offer is within the realm of the reasonable and the property appraises at that price, the risk of "overpaying" can be a risk well worth taking. Say, for example, you are going back and forth internally over a 2 percent difference in offer price on a property you really, really want betwee -- $350,000 and $357,500. To put this in perspective, the difference in your monthly mortgage payment between these two purchase prices will be about $50-$80 per month. So you offer the $357,500, and get the property.
Now, let's assume that you really didn't have to pay that extra $7,500, that the seller would actually have accepted the $350,000. Assume further that you are in a slowly appreciating market, where your property gains six percent of appreciation the first year. Your property will appreciate $7,500 within the first three months of ownership -- to most homebuyers, "overpaying" is a risk they would take all over again in order to secure the property they want, especially given that the property itself will compensate for that "overpayment" within a very short period of time.
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