What to offer: When to start low, and when to start high
In a recent blog, we explored how to decide what to offer on a house you are interested in buying (if you haven’t read it, check it out!). We discussed a number of angles on a tricky decision, including your budget, the “Closed” comparable sales in the area, and the potential additional cost of renovations.
In this post, however, we want to look a little more specifically at the nuances of your actual bid. Sometimes, you might want to start with a low bid to feel out the seller’s price range, but there are other times you might want to start with an offer that’s actually higher than the asking price (seems crazy, we know!).
So, let’s take a closer look at these two potential options and explain the thinking in a bit more detail. Here is an insider’s look at when to start low and when to start high when deciding on the opening bid for what could be your new home.
The most important factor in this scenario is how long a listing has been on the market. If the listing has been around for several months at the same price point, there is a chance the seller may consider an offer on the low end of its supposed value (based on your painstaking research!).
Many of our clients feel they may be angering sellers with a low bid, making themselves prone to a straight “No” and removing themselves from the bidding process. However, sellers are unlikely to reject a reasonable offer outright and will almost always come back with a counter offer.
The first counter offer will give you the best indication of how far a seller might budge from the listing price. They may come back with a number very close to yours, in which case you could save yourself a significant chunk of change simply by being willing to make an offer you believe is fair. Alternatively, they could counter with a price very close to the listing price, indicating that they believe the house is priced fairly as is.
Either way, you will have begun the negotiation process and likely given yourself some wiggle room with your final budget by easing in with an affordable offer.
Timing is everything when buying a home. If you are shopping for a house in the spring, you will likely encounter other buyers with the same idea! Spring is typically the busiest time of the year in the real estate market.
This creates what is known as a “hot market”, when there may be more buyers than sellers and houses appear on the market briefly and sell quickly. When there are more buyers in the market, that can lead to bidding wars that drive the final price of a property up significantly.
For that reasons, bidding wars are to be avoided when possible as it can lead to overpaying for a home. Ultimately, it could impact your comfort level with the deal, which can have (negative) trickle effects on your enjoyment of the home.
So, rather than start low, this is a scenario in which you may want to offer something close to the listing price of the house. If there are other low bids, you will be the obvious choice if the sellers are simply looking for the highest and best offer. You may actually be able to escape a bidding war by starting a little bit higher than the competition.
That being said, you really need to do your homework so you come to the decision as an informed buyer, well aware of what the market should provide.
This is a complicated process and there are many other things to consider that we have not discussed above. The important thing to remember is that there are local experts to act on your behalf! If you need any more information, please don’t hesitate to get in touch!