Once you've found the right home, it's not often clear what your initial offer should be. Every property is unique and so is every combination of buyers and sellers. What one party may see as an appropriate starting point to get the ball rolling may be considered a distasteful insult by the other. There are many factors to consider, and there is no perfect answer.
First thing, consider what comparable properties in the area have sold for recently. Is there an obvious indication as to the market value of the property? Keep in mind the seller may be asking for more or less than the "market value" based on other factors. While the seller's objective is typically to get the most they can for their home, a decision to accept, counter, or reject your offer may be affected by other issues unrelated to the market value, such as timing of the sale, how much they have invested, how much they owe on the home, how much money they are hoping to get for some other purpose, etc.
You should already have a sense of value after looking at many homes both online and in person. Educate yourself on the market for similar properties. Trust yourself, but verify your thoughts by asking for opinions and data.
Examine the MLS history report to see how long the property has been on the market and whether and when there have been price reductions. If the home was recently listed and has been shown heavily by agents already, chances are the house will sell quickly and the price may be close to or below market value. If the home has been listed for a year already with multiple price reductions, perhaps it was overpriced.
Sometimes there are clues to the seller's motivation to sell. Has the property been vacant for a while? Mortgage payments, taxes, insurance, utilities, etc., can add up and be a motivating factor for the seller.
Public records can also give you insight into the seller's situation. Maybe there was a recent divorce filing, or a lawsuit or tax liens filed against the seller. Maybe this makes them motivated to sell quickly. Perhaps the property was inherited by the current owners who live out of town and they have no emotional attachment. There is no way to know how this would translate exactly into dollars, but it helps paint the picture.
It never helps to go into a real estate negotiation with a take it or leave it attitude. Everyone needs to feel like they got something in the negotiation. Your initial offer should be part of an overall strategy. Going in with too low of an offer may be counterproductive. The seller might dig in his heels and you could end up paying more in the end. If the seller has priced the home reasonably given the market data, you risk offending them. Your objective is to buy the home at a price you are willing to pay or less. Many times you can tell how motivated the seller is by their first counteroffer.
It's not always wise to negotiate out all the good will in the transaction. When you get close to agreement, perhaps those extra few dollars will buy some good will on your part with the seller. Real estate transactions are complex and rely on a lot of people to get finished. You never know, you or your lender might need an extension or you might request something from the seller as a result of inspections, etc. If you have irritated the seller, and squeezed all good will out during the negotiations, they may just turn to a backup offer.
Despite your best efforts and due diligence, sometimes you cannot make an agreement with a seller. They may be unrealistic or just difficult, or may have unknown circumstances that force them to ask for more than you are comfortable paying. Stick within your bounds. You have to do what's smart for you. Sometimes, it's just not meant to be and you will have to move on to another property.
Having a relationship with a trusted real estate professional can help you through making your offer and negotiating the deal. Every property and situation is different and complexities can arise quickly. An agent who is a local expert can provide insight and experience that can only help you. We buy and sell homes regularly and know what's going on in the local real estate market. We have built a system that includes many professionals who work together within their areas of expertise to get your deal done. We want to put this infrastructure to work for you.
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