How Much Should You Offer?
When you prepare an offer to purchase a home, you already know the seller’s
asking price. But what price are you going to offer and how do you come up with
Determining your offer price is a three-step process. First, you look at recent
sales of similar properties to come up with a price range. Then, you analyze
additional data, such as the condition of the home, improvements made to the
property, current market conditions, and the circumstances of the seller. This
will help you settle on a price you think would be fair to pay for the home.
Finally, depending on your negotiating style, you adjust your "fair"
price and come up with what you want to put in your offer.
The first step in determining the price you are willing to offer is to look
at the recent sales of similar homes. These are called "comparable sales."
Comparable sales are recent sales of homes that compare closely to the one you
are looking to purchase. Specifically, you want to compare prices of homes that
are similar in square footage, number of bedrooms and bathrooms, garage space,
lot size, and type of construction.
If the home you are interested in is part of a tract of homes, then you will
most likely find some exact model matches to compare against one another.
There are three main sources of information on comparable sales, all of which
are easily accessed by a real estate agent. It is somewhat more difficult for
the general public to access this data, and in some cases impossible. Two of
the most obvious information sources are the public record and the Multiple
Comparable Sales in the Public Record
The most accessible source of information on comparable sales is the public
record. When someone buys a home the property is deeded from the seller to the
buyer. In most circumstances, this deed is recorded at the local county recorder’s
office. They combine sales data with information already known about the property
so they can assess property taxes correctly.
Provided there have been no additions to the property, the information available
from the public record is usually correct regarding sales price, square footage,
and numbers of rooms. This makes it easy to use the public record as a source
of data for comparable sale information.
Accessing the data is another matter, at least for the general public. Realtors
can generally look up this information through title insurance companies. The
title companies either compile the data directly from the county recorder’s
office or purchase it from other companies.
One difficulty with the public record is that it tends to run at least six to
eight weeks behind. Add another four to six weeks for the typical escrow period
and you can see the data is not current. The most current information is the
Comparable Sales in the Multiple Listing Service
Most of the public is aware that the Multiple Listing Service is a private
resource where Realtors list properties available for sale. Recently, the public
has been able to access some of that information on such sites as Realtor.com,
MSN HomeAdvisor, and others.
Once a property is sold and the transaction has closed, the selling price is
posted to the listing in the Multiple Listing Service. Over time, it has become
a huge database on past sales, containing much more information on individual
homes than can be gleaned from the public record. This information is only available
to real estate agents who are members of the local Multiple Listing Service.
Your agent will provide you with this data to help determine your offer price.
Comparable Sales – Pending Transactions
The most valuable information would be the most current, of course. A sale
last week has more validity in helping you determine a purchase price than a
sale from six months ago. The problem is that there is no actual record of the
sales price until the transaction is completed. The information is not available
in the public record because no deed has yet been recorded.
Neither is the information available in the Multiple Listing Service. Once
a property is sold, it becomes a "pending sale" and only the listed price is available. Sales prices are posted when a property becomes a "closed
sale." This protects the seller in case the transaction falls apart and
the property is placed back on the market. It would give an unfair advantage
to future potential buyers if they already knew what price the seller had been
willing to accept.
Other Factors Influencing Your Offer Price
Gathering and analyzing information from comparable sales helps to establish
the range of prices you should consider when making an offer to buy a home.
More weight should be given to the most recent sales, but even so, you need
to do a bit more analysis before setting upon the price you will offer. That
is because you also need to consider the condition of the property, improvements,
the current market, and the circumstances behind the seller’s decision