How Much to Offer on a House

Once you’ve found your dream house, how much should you offer? Asking price? More? Less? And by how much? What are the most important factors to consider when writing an offer? In this video, we will review everything you need to know to come up with a great offer.

Once you’ve found the home of your dreams, you need to decide how much to offer. How do you know when to offer asking price? When you should you offer more, and when should you offer less? I have clients who lament ‘the one that got away’ because they offered too little, and occasionally, I’ve even had clients who were ready to offer too much. There are several things to consider when you’re making an offer, which we’re going to review in this video. I’m Eric, owner and designated managing broker at Eric Andersen Homes and REALTOR® here in Chicago and the Western Suburbs, and I help sellers by providing them with targeted digital marketing for their listings and buyers who are relocating to the area from out of state by offering video, virtual, and in-person tours. When you’re getting ready to make an offer, you should consider market time, competition for the home, the comps, market conditions, the location and condition of the home, and your interest level. Right at the outset we should note that there is no one-size-fits all amount that you should offer. I once had a client who always wanted to offer 85% of asking price, no matter what. Needless to say, he never bought a home. The one-size-fits-all approach doesn’t work because markets aren’t static, they’re not always rational, and the process of pricing a home is more of an art than a science. To put it bluntly, home prices are subjective. Some buyers think sellers always overprice their homes, and some sellers think they’re giving their home away, no matter how much they’re selling it for. My favorite are the clients who are buying and selling and insist that every home on the market is overpriced—except theirs, of course. They won’t budge a dime on their overpriced listing, but they want a deep discount on whatever they’re buying, even if it is well-priced. As we will see, homes regularly sell over asking price, which means that they aren’t all overpriced. But, of course, there are delusional sellers out there who price their homes outrageously, too. Just because you set an asking price doesn’t automatically make it realistic, nor does it mean that the buyer who comes in with a lower, but reasonable offer, is getting a discount. This is where the comps are useful. They provide a snapshot of what similar homes have been selling for. Though, as with any investment, past performance is no guarantee of future value. The home you want to buy may sell for more than the comps, or it may sell for less. One big comp mistake I regularly see with both buyers and sellers is they’ll look at what Joe-down-the-block is asking for his home and think that’s a comp. It isn’t. A comp is a home that has sold, not an active listing. If Joe-down-the-block was smoking the peyote when he priced his home, what you’re calling a ‘comp’ may be seriously overpriced. Comps are homes that have sold. You don’t really know market value until a buyer and seller come together and agree on a price, and you won’t know that until the sale has closed. Market value is not determined by Zillow, a seller, an agent, or even an appraiser. Market value is determined by—wait for it—the market. A home is worth what a buyer and seller agree upon. You have access to this data when you look at the comps, or the most similar (comparable) homes that have sold in the immediate area over the past 12 months. And while comps are a great point of reference when deciding how much to offer, they are not the only, or perhaps even the most important, consideration. The first thing I typically look at is market time. Homes that are new to market tend to be much more competitive and sell for a higher percent of asking price than old, stale listings. Have a look at these comps I recently put together for a client of mine in Burr Ridge. You can see that in the current market, homes similar to my clients’ have sold for an average of 99.9% of list price with an average market time of 24 days. When you look at these 8 comps, that’s pretty much in line with what you see. But there are two glaring exceptions: 777 Cambridge only got 92% of asking price, and 8425 Clynderven cashed in at a whopping 108%. Why did one home go for 8% below asking price and another for 8% over? Look at the market time. Cambridge went stale. It was on the market for an eternity: 141 days, or a full 117 days above average, and it hurt them. Clynderven, on the other hand, capitalized on low market time, only 3 days, and got 8% more than they were asking. So what does this mean for buyers? Look at the market time. New listings tend to be more competitive, particularly when they’re priced appropriately. Even 777 Cambridge was a new listing at one time, but the market ignored them. In addition to market time, you should also consider market conditions. Submitting a lowball offer on a new listing when it’s a hot seller’s market will almost certainly be a waste of time. Even if it is seriously overpriced, it’s unlikely to work. If it’s a buyer’s market, meaning there are 6 months or more of inventory, maybe you can get away with a lower offer on a new listing. This would be a good time to mention market irrationality: sometimes, homes sell for more or less than they should. Sometimes, you find a buyer or seller who’s desperate, and you can use this to your advantage. Homes don’t always sell for what they should, but this is the exception, not the rule. And again, location and condition will have an impact on price. Sometimes a seller will not factor these in appropriately, for better or worse, so again, this is where having the comps can be helpful. All things being equal, a home on a busy street should sell for less than a home in a quiet, residential subdivision. A home that’s completely renovated will sell for more than the same home that looks like a time capsule from 1984. And last but not least, when writing an offer, you should take your own interest level into account, particularly when there are multiple offers. Sellers will often call for highest and best in multiple offer situations, and they will not tell you how much the other offers are for. At that point, you need to do some soul searching and decide what amount feels right to you. If you lose the home by $1,000, will you regret it? If the seller accepts your offer, will you be upset and feel like you overpaid? The goal here is to find that sweet spot where you feel good about your offer, so that if you don’t get it, you’ll know you gave it your best shot, and if you do get it, you’ll be happy. There are, of course, other things to consider besides price when writing an offer, like contingencies and closing date and tax proration and earnest money, but those are all things we can discuss when you’re ready to make an offer. A quick reminder to subscribe to my channel for more buyer tips like this, not to mention neighborhood tours, market updates, and local area attractions. I’m Eric with Eric Andersen Homes, here to remove the headache from real estate and provide expert guidance for your next purchase or sale.