How Much Should I Offer On A House

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A quick summary

Making the right offer on a property can be a fine line between lowballing a seller or breaking your budget. A middle ground does exist, but it depends on a variety of factors which include the real estate market in the area, the condition of the home and the seller themselves.

Key Points

If you’ve found the perfect property to purchase, you’re probably thinking about putting in an offer. This step where many buyers can get caught up in trying to decide how to bid competitively for the house, without overpaying. The key to making the right offer is to first understand how properties are valued and priced, and then consider various factors that contribute to the particular home’s value, along with how badly you want the house.

What is a home’s value?

A home’s value depends on a number of factors, along with the housing market trends that are specific to the area. These factors include the amount and price of land in the area, the features of the home (size, number of bedrooms and bathrooms, amenities and so on), any upgrades or improvements that have been done to the home, and whether the home needs improvements or repairs.

Another aspect to the value of a home is the price of similar homes in the area. These are called comparable properties and they contribute to determining the value of a home. Combine this information with the factors above, and you’ll be able to calculate the rough market value of the home.

Upmarket home

What is a reasonable offer on a house?

It can be difficult to determine the sweet spot for your offer, without spending too much or offering too little. A reasonable offer on a house depends on the asking price. First figure out if the asking price is reasonable. Many sellers price their homes too high, so once you’ve figured out whether the asking price is in line with the home’s estimated value, this will help you decide on a reasonable offer.

Comparable properties will come in handy again here, so you should explore the local market and compare the home to others that are alike. A reasonable offer should also factor in the home’s condition, features and nearby amenities. There is no blueprint for this, so buyers need to take it on a case-by-case basis.

How much lower can you offer on a house?

If you’re going to make an offer that is lower than asking price, make sure that you’ve compared the home to a handful of a similar homes in the area to make sure that you’re within the realms of the average pricing for the area. It’s a fine line between offering a seller a price that they can negotiate on and insulting them with an offer that’s too low and losing the deal altogether. So, we’ve got a few tips on how to make an offer that can save you money and prevent you from losing the deal.

House for sale

Stick to the budget

Make sure that you’ve worked out an accurate budget that works for you, and one which you can stick to. The mortgage repayment that you sign up for will need to fall within this budget, so this will dictate how much you can spend on a house and ultimately how much you can offer for the house.

How low can you go?

The 1% to 4% range below asking price may seem trivial but when you add it up, buyers can save thousands of dollars. This range can be used for buyers paying with cash, for example, or if there are a few offers that have been made on the house already. It’s worth considering, to save money on your mortgage every month because every little bit adds up.

There are no rules for this, but 5% to 10% below asking price is often the area where buyers will make an offer if they’re going lower than the asking price. Comparable sales will be your negotiation tool for this kind of offer, and you could offer this much lower if, for example, other homes in the area have had improvements done and the property being sold hasn’t, or if the house has been on the market for a few weeks with very little interest.

When buyers start offering 11% to 19% below asking price, this is usually on homes that need some improvements done. Homes that need a kitchen remodel or bathroom update will fall into this category, and you could probably get away with offering anything in this percentage range under the asking price. If a seller needs to get rid of the home quickly, this can also be the right circumstance to make an offer in this range.

For homes that need major repairs and renovations such as replacing the roof, foundation problems or electrical system issues, buyers have been known to offer 20% lower than asking price. This usually happens in a buyer’s market where inventory is high and there aren’t a lot of buyers, so sellers are more motivated to take lower offers. However, this is encroaching on lowball territory so it’s important to get this right, or face losing the deal altogether.

What is considered a lowball offer on a house?

A lowball offer is generally anything more than 25% below asking price. Sellers may not even consider such a low price because once all the selling costs have been paid, the offer leaves a much lower profit (if any) for the seller. Being taken seriously as a buyer means that any offer lower than the asking price needs to be carefully considered, and not fall below a certain threshold or face insulting the seller and losing the deal entirely.

Do houses usually sell for asking price?

Often, houses that have been on the market for more than 2 weeks will sell within 3% to 5% of their asking price. This isn’t a given, but it is a common occurrence in the US housing market. Some sellers price their homes slightly higher to allow for room to negotiate, so they don’t always get exactly the price that they have listed their home at. However, some sellers price their home in line with its market value, based on comparable properties, in which case they are likely to get closer to their asking price.

How much to offer on a house in a seller’s market

Home exterior

A seller’s market is the term used to describe the real estate market when property inventory is low but the demand for homes is high. Any homes on the market can therefore fetch a higher price because buyer competition will be strong.

In a seller’s market, it’s advisable to offer the asking price of the home, or higher. Your offer amount will depend on if the house has been on the market for a longer or shorter period of time, and how much interest it has drummed up. During a seller’s market, you can also make the deal more enticing by being flexible with your contingencies.

If you’re buying a home in a sizzling seller’s market, make sure that you pack your patience. When demand is high, competition can be ruthless and you may be outbid on a few homes before you find one that accepts your offer. It’s not worth breaking the bank and going outside of your budget however, so play the long game and wait until the right deal comes along.

How much to offer on a house in a buyer’s market

In a buyer’s market, there are less buyers and they have their pick of homes, while sellers struggle to get their homes off the market because the inventory is so high. So, buyers can offer a little less on homes in this scenario, especially on homes that have been on the market for a longer period and have become stagnant.

For a home that needs repairs or rehab, you can ask the current owners to do them, or offer less for the repairs that need to be done along with the time and energy you will need to spend getting them done. Buyers can also ask the seller to cover the closing costs, if the buyer is being generous with the asking price, which will save the buyer 1% to 2% of the sales price.

Final tips for making an offer on a house

All in all, it’s up to you and your real estate agent to determine what is a reasonable offer and what isn’t. Consider how much you like the house and stick to your budget, before making any rash offers or hasty price decisions. Your personal factors such as the home’s appeal and features and how quickly you need to move, combined with the local real estate market all form part of your decision which is ultimately a combination of everything we’ve mentioned here.