How much should I offer?

One of my readers sent me this question the other day, it turned into a long thread of an eMail that I want to share some of the highlights with you.  This often comes up when a buyer finds a home that they like and would like to make an offer.

My first question in response is, how much would you be willing to pay for this property.  I ask this question so the buyer can create a starting point or frame of reference of what they initially think the property is worth.  I often ask them to give me the high-lights and the areas of concern while we talk about this number.

Next I do some research on recent purchases in the area of homes that are comparable.  This is more an art than a science.  Ask 3 Realtors their opinion of what a property is worth and you will probably get 4 answers.  I provide as much information around my Competitive Market Analysis (CMA) as I can so when the question (how did you come up with that?) I can answer it with ease.  This number is what I consider to be the value of the home that needs no repairs, in other words is move in ready.

From here we review the list of concerns that the buyer has for a property and talk about what it will take to remedy that concern.  If it’s a large project we’ll add in a headache factor for dealing with it.  We take this total and subtract it from the CMA number I came up with and this is what I consider to be a fair price for the property.

We talk about how this compares to the original number they came up with.  Then we look at the list price for the property to see how it compares to what the seller thinks the value of the home should be.  At this point we have the listing price (seller’s number), the buyer’s number and a number that as your Realtor, I came up with. 

We use the buyer’s number and my number and try to figure out the highest price the buyer should spend on the house which will help us determine when to end the negoitation.  Then we will come up with an initial offer that is below that number.  Easy, right?

Related posts:

1. Making an Offer
2. Getting an Offer for your Home
3. Is it a Good Offer?
4. Do I need to be Pre-Qualified to make an Offer?
5. Who makes the Rules