Nothing feels better than when you get a super great deal on something that costs a lot of money. Real estate is no different. When you finally find a house (or ROI if it’s an investment property) that you fall in love with, you sit down to write an offer letter, and the game is on.
How low is too low? Is there a sweet spot that can’t be beaten? There are a few things to think about before going all in on your price.
Consider the Market
What’s the market like in your area? Are homes selling like hotcakes or are people dropping their sale prices faster than apples in September? Because it matters.
If it’s a seller’s market, the lowest you can go is probably going to be the asking price. Why? If the price is right on the house (or even slightly above right), the house will go fast. A seller’s market is no time to play hardball. It’s your highest and best, or take your offer and go home.
A buyer’s market, however, is a completely different animal. That’s the time to start looking at how long the market has been saturated with homes, and if it going to stay that way for a while. If the market is going to continue to do poorly, you have some leeway for a lower offer. That’s when it’s time to look at the value.
Look at the Value
Let’s be honest: the value of a home is only what someone is willing to pay for it. This has to do in large part with what the market is doing, but it also has to do with the neighborhood and features of the home. It’s not a bad idea to look at the comps, either. While you want to get a good deal on a home, you also don’t want to get laughed out of the game.
In 2009, the U.S. was still in a recession. Freshly built houses were sitting empty while the prices dropped rapidly. You could get a home for ⅓ of the building price because it was valued for less. Even when no one was buying, there were still some prices that were just too low to ask. While you consider value, think about this: if I were selling this house, how low would I be willing to drop the price in this market?
Hit The Books
Dive deep into the history of the home. Are there any liens on the property? Have there been any issues with flooding or fire damage? Make sure you also look at what it sold for in the past and if any improvements have been made since that date. You want as much data to back up your offer as you can.
What is it Worth to You
The amount of money the seller is willing to take for the property means nothing if you can’t afford it. If you are asking how much you can offer on a house below asking price so that you can get your dream home for a song– you may want to save a bit more. Asking a low price is more of a dance than anything. You offer a ridiculously low price, and they reel it in a bit higher. If you don’t have any room to play, you can’t play the game.
Get Out of The Game
You might have come to this post to find a specific benchmark that you could use to base your low offer on. Similar to the tip calculator app. The truth is, it’s going to be different for each area and each seller. It’s a good idea to sit down with the seller’s agent and have an honest conversation. Speak to them about past offers that have been denied and why they were denied. Discuss the seller’s motivation for selling the home, and listen to your own real estate agent’s suggestions of an offer amount.
Then decide on the most you would be willing to pay. Rather than submitting it in writing, have a chat with the seller’s agent about that price. Let them know that this is your offer, pure and simple, and ask if the seller would even entertain it. There might be a little negotiation about closing costs and repairs, but you should have a solid idea of whether or not your offer will be accepted when you finally write the seller a letter.
While it would be a lot easier if there was a special formula for what to offer on a house below asking price, the situation really varies. Choose a real estate agent who really knows the area and is an expert in real estate and listen to their advice as well as do your research. Remember to always keep your own budget in mind when placing an offer on the house. You don’t want to get all the way to closing only to find out that you’re not funded. Make sure you get pre-approved before even considering placing an offer on a house.
Thinking about placing an offer on a house but don’t know how low to go? Talk to your top local real estate agent. Don’t have one yet? You need Clever. At Clever, we work with the top agents to give you the best real estate service at a discounted price. Call us today at 1-833-2-CLEVER or fill out our online form to get started.