5 Questions to Ask Yourself Before Picking an Offer Price
Today's buyers do more legwork than any other generation of home buyers, on everything from mortgage rates and programs to neighborhoods and schools, to comparables for the home they want, because so much more of this information is freely and easily accessed online. But none of that information diminishes the anxiety around making the final decision what number to ink onto an offer for a home. In fact, this inundation of information can shift a normally sane buyer into overwhelm and overload, and actually interfere with smart decision-making.
Here are five questions you should ask yourself to collect the targeted and essential information you need to pinpoint your exact offer price:
1. How close/recent/similar are the comps – and what story do they tell? Your agent will present you with the recent sales prices of similar homes near your target home (assuming you're in an area where there are recent sales). This information, in conjunction with the listing price should begin to narrow your thoughts on offer price into a ballpark price range. But once it's time to pin down a precise offer dollar amount, it behooves you to look beyond the sales prices of the comparables and to work with your agent to suss out the story they have to tell – and what implications that story has for your own offer price.
2. What kind of shape is the place in? Fixer-upper homes may not qualify for low-down payment FHA financing. That can force you to come up with a larger down payment or evaluate the feasibility of obtaining a rehabilitation loan. On the other hand, if you had planned to put a large amount of your cash savings down on a home that needs a lot of fixing, you might want to conserve some to fund repairs. In these cases, it's very helpful to review any disclosures or reports the seller has made available. It's also essential to include your mortgage broker in the offer-price setting conversation, as condition issues might impact the loan programs available to you and, thus, the down payment, closing cost and monthly payment required at a given offer/purchase price point.
It's wise to have a quick conversation with your mortgage pro before you decide upon your final offer price in any event, but it's particularly necessary if the place has obvious condition issues.
3. What's the competition like? If you know there are other buyers competing for a property, you'll likely want and need to offer more for it than you would if the players were limited to just you and the seller and the more buyers are bidding, generally speaking, the higher the victorious offer price is likely to be.
How will you know what your competition is like? Ask your agent – and they'll likely give the listing agent a ring, let them know you're serious about making an offer and feel out whether there is competition or not, and how fierce it is.
4. How much do you want it? Your personal desire and motivation level to get a particular property is an absolute must to factor into the offer price decision-making mix, especially when you get close to putting a final number of dollars and cents on the table. Of course, your home is an asset and a major investment, so your offer price is a decision about which you want to be smart, logical and deliberate. But we're also talking about the place that will serve as the backdrop and environment for your everyday life, and your family's lives, too. To ignore the emotional impact and logistical implications of the place you live when you're deciding what to offer is to make the decision based on an incomplete portfolio of information. (And that's also how so many buyers who lose properties end up regretting their offer price, wishing they had offered just a smidge more for "the one that got away," sometimes for years on end) Pinpoint your precise, best offer so you can make it, then let the chips fall where they may, without regrets.
5. What can you truly afford? No, really. It's not that you haven't asked yourself this question, worked through your monthly financials, pored over the numbers with your mate, your financial planner and your mortgage broker ad nauseam. It's more that a lot of time can elapse between that deep financial dive and the time you actually have to decide how much to offer on a particular home. And in that time, lots of variables might have changed:
· Interest rates might have changed.
· You might have decided you need to move your price range up, because you can't find anything that works in a lower range.
· You might have realized you need to offer more than the asking price, due to the competition.
· Your expenses might have changed, because you had to put a kid in daycare or start some new service up.
· Your cash cushion might have changed, because you had to repair your car or fix something at your existing house.
· Your cash needs might even have changed, as you realize the home you are trying to buy needs a lot of work that will take a lot of cash.
Get clear about how much you want the place then, just before you finalize your offer price, touch based with your mortgage broker or banker and tell them what you're planning to offer. Ask them to give you an updated set of numbers, including what your down payment, monthly payment and cash to close would look like at that price, based on today's interest rate.