Before You Make an Offer

Once you’ve found a property you’re ready to make an offer on, you have to consider the factors that go into making a competitive bid. Make sure you talk to your agent about:

• Local Market Conditions
• US Economic Conditions
• Potential Other Bids
• Your Maximum Price
• Pre-offer Inspection
• Seller Disclosure

Local Market Conditions

There are several market conditions that affect the price of a home:

• How much are similar homes in the neighborhood selling for? As an initial jumping off point, agents often use comparable sales (or comps) to determine the market price for a home. However, this won’t factor in certain amenities specific to the home such as a finished basement, skylights, solar panels, or backyard patio.
• Is it a buyers market or a seller’s market? Are there more sellers than buyers (buyers market) or are there more buyers than sellers (sellers market)? If there is more supply than demand, you as a buyer will have more leverage, whereas if there is more demand than supply, the seller will have more leverage.
• How long are most properties in the area on the market before they sell? The length of time on the market will affect the price the seller will accept. If it’s freshly listed, they may hold out for better offers. But if it’s been on the market for several months, they may be willing to take less or there might be an issue with the property.

Your agent will be able to tell you how much below asking is reasonable to offer to have your bid taken seriously, or how much above asking you should be willing to go while still getting a good deal. Some sellers will set their listing price below market to start a bidding war on the property while a seller who has set their listing price well above market might be over valuing their property and less likely to negotiate.

US Economic Conditions

Not only will you need to be aware of the specific market you’re buying in, the general state of the US economy will affect home prices.

• Economic status – General economic forecasts, stock market spikes and crashes, recessions, and unemployment rates all play a role in real estate prices. When the economy is in a recession, sellers might be more eager to unload their property, and could give you more leverage as a buyer.
• Interest rates – The state of the economy and the volume of home transactions will affect the mortgage interest rates. If rates dip, you might be able to afford a higher bid; if they spike, you might offer less, or choose to hold off on buying altogether.
• Government subsidies – When there are economic downturns, the government might issue subsidies to stimulate the economy. For example, after the 2008 mortgage crisis, the government offered tax breaks to first time homebuyers.

Potential Other Bids

The desirability of the property will drive up the price. Sometimes, agents will set a specific offer date, or deadline, for when offers can be submitted. Others will take offers as they come. If there are several other people putting in offers, your agent should advise you on an offer that keeps you competitive. By law, the seller is allowed to keep any information about other bidders private. Therefore, the seller agent might be guarded about answering questions about other offers, but it’s standard practice to ask. Your agent will take their response into account when preparing an offer.

Your Maximum Price

If you get caught up in a bidding war, it might get tempting to push the line on your maximum offer, but your agent will help you set a hard line and make sure you don’t cross it. Remember that the purchase price isn’t how much you’ll ultimately be paying. Closing costs, lawyer fees, relocation and moving expenses, and the costs that arise during your first year of home ownership (furnishing, renovations, utilities, and insurance) all add up. Don’t let yourself become too attached to a property and lose sight of how much you can really afford, or compromise issues that could end up being very costly.

Pre-offer Inspection

You can choose to have an inspection done before you put in an offer, although many sellers won’t allow this. However, there are two potential downsides: 1) By the time the inspection is done, the seller might have accepted another offer, and 2) you’ll have to pay for the inspection, and your offer might not end up being accepted. The better course of action is to make an offer with an inspection contingency. Depending on the outcome of the inspection, you can withdraw your offer or re-negotiate your purchase offer. It’s critical to make sure inspection contingencies are worked into your offer. Learn more about contingencies below.

Seller Disclosure

In some instances, a seller will provide documentation about everything they know is problematic about the property when they list it. This is known as a seller disclosure. It isn’t required at this point in the process, but for some sellers, it’s worth being upfront so disclosures don’t affect the sale later in the process. (More on disclosures in the Prepare an Offer section.) If a disclosure is available now, your agent will review it and it will affect the offer price.