After weeks or even months of looking, you've finally found a home that you absolutely love and are already envisioning yourself living there. However, set the excitement aside and do some research before putting an offer on the house to help you determine how much it's really worth. That's because when buying a home, the seller's asking price is rarely the price you should offer.
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Comparative Market Analysis
Ask your real estate agent to conduct a comparative market analysis for you, or do it yourself if you have some time to go through county property records. Look at what comparable houses in the neighbourhood have sold for recently. Take an average of these homes' selling prices to get an idea of the true value of the home.
The current housing market conditions can work for or against you. For example, a seller's market is one in which homes are gaining value quickly, prompting buyers to buy before values, and prices, go any higher. A seller's market is also one in which houses are being purchased quickly, motivating buyers to put in offers before someone else snatches up the property they want. Placing offers at asking prices, and even engaging in bidding wars, is common in a seller's market. However, the housing market crash in recent years has created a buyer's market. There are more houses in the market than there are buyers, so homes for sale often linger for months unsold. This creates an incentive for sellers to consider every offer, even those considerably below their asking prices, because they don't know when and if a better offer may come.
Consider how much you have been preapproved for by your bank or lender to borrow. If you do not have a pre-approval letter from a bank or lender, get it before putting in an offer. This will ensure that you don't offer more than you can afford. Additionally, your offer price should result in a monthly payment that you are comfortable making. As a homeowner, you'll periodically have to make repairs, and some of them will be quite costly, so you should have a mortgage payment small enough that you can sock away money into savings each month.
Making the Offer
Avoid making a lowball offer, such as offering 40 per cent below the asking price. Even in a buyer's market, doing this can insult a homeowner, so he will not only reject your offer but also refuse to negotiate a more reasonable price with you. Put in an offer that you can defend based on the comparative market analysis, the condition of the home and the seller's asking price.
While doing your homework can help you put in an offer that will be accepted, be prepared for rejection. A homeowner may come back with a counteroffer that is somewhere between his asking price and your offer. Depending on how close that counteroffer is to your offering price, how badly you want the house and how difficult it was to find the perfect home for you, the counteroffer may be worth accepting. On the other hand, if it's still not an acceptable offer, don't be afraid to negotiate by throwing out another offer, but know at what point it's best to walk away, and be prepared to do so.
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