Searching for the perfect home can be a lengthy process, taking weeks or even months. Once you find the ideal home, one of the most challenging aspects of the homebuying journey is determining how much to offer on a house. Should your offer be above, below, or at the list price?
Collaborate with your real estate agent to consider the following factors. This will provide you with a better understanding not only of how much to offer on a house but also whether your offer aligns with your market dynamics and personal situation.
1. Are you in a buyer’s or seller’s market?
Before setting your sights on a property, it’s crucial to determine whether your local area is currently a buyer’s market or a seller’s market. This distinction can significantly impact your bargaining power.
- A buyer’s market occurs when there are more homes for sale than active buyers. In this scenario, buyers have the upper hand and greater negotiation leverage, especially if the seller is motivated.
- A seller’s market exists when there are more buyers than available homes. Sellers hold the advantage in such situations, and properties can sell rapidly, often above the list price.
Key takeaway: Market conditions not only influence pricing but also dictate the terms that sellers prioritize. In a competitive market, sellers may favor offers that provide a sense of certainty, such as strong financing, fewer contingencies, and flexible timing, even if another offer slightly surpasses yours.
2. How much are comparable sales going for in the area?
“Comps,” short for comparables, are recently sold properties similar to the house you’re interested in. Sellers utilize comps to establish an asking price, while buyers can leverage this information to determine their offer amount.
While you can explore comps on real estate listing platforms like Redfin, your real estate agent can provide a more comprehensive overview of market value by accessing data directly from the multiple listing service (MLS). This data includes sold prices, concessions, and details not always publicly available.
Add this to your comps process: sale-to-list price percentage
Comps indicate property values, whereas the sale-to-list price percentage demonstrates how properties are closing relative to their asking prices in your market.
- If properties typically sell below the list price in your neighborhood, buyers may have more room for negotiation.
- If properties are selling at the list price, pricing is likely firm and well-supported.
- If properties are selling above the list price, you might need to craft a stronger offer package.
Tip: To identify the sale-to-list percentage in your area, search the city or zip code on Redfin’s housing market page to determine the percentage of homes selling above, at, or below the list price. Additionally, on any Redfin listing page, you can find “market trends” at the bottom, providing you with the sale-to-list number.
3. What’s the condition of the home listed for sale?
When evaluating a potential home for purchase, assess the property’s condition in comparison to recent comps. If similar homes were sold at a specific price but have undergone recent repairs or feature updated finishes—while the property you’re considering requires work or upgrades—this can justify offering a lower amount.
Consider the following aspects:
- Condition of major systems (e.g., roof, HVAC, electrical, plumbing)
- Age of appliances
- Visible deferred maintenance
- Renovation and update level in comparison to comps
Discrepancies in condition between the home and comps can result in price reductions and/or repair credits during negotiation.
4. What are the seller’s intentions?
Understanding why a seller is listing their home can provide you with a competitive edge. Some sellers may be relocating due to a job opportunity and could accept a lower offer for a quick closing. Others might prioritize a higher price but have the flexibility of time. Consult your real estate agent for insights into the seller’s intent, such as:
- Timeline pressure (e.g., job relocation, existing home purchase)
- Preference for leaseback or flexible move-out arrangements
- Responsiveness to inspection and repair requests
Often, seller motivation can influence the perception of a “good offer.” Sometimes, terms like closing speed, flexibility, or reduced demands hold as much weight as the offer price.
5. What are your reasons for buying a house?
Your buying motivation and timeline impact the level of aggressiveness required in your offer. Are you a first-time homebuyer, planning to reside in the property for the next decade, or considering a short-term move? Clarity regarding your objectives helps prevent overbidding on a property that may not entirely align with your goals and requirements.
Key point: A strong offer is one that you can comfortably afford both financially and emotionally, even if it doesn’t rank as the highest bid.
6. What’s your budget?
Prior to commencing your house hunt, secure pre-approval from a lender. This step ensures that you have a financial partner on standby and understand your purchasing capacity. Pre-approval not only enhances your credibility with sellers but also aids in determining the amount you can offer.
While being approved for a specific sum is beneficial, it doesn’t necessitate spending the entire amount. Calculate the complete monthly payment, encompassing taxes, insurance, HOA fees, and PMI if applicable. Allocate a portion of your budget for potential repairs, unforeseen expenses, and closing costs.
To establish a budget for your offer strategy, utilize a mortgage payment calculator, identify your maximum comfortable monthly payment, and set a definitive spending cap before entering negotiations.
7. What is a good offer on a house?
After evaluating the local market conditions, comparable properties, the property’s condition, the seller’s motivation, and your budget, it’s time to submit an offer.
A strong offer reflects the actual selling trends in your area and considers the entire offer package, not solely the price tag. While many buyers focus on the amount above or below the asking price, sellers typically assess the comprehensive offer package, which includes:
- Price in relation to the list price and comps
- Assurance (cash versus financing, approval strength)
- Contingencies (inspection, appraisal, financing)
- Timeline (closing date, possession, flexibility)
When it makes sense to offer less than the listing price
Submitting an offer below the list price may be appropriate when the property is overpriced compared to similar homes in the area, requires significant repairs, or lacks substantial competing offers.
However, bear in mind that while offering below the asking price can be reasonable, a considerably low offer demands a clear justification supported by data. Otherwise, a lowball offer may offend the seller to the extent of refusing to negotiate or provide a counteroffer.
You might have more flexibility to propose an amount under the list price when:
- The property necessitates major repairs or updates
- You’re operating in a buyer’s market with extensive inventory
- The seller prioritizes timing over price
- The property has lingered on the market longer than the average duration
- The price has already undergone a reduction
If local comps are closing below the list price, a below-list offer substantiated by data can still be deemed a strong offer, especially when coupled with favorable conditions and financing.
When it makes sense to offer the listing price on a house
Proposing the list price can be a strategic move when the home is appropriately priced, and you aim to compete effectively, particularly if it’s a property you adore.
Offering the list price may be suitable when:
- The property is move-in ready and well-maintained
- Similar properties are selling near the list price
- The property recently entered the market
Tip: If you’re stretching your budget slightly for the price, you can enhance an offer at the asking price by including non-price terms (e.g., flexible closing, robust pre-approval, reasonable contingencies).
When it makes sense to offer more than the listing price on a house
Exceeding a home’s list price may not be the preferred choice for most buyers but could be necessary if the property precisely suits your needs and faces strong competition, or if housing inventory is scarce—allowing sellers to select from multiple offers.
Prior to presenting an offer above the asking price, determine the maximum amount you’re willing to pay, factoring in closing costs, fees, moving expenses, and other financial considerations. This approach enables you to have a clear figure in the event of a bidding war, aiding you in deciding whether to continue pursuing the property or redirect your search.
Submitting an offer above the list price might be logical if:
- You’re operating in a seller’s market with anticipated multiple offers
- Comparable properties are also selling above the list price
- You’re genuinely interested in the property and willing to pay a premium for the ideal fit (e.g., location, layout)
Important caveat: Offering above the list price heightens the risk of an appraisal gap. If the property appraises below your offer price, indicating that the bank will only loan the assessed value, you may need to supplement with additional funds, renegotiate, or withdraw from the deal (subject to your appraisal contingency).
8. What makes a good offer besides price?
While price is a critical factor in submitting an offer, sellers often consider the offer terms as well. Sellers typically seek offers that minimize uncertainty around the transaction’s completion and ensure a smooth process. As a buyer, collaborate with your agent to devise strategies that enhance your offer beyond the monetary aspect.
Financing strength
Sellers generally favor buyers with robust financing, such as full mortgage pre-approval or a substantial down payment, as it reduces the risk of a failed sale due to financing issues.
Contingencies
Contingencies serve to safeguard buyers, but reducing the leeway for backing out or incorporating more flexible conditions can render an offer more appealing to sellers. Common contingencies comprise:
- Inspection contingency: Shields you in case of discoveries during the home inspection. In competitive settings, buyers may opt for keeping the inspection for informational purposes only and restrict repair requests (or shorten the inspection timeframe) to enhance competitiveness.
- Appraisal contingency: Protects you if the property appraises below the offer price. In competitive markets, buyers prepared to negotiate or contribute additional funds can explore an appraisal-gap strategy.
- Financing contingency: Safeguards you in case your loan approval falls through.
Timing and flexibility
An offer aligning with the seller’s desired closing timeline or offering flexibility concerning move-out or key possession dates can hold as much value as a higher price. Clear communication and minimizing last-minute alterations, where feasible, are pivotal in this regard.
Earnest money deposit
A substantial earnest money deposit signifies your seriousness as a buyer and reassures the seller of your commitment to finalize the purchase. If you retract from the deal for reasons not stipulated in the purchase agreement, the seller retains the earnest money to compensate for lost market exposure, thereby reducing their overall risk in accepting your offer.
In essence, a competitive offer on a property strikes a balance between safeguarding your interests as a buyer and remaining attractive to sellers. In numerous scenarios, enhancing your offer doesn’t necessitate sacrificing protections entirely. Accelerating timelines for a swifter closure, outlining your repair approach clearly, or rendering your terms more seller-friendly can all bolster your offer.
Bottom line
Your offer should consider:
- Whether you’re situated in a buyer’s or seller’s market
- The actual selling prices of comparable properties
- The property’s condition
- The seller’s motivation
- Your buying rationale
- Your financial constraints
By assessing these six factors, you and your real estate agent can formulate an offer strategy. Remember, a “strong” offer isn’t solely defined by the highest price but also by its competitiveness in your locale and appeal to the seller without exceeding your comfort zone.