5 Ways To Decide How Much To Offer
Feb 28, 2021
Finding the perfect place is only the first step in buying a home. After that, comes the tricky dance of figuring out how much to offer so that you not only land the home, but also a good deal in the process. Here are five ways we suggest aspiring home owners approach this delicate negotiation.
Know the comps inside and out
Knowing how much similar properties in the area go for is the baseline data you’ll be looking at to arrive at your ballpark estimate—though it’s far from the only factor, as you’ll soon see. In Brooklyn, comps can vary widely even within the same building, much less block, or neighborhood. So try to apples-to-apples this as much as possible. Your lender will be appraising the home’s value too in order to OK the loan so even if you decide to go ham in a bidding war, your lender may nix the deal. Look to your agent for guidance here because they have a fiduciary responsibility to you. And while home inspections aren’t necessarily a part of the comparisons, defects you uncover can turn your apples-to-apples scenario to apples-to-oranges quickly.
Know your budget inside and out
If you get approved for $500,000 but you know making the monthly mortgage payment in that amount will make you house poor, you could be making a mistake you’ll be paying for for a long time. And that’s when all your expenses are fixed. Co-op owners, for instance, may be expected to dip into savings for emergency building repairs and condo owners need to decide if a doorman building is worth a high common charge that could impact your monthly bottom line. It’s always a good idea to establish the maximum you’re willing to pay and make a commitment to yourself (and partner or buying jointly) to not go over that amount, no matter how much you love a place. Real estate is a surprisingly emotion-driven venture and it helps to go in knowing you are prepared to put your best offer down on the table at a moment’s notice—or walk away once negotiations take you out of your comfort zone.
Size up the competition
When it comes to bidding, your competition isn’t just other buyers. It’s also the market (buyers’ vs. sellers’ market), popularity of the neighborhood, list price, and length of time the place has been on the market. In other words, some things will work in your favor and some won’t so consider these factors when coming up with a number. Your agent can offer wisdom here, too.
Figure out how to stand out
If you’re working with a loan and come up against an all-cash buyer, you’re probably not going to win. It stinks and it’s unfair. But there are some things you can do to stand out from the crowd of other bidders. One way is to personalize the appeal. We regularly work with clients to craft letters that bidders can offer to sellers. In New York especially, it can help to share who you are and why you love the place. We often say that the person moving in is who the person moving out was 5-10 years ago; a single person just getting started, a family that’s expanding, a person moving to the city and a person leaving the city. It’s the cycle of New York real estate. But if you can make the seller see themselves in you, it definitely affords an advantage. Another easy fix is to work with the seller’s timetable when you can. Do they need a quick closing? Slow? Flexibility can make you awfully attractive as a bidder so don’t underestimate it. Waiving contingencies (typically in the form of inspections, appraisals, or financing) is risky, so do your research and lean on your agent’s experience. We never recommend a buyer buy without an inspection but the decision rests with you.
Treat the seller with respect but be prepared to walk away
In a hyper-competitive market, it can be a good idea to not only know your “best and final” but consider going in with it if this is the place you absolutely love. So long as you stick to your budget and are comfortable at that price point, it can make work to your advantage. If you go in below bid, know why (besides gamesmanship). Be prepared to offer the specific reasons (e.g., considerations that arise from the inspection or appraisal). The negotiation process works best when it’s one of mutual respect. If you’ve found a place you’d like to offer on, but you’re not in love with it, it’s best not to go in with your best and final. It’s not worth it to pay top dollar for “good enough,” but good enough can look awfully attractive if you can snag it for a good price. Know yourself and what you can (and can’t) live with. Finally, as we said before, know your walk-away number—for the good enough places and the dream homes—and never exceed that. Your place is out there and with a little patience and fortitude, you will find it.