How does one decide on an offer price when purchasing a home? Enter at a lower price than the asking price? How much lower can you go? Or perhaps the market forces one to offer more than the list price. There is no fixed formula or method for determining how to set an offer price. Offering entails some research, comparisons, experience, and motivation, which will vary depending on the situation.
The following guidelines can assist you in determining and setting an offer price:
CMA stands for Comparable Sales
A CMA, or Comparative Market Analysis, is created by a realtor when selling a home. A realtor does the same thing when buying a home, with the same goal in mind: determining the property's current market value.
Only sold data reveals the true value of a home that a buyer is willing to pay. As a result, sold prices of comparable homes are gathered for the purpose of purchasing a home. Most real estate transactions are recorded in the MLS, which provides all of the information needed to determine a property's fair market value.
Contrast the property with sold homes
Because no two properties are alike, comparing sold properties to the subject property is critical. Is the house bigger or smaller than usual? Is there a difference in the number of bedrooms? What is the location in relation to the other recently sold properties? In comparison to the sold properties, is the basement developed or undeveloped? What is the parking situation like? Is it better to have a single garage, a double garage, or no garage at all? Many different factors have a monetary value.
Property Conditions
Some items are simple to compare because they are accurate: square footage, number of bedrooms, basement development, to name a few. Other property characteristics are valued more on experience and perception. Location, for example, is more subjective. The fact that a home backs onto green space has a different value for each buyer. Furthermore, upgrades in a home can have varying values for different buyers. A home's kitchen can be brand new, but if it's a 'purple' kitchen, or any other unpopular colour, it won't add much or any value.
Market Situation
When a buyer wants to set an offer price, it is critical to understand the current market conditions. How can you tell what kind of real estate market Calgary is experiencing? Of course, a real estate agent knows the answer. Furthermore, the Calgary Real Estate Board provides monthly updates on the Calgary real estate market and surrounding towns such as Okotoks, Cochrane, and Airdrie. Statistics are provided with these updates. Calgary has four quadrants, but the real estate board divided it into eight zones. Every zone or area has its own statistics for four sectors: detached single-family homes, semi-detached homes, townhouses, and apartments. In addition, the real estate board publishes statistics for each and every community in Calgary.
Buyer and seller motivation
When it comes to purchasing, motivation is an important factor. Do you offer more than the asking price or make a low-ball offer? The answer is obvious. The buyer's willingness to pay more or less than the asking price is primarily determined by the buyer's desire for the property. A buyer must understand that the longer negotiations go on, the more likely it is that another buyer will enter the picture.
However, motivation is also an important factor for the seller. If the seller is desperate to sell the home, that very low offer may be considered, with the seller attempting to close the gap. If the seller is less eager to sell, the buyer will have to negotiate a higher price. The motivation of both parties influences the offer price.
Buyer Profile
The amount to offer is also determined by the type of buyer. A first-time home buyer will most likely be more cautious than a seasoned cash investor. Downsizers may also have a different level of offering than a young family looking to purchase a larger home.
The best offer is chosen.
The best offer for a seller is one that includes the full list price and no conditions. That scenario is usually only applicable in a buyer's or balanced market. If it is a seller's market, competing offers may be made, and an offer may need to be higher than the list price.
It's not always about the money.
Money does not always triumph. The majority of buyers request conditions such as a home inspection and financing. If the property is a condo, a condo document review is almost certainly a requirement. A buyer can make an offer with fewer or no conditions, in addition to the price. Many sellers are open to unconditional offers. This results in a quicker sale with less risk for the seller. Sellers accepted tens of thousands of dollars less if the offer had no conditions in the more extreme seller's market, such as during Covid.
So, money often wins, but not always. It is the buyer's responsibility to take a risk and avoid a home inspection or a financing condition.
The MLS displays the asking price.
The MLS displays asking prices, also known as list prices, for homes for sale. The asking price is nothing more than the seller's desired profit from the sale of the home. Every seller is free to set their own asking price, though most realtors are unwilling to waste time on unrealistic seller demands. In turn, every buyer has the option of offering 'whatever'. It is critical to remain realistic when buying or selling a home.
A seller's strategy for determining the asking price
A buyer making an offer must understand that a seller can use various selling strategies. A house has a market value that is determined by the selling agent. Agents provide a price range within which the house'should' sell using a CMA, or comparative market analysis. A seller may decide to list the property with the goal of a "quick sale," listing at the low end or even below that range. Alternatively, depending on motivation and market conditions, a seller may choose to list it at the higher end of the value range. A lower priced property may appear to many more buyers as a 'deal,' making the property more appealing.
Every negotiation is unique.
The goal of negotiations is to reach an agreement between the buyer and seller. Everyone negotiates differently, and each buyer and seller has their own negotiation style. During negotiations, a realtor is essentially following the client's instructions. Realtors, on the other hand, have negotiating experience and usually guide a client in order to buy (or sell) a home. Negotiations are aided by MLS data, experience, and the buyer's motivation.
How a Realtor can help with Purchase a House
Realtors are skilled negotiators. Realtors assist buyers in determining an offer price by taking into account a variety of factors, including:
- the market value determined by a CMA using MLS statistics
- the market type, whether buyer's, seller's, or balanced
- and the buyer's motivation (and potentially the seller)
A realtor's worth is largely determined by his or her ability to negotiate. However, a realtor can also provide advice on different types of properties, the (re)saleability of a property, different areas to live in, and so on.
As a buyer, it is critical to consult with a realtor for the best results. Be honest about your motivation. Make sure your finances are in order, including a pre-approval. Understand the information provided by a realtor. Have faith in your realtor. If you, as a buyer, do not trust the realtor's ability or motivation to assist you, find another realtor. The most important aspect of any real estate transaction is trust.