How to Set
an Offer Price
There is no set equation
to determine how you’ll reach an offer price. Rather, the process
involves a range of research and comparison that will vary with each
situation. You’ll need to look at sales of comparable properties,
and factor in additional data such as the condition of the property,
the current market, and seller circumstances. With this information
in hand, you will be able to determine a fair price range and, from
there, establish the price you’re willing to offer.
Concentrate on the following
areas to help you determine an offer price:
Comparable Sales
- Compare prices of
homes that are similar to the property you’re considering in the following
areas: number of bedrooms and bathrooms, square footage, lot size,
type of construction, and garage space.
- The most comprehensive
and in-depth information can be accessed through the Multiple Listing
Service (MLS). Your Realtor, who will be working closely with
you to set your offer price, can help you navigate this service.
Property Condition
- Observe how the
property compares to the rest of the neighbourhood. Is it average,
above average, or below average?
- Look at structural
condition: walls, ceilings, windows, floors, doors.
- Pay close attention
to: bathrooms, bedrooms, condition of plumbing and electricity.
- Also check the fixtures:
light switches, doorknobs, drawer handles, etc.
- What is the condition
of the front and back yards?
Home Improvements
- Cosmetic changes
can be largely ignored, but any major improvements should be taken into
account.
- Take special note
of: room additions (especially bedrooms and bathrooms).
- Items such as swimming
pools may be taken into account, but usually won’t affect your offer.
Your Realtor can offer your guidance in these matters.
Market Conditions
A seller’s market is
considered a “hot” market. This type of market is created
when demand is greater than supply—that is, when the number of Buyers
exceeds the number of homes on the market. As a result, these
homes usually sell very quickly, and there are often multiple offers.
Many homes will sell above the asking price.
A Buyer’s market is a
slower market. This type of market occurs when supply is greater
than demand, the number of homes exceeding the number of Buyers.
Properties are more likely to stay on the market for a longer period
of time. Fewer offers will come in, and with less frequency.
Prices may even decline during this period. Buyers will have more
selection and flexibility in terms of negotiating toward a lower price.
Even if your initial offered price is too low, Sellers will be more
likely to come back with a counter-offer.
In a balanced market, supply
equals demand, the number of homes on the market roughly equal to the
number of Buyers. When a market is balanced there aren’t any
concrete rules guiding whether a Buyer should make an offer at the higher
end of his/her range, or the lower end. Prices will be stable,
and homes will sell within a reasonable period of time. Buyers
will have a decent number of homes to choose from, so Sellers may encounter
some competition for offers on their home, or none at all.
Comparable sales information
helps you establish a price range for the home you’re interested in.
Adding in the additional factors mentioned above will guide your decision
of whether you consider a “fair” price to be near the upper or lower
limit—or the middle—of that range. Keep in mind, this price
should be the one you’d be happy with once all negotiations are said
and done. The price you decide to begin with depends on your particular
style of negotiation. Most Buyers begin the negotiation process
with a number lower than the “fair” price they’ve come up with.
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