There is no set equation to determine how you establish an offer price. Rather, the process involves a range of research and comparison that will vary with each situation. You’ll need to look at sales of comparable properties and factor in additional data such as the condition of the property, the current market, and seller circumstances. With this information in hand, you will be able to determine a fair price range and from there, establish the price you’re willing to offer.
It is essential to concentrate on these 4 areas to help you determine an offer price:
1. Comparable Sales
- Compare prices of homes that are similar to the property you’re considering in the following areas:
number of bedrooms and bathrooms, square footage, lot size, type of construction, and garage space.
Your Realtor will be work closely with you to set your offer price and can help you navigate this area.
2. Property Condition
- Observe how the property compares to the neighbourhood. Is it average, above average, or below?
- Look at structural condition: walls, ceilings, windows, floors, doors.
- Pay close attention to: bathrooms, bedrooms, condition of plumbing and electricity.
- Also check the fixtures: light switches, doorknobs, drawer handles, etc.
- What is the condition of the front and backyards?
3. Home Improvements
- Cosmetic changes can be largely ignored, but any major improvements should be taken into account.
- Take special note of room additions (especially bedrooms and bathrooms).
- Items such as swimming pools may be taken into account, but usually won’t effect your offer. A large deck would have more impact than a pool. Your Realtor can offer your guidance in these matters.
4. Market Conditions
- Seller’s Market: A seller’s market is considered a “hot” market. This type of market is created when demand is greater than supply - that is, when the number of Buyers exceeds the number of homes on the market. As a result, these homes usually sell very quickly, and there are often multiple offers. Many homes will sell above the asking price.
- Buyer’s Market: A Buyer’s market is a slower market. This type of market occurs when supply is greater than demand, the number of homes exceeding the number of Buyers. Properties are more likely to stay on the market for a longer period of time. Fewer offers will come in and with less frequency. Prices may even decline during this period. Buyers will have more selection and flexibility in terms of negotiating toward a lower price. Even if your initial offered price is too low, Sellers will be more likely to come back with a counter-offer.
- Balanced Market: In a balanced market, supply equals demand, the number of homes on the market
roughly equal to the number of Buyers. When a market is balanced there aren’t any concrete rules guiding whether a Buyer should make an offer at the higher end of their range or the lower end. Prices will be stable, and homes will sell within a reasonable period of time. Buyers will have a decent number of homes to choose from, so Sellers may encounter some competition for offers on their home or none at all.
Comparable sales information helps you establish a price range for the home you’re interested in. Adding in the additional factors mentioned above will guide your decision of whether you consider a “fair” price to be near the upper or lower limit or the middle of that range. Keep in mind, this price should be the one you’d be happy with once all negotiations are said and done. The price you decide to begin with depends on your particular style of negotiation. Most Buyers begin the negotiation process with a number lower than the “fair” price they’ve come up with so they have room to move in the negotiation process. Some buyers prefer not to haggle back and forth and put in their best offer as their initial offer price. It is important that you communicate with your Realtor as to what you are comfortable with and what it the maximum that you want to spend. If you would like someone you through this process, just give me a call and I would be happy to help you find the right place and price for you.