This is one of the most daunting and commonly asked questions by the buyers/sellers to a realtor. Many educated and smart buyer knows what to offer still need guidance. Some of them needs a ballpark estimate to start with. Many realtors suggest a figure according to their experience, sales comps and some kind of strategy to guide their buyer to come with the magic figure.
I usually suggest the buyers/sellers to take 10% off the List price and substract improvements needed to the property and compare with sales comps and come up with the figure.
A recent Trulia blog suggests pretty short list of steps to take to make a smart offer – one that gets you a great value, but is also likely to be successful at getting the property. And most of the same steps apply to sellers trying to set the list price that will lure the most buyers (and net them the most cash)!
Step 1: What do the “Sales Comps” say? It is the first thing to look. When it comes to pricing a home, or making an offer to buy one, the ‘first thing” is the home’s fair market value. You can get this sales comp from your agent by looking at the history of sales in the neighborhood.
Step 2: What can you afford? For Buyers – it’s a must to make sure that your offer price for any given home falls within the range of what is affordable for you. This includes offering a price within the range for which your mortgage was preapproved, but also includes making sure that the monthly payment and cash you’ll need to close the deal (down payment + closing costs) are affordable in light of the particular house. If, for example, the property will require repairs for which you’ll need to conserve cash, or has HOA dues you hadn’t planned on, you may need to rejigger your offer accordingly
For Sellers, it is about what you like net after the sales either to buy a new home after paying off the mortgage balance.
Step 3: What’s your competition? (And what’s theirs?) This is another step at which it’s critical to check in with your agent. You need to know what level of competition you’ll face – whether you are a buyer, or a seller.
As buyers, you can find out that there are multiple offers on the property or no offers till date thru their agent. That will help us to how many people are they up against. As a seller, you can find this out by looking at things like how many comparable homes are listed in your town or your neighborhood in your general price range (your agent will brief you on this).
Step 4: How much do they need to sell (or buy) it? Buyers: Has the listing in which you’re interested been reduced at all? By how much? Has the listing agent informed you that her clients are highly motivated, flexible or have an urgent need to sell?
Sellers – most buyers are not in a high state of urgency to buy these days, given the long-term, high affordability of homes and interest rates, except when they have an urgent personal reason for moving, e.g., buyers who are relocating for work.
Step 5: How much do you want to buy, or sell, the place? This step is all about you – what’s your level of motivation? Now, buyers, you certainly shouldn’t offer a price way above what the place is worth (see Step #1) just because you really, really want it, unless you have the cash to throw around. But within the range of the home’s fair market value, it may make sense to move higher within that range if you are highly motivated to get that particular property.
These simple 5 step process should help you guide the path of making an offer either as a buyer or seller.
Source: Trulia.com
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