In several parts of the central Ohio area, the market is beginning to pick up. Buyers are out shopping … and buying. New homes are coming on the market and some are going into contract quickly. Prices are stabilizing and increasing in some areas as sellers get multiple offers.
When home buyers have found their perfect home and are ready to make their initial offer to purchase, they may be unsure as to how much to offer. They may also have in mind what their top price is that they want to pay for the selected home based on the comps their real estate agent provided them. An important piece of this evaluation is the ratio of list vs sell prices that have actually occurred in the area. Armed with this info, you’ll have a better idea of the expected selling price that the seller is anticipating.
Step One: Calculate the list/price ratio for the area or neighborhood
I just checked the ratio of list-to-sell for some of the northern Franklin County and southern Delaware County school districts. Based on actual sales since Jan 1, here is the final percentage on average that buyers paid in relation to the list price.
- Buyers paid 96% of the list price in these school districts: Delaware, Westerville, Worthington
- Buyers paid 95% of the list price in these school districts: Dublin, Hilliard, Marysville, New Albany, Olentangy
Step Two: Consider your top Pre-Approval price
You know what limit your lender has placed on the “top” price that you’ll be approved for. You might be able to consider buying a home that is 2-3% higher than that, but that assumes you’ll be able to negotiate the seller down to a price within your range. That may happen or it may not if the seller knows they have other interested parties. For instance, if you’ve been approved for a top price of $200,000, then as a rule of thumb, you should confine your search to homes priced under $204,000. Even then, enticing that seller to come down $4,000 in their price may be risky, plus, it puts you at the top end of your approval range which may not give you any breathing room on your mortgage payment.
Step Three: Estimate what the final selling price might be
In the above example, if you looked at and selected that home that is priced at $204,000 AND that home is in an area that typically sells for 96% of the list price, then you might expect to settle on a price near $196,000. If that price is substantially more than you want to pay for the home, then you probably should not be considering that home. It’s at this point that your agent needs to closely evaluate the neighborhood comps of homes that are very similar and offer similar amenities and floor plan. Is the home overpriced for what it offers or is it a “good buy” at the list price. If the home is a “good buy” at $204,000, then you may not be able to buy at $196,000.
Many homes on the market now are very well priced, so if you’re planning on buying a home much less than 94% of the list, you’re probably going to be disappointed and lose out on some good opportunities. This is central Ohio … NOT Florida or California. Our prices didn’t increase 20-30% each year in the past and they’re not declining by that amount either. You’ll need to be realistic during this Step 3 evaluation.
Step Four: Determine your initial offer
Now you should consider your total offer and what it might take to convince the seller to agree to accept your offer. It’s not always price that gets an offer accepted. The more you want the seller to lower the price, the more you may need to offer in other areas.
- Can you be flexible on a closing date that fits the seller’s schedule or allows them to have a few days after closing to move their belongings out? Or are you going to insist on possession at closing, which may require the seller to have their possessions loaded on a truck prior to closing without be assured that you’ll get final loan approval to close?
- Are you willing to offer more earnest money to show you’re really serious about buying the home? Offering too little earnest money sends a signal that you’re either cash-strapped or not quite serious about buying the home.
- Do you have a pre-approval letter to attach to the offer to show the seller that you’re pre-approved to buy in the seller’s price range and is that lender reputable? The seller wants assurance that you’re likely to be able to make it to closing regarding your financing and underwriting. Plus, in today’s arena, the seller will want to know who the lender is and whether that lender is having financial difficulty.
- Don’t base your offer on what you can afford. Your offer should be based on what the home is worth. If what the home is worth is more than you can afford, then you should be viewing lower priced homes.
- For goodness sake, DON’T tell your agent to tell the seller all the things that are wrong with the home as rationale for your low-ball offer. Don’t insult the seller’s prized possession and expect the seller to negotiate to your benefit after doing that. Afterall, you’ve made the decision to buy the home, so it must have some redeeming value otherwise you would have selected another home.
Step Five: Keep negotiating
If you’ve followed the advice in Step 4, you may stand a good chance of getting your offer accepted as it was written, however, it’s very common that something needs to be changed. There’s no limit to the number of counter offers that can be done until both parties agree, so keep negotiating. Usually both parties come to some agreement that is acceptable to both of them. However, once in a while, the negotiations reach a stalemate and both parties decide to move on. That happens. Hopefully, your next offer on another home will be accepted and you’ll be able to become a new homeowner.
Copyright © 2009. Elaine Reese, Real Living HER. Reproduction of any portion of this blog post or the images is prohibited by the Digital Millennium Copyright Act. If this post is being viewed on any site other than www.ReesesPiecesOfRealEstate.com then the material has been stolen without permission. Violators will be reported.
