You want your offer to be good enough to attract the seller's attention, but not so high that you overpay for the property. What's the magic number?
Different markets require different strategies. In a buyer's market, you often have the luxury of offering below the list price. You and the seller can then negotiate until you reach a mutually acceptable price. A seller's market is a different story. If you're in a multiple offer competition with other buyers, you may not have a chance to negotiate with the sellers. In this situation, your first price may have to be your very best offer.
Regardless of the market conditions, you need to understand local market value to feel comfortable with your offer price. The best way to learn market value is to look at a lot of listings of the kind of home you hope to buy. These might be homes you see at Sunday open houses, or listings that you see with your real estate agent.
Let your agent know the addresses of any listing you see that might work for you. Ask the agent to let you know the sale prices of properties that are comparable to the one you are interested in. You can refer to this data when you are ready to make an offer.
House hunting tip: It's useful to look at the relationship between the list price and the selling price of listings you've seen. For example, if homes are selling, on average, for 97 percent of the list price, you might use this percentage as a gauge. If you think a property is well priced, you could offer 4-5 percent below the asking price and plan to negotiate a price that's approximately 3 percent below the list price. Your agent can provide you with additional comparable sales information for sold listings that you didn't see.
What do you do when there aren't any guidelines? In a hot seller's market, properties often sell for considerably more than the list price. A seller here in Gilroy recently listed his home for $799,000. He received 12 offers and the home sold for $872,000. A Morgan Hill home seller recently received 6 offers on a home listed for $759,000. The property sold for $810,000. It was hard to predict in advance how high either of these properties would sell.
In both of the above examples, the winning buyers has enough cash in the form of deposit and down payment to make up the difference between the appraised value and the final accepted price. Over list price offers require the finesse that only an experienced real estate agent in this kind of market can offer.
The closing: There's an element of guesswork involved in any offer to purchase real estate. It helps to work with a trustworthy agent who knows local market value and who can advise you how much to offer.
