What?! It only sold for that much?! Man, I would’ve paid for that! It would’ve been my home… Yes, it would’ve been, if only… The pain of regret, when you find out how much you lost out. One of the hardest decisions when buying a home is deciding how much to offer. As a buyer, it’s understandable that you don’t want to overpay for a home. However, when drafting up your offer, it is critical that you approach it with a very intentional mindset of doing your absolute best to WIN! When you’re writing up that offer, don’t have a timid, conservative, or indifferent mindset. This could be your family’s potential home after all. You have to be willing to do the best that you can. Especially, in a highly competitive market, like what we’re experiencing in Milwaukee. If you go in with the mindset of I’m just going to offer so I have a horse in the race, this gives me a chance at least. If it happens, it happens, or if it’s God’s will, it will be ours. Sorry but with that type of mindset and a weak offer, your offer is already dead on arrival. So how do you come up with the best offer price?
1. The typical starting point is putting your buyer agent to work, assuming you have one, request that they run a CMA or comparable market analysis to determine what similar homes are selling for recently. This won’t tell you exactly what your offer price should be. But it will provide clarity on what are similar homes like this one selling for right now. It’s usually a range from low to high. Does the list price of the home make sense with the range that the CMA determined? Now you have a sense of direction. Furthermore, consider the following: based on this home’s condition, updates, age of mechanicals, roof, foundation, and things like that, where does this home fall when compared to the sold homes in the CMA? Now you have an idea of where you need to be, in order to be competitive.
2. Next, consider your budget and financing. Where does that competitive range fall for you in terms of how much you’re pre-approved for? Obviously, if it’s well beyond your funds, then you’re done. Don’t forget to factor in other costs such as closing costs, taxes, insurance, and maintenance when determining how much you can spend on a home. You don’t want to overextend yourself financially or risk losing your earnest money deposit if you can’t secure financing after making an offer.
3. Next, consider the intangibles, great features, or upside of a home that you can’t put a number or value on. These include things like the location, desirability, lifestyle, path of progress and developments in the immediate area, and ultimately equity growth of that home. For example, I’ve seen it too many times where a buyer is looking at a fixer-upper, in a nice location, where the home has significant upside for a buyer who’s willing to do the work. With this particular home, we were notified by the seller that if my buyer was willing to improve his offer by $10,000 they would take his offer. He declined and decided to let it ride. Well he lost and ended up finding out that the winning bidder ended up getting it for, you guessed it $10,000 over his offer price. Had he paid the $10,000 and gotten the home, it would have easily returned him $100,000+ in equity once the property was fixed up. Ouch, $10,000 cost him $100,000…
4. Lastly, put your buyer agent to work for you again. Ask them to contact the listing agent and find out, how many offers are there currently, is there a deadline for offers, is there anything the seller would like to have in an offer, this could be a quick close, extended closing, non-FHA/VA loan, leaving their junk behind or post-occupancy request. Knowing these additional pieces of information can allow you to get a leg up on your competition who are using agents who aren’t willing to do the work.
In summary, putting it all together now, you’ve gathered all the cards in your hand. It’s time for you to make your read and call out your offer price. You know the home’s valuation range, how much your budget allows, the seller’s wants in the offer, the activity level of the listing, and the property’s intangibles. It’s time for you to decide on what to write down for the offer price. Also if you find out that you’re in a multiple offer situation, you saw multiple buyers at the showing at the same time while you were there, and the home is a new listing. Do NOT be that buyer who offers the list price or worse, below the list price. That offer is going straight to the seller’s trash can. In competitive markets, you only have one shot to win, hence the term BEST and HIGHEST. What exactly is best and highest? I explain it to my buyers as it is an offer price where you will have no regrets. If you end up losing, you at least know that you gave it your best. If you decided to be conservative and later find out the winning buyer offered a price that you would’ve been willing to pay without hesitation. The heartbreak and regret of missing out on what could’ve been will weigh heavy on you forever. This is real, the buyer I mentioned above. It’s been over a year, maybe two, every time he talks to me, he still brings it up. Hopefully, these tips can help you to avoid those same mistakes.