So, you've dound a house you want to buy. How do you know how much to offer?
First, if the home is newly listed (0-5 days market time), there’s a good chance there will be multiple offers on the home. To see if there will be, you can directly call the listing agent or seller or have a real estate agent call the listing agent for you. Usually, by asking “do you expect there to be multiple offers?” you will get a good idea of whether or not there will be. If there will be, you’ll likely have to pay list price or higher. If not, you may be able to buy the home at list price or lower. Of course if the home has been listed and has “sat” on the market more than about five days, you may be able to get the home for under list price (the more market time, the better if you are the buyer. More market time means more likelihood you will buy the home under list price).
Once you have an educated guess if there’s multiple offers or not, use your favorite estimator to ballpark the price you will have to pay. We love Zillow and Redfin price estimators; we think they’re really powerful for “ballparking” an offer. Note, as soon as a property is listed, it’s likely the estimators will “magically” be very close to the list price; this is to say that at the time of writing this blog, most estimators adjust to match the list price. This doesn’t really help you get precise about presenting a winning offer.
So, in addition to estimators, you should produce a comparative market analysis or a “C.M.A” for the home you are looking to buy. This means finding three to six homes like the one you want (on your favorite real estate search site) that have sold and comparing them so you have a more precise idea of what the home you want will sell for. A real estate agent can do this for you, but they may ask you to sign an agency agreement that binds you to work with them. As an alternative, with Alokee, you can request a no-obligation C.M.A. Regardless of how you get a C.M.A. it may not help you write the winning offer.
If a home has a reasonable list price (it seems reasonable given your C.M.A.) the BEST way to know what to offer is the analytic approach of studying list price/sold price ratio for comparable homes. See the image below. It’s a closed sale with list price and sold price data, including a PERCENTAGE OVER LIST PRICE.
This percentage over list price - 11.5% in this case - can be found for comparable homes. This is the BEST way to know how much over (or under) you will have to offer/pay to get the home you want. You NEED to know this percentage for the neighborhood you are shopping in.
Not only does it help you understand what to offer, it helps you understand what neighborhoods you can actually afford. In the example above, even though the home was listed @ $1,299,999, it sold for $1,450,000. This is not a “$1.2m neighborhood” it’s a “$1.4m neighborhood” and you should not be fooled into thinking other homes listed at about $1,299,999 will sell for that… they will sell much higher!
What we tried to show you in this article was three ways to understand what you should offer: agents, C.M.A.s and - most importantly - list price/sold price in the neighborhood you are shopping in. You can always message us at www.alokee.com if you want more insider tips to help you DIY real estate 🙂