Developing An Offer Price

I have a check list that I use when I am getting ready to make an offer for a Buyer-client.

The single most obvious factor is what have other properties in the area sold for. I check by subdivision as well as geographical area.

Condition. Just because two sold properties are on the same street as the subject property doesn't mean that those homes are truly comparable. You have to compare Apples to Apples and not to Bananas. In older neighborhoods, one also has to determine the condition of the subject home as well as of the other properties sold. It is common for one home to be almost a tear-down and the house next door to have granite counter-tops and updated bathrooms.

Tax Valuation. The Taxman isn't always right. However, it is a quickly available source of some one's opinion of value. The Tax Assessor does NOT have access to the interior of the property. Also, their square foot number is not always correct. Their number is just one of many factors to consider.

Length of Time on the Market. A Seller who has been anxiously waiting for a Buyer to appear for 120 days is going to behave very differently than someone who only put their home on the market a week ago.

Type of Seller. An owner-occupant is going to need to be handled very differently than where the owner is a bank. It is much easier to offend an owner-occupant with a low-ball offer. Banks aren't going to take it personally. Banks are just talking numbers.

How much did the Seller pay to buy the house? Buyers always ask this question. As the Buyer's Agent, I don't have access to that information but I can frequently make an educated guess. The information is only relevant in trying to get inside the Seller's mind. If a home has sold in the last 10 years, the sales price will be in the MLS system. The Tax Office keeps information about original mortgage amounts.

What is it going to cost the Seller to Close? In addition to paying off the mortgage, the Seller has to pay their closing costs. No Seller wants to have to write a check at closing. Typically, it costs a Seller 8% of the sales price to sell. The Seller pays the Real Estate Commission (typically 3% to the listing agent, 3% to the buyer's agent), the Title Policy (1%) and another 1% in misc costs such as escrow fees, attorney fees, filing fees

Seller Motivation. It isn't always possible to measure the Seller's Motivation, but there are signals. For example, if the home as been on the market for a while and the Seller hasn't reduced the price at all, that is not a motivated Seller. Another signal is whether the home is occupied or not. A vacant home means that the Seller has "moved on" in the truest sense. It typically means that the Seller is making payments on two properties. Vacant homes have their own problems.

Money Isn't Everything

There are lots of things to think about when you decide to make an offer on a house. Price is one, but only one, consideration. There can be factors that are extremely important to the Seller, things that in their own way can be as important as price. There are a number of contingencies in the typical

When I am acting as a Buyer's Agent, I always phone the Listing Agent and ask questions. Sometimes I get useful information, sometimes I don't. I ask questions that are directed at figuring out what things matter to this specific Seller. For example, when can the Seller move and where are they moving? If my client can make it possible for the Seller to continue to live in the house for a few days or weeks, that is something the Buyer can offer to do that may have value to the Seller. In Seller-Leaseback, the Seller reimburses the Buyer the daily cost of the Buyer's Mortgage.

The single best example of correctly identifying something the Seller wanted more than money was the time that the Seller was a Compulsive Hoarder and my client offered to deal with everything that was left in the house that the Seller didn't want. My Buyer-Client was one of 3 offers, his offer was $50,000 less than one of the offers, and we got the deal.

Another example? I am currently assisting in finding homes for a litter of kittens, something that the Home Owner needs to have happen before she can move. Finding homes for those kittens is extremely important to her. Consequently, she is more focused on those kittens than she is on the actual sales price.

Typical terms that may tip the scales for the Seller:

Moving after the closing. Giving the Seller a lease-back means that the Seller gets to see the Buyer's money before they actually commit to the purchase of their next home. You haven't see misery until you have seen a situation where the Seller has closed on the next house and then the sale of their current home doesn't close. Miserable. Totally miserable for everyone associated with the deal.

A short Option Period or no Option Period (Sellers worry about the Buyer backing out until the Option Period is over)

Lots of Earnest Money. Typically, Earnest Money is about 1% of the purchase price. If the Buyer wants to get the Seller's attention, put up more money.

Loan Pre-Approval. If the Buyer is completely pre-approved for the loan, it is possible to eliminate the financing contingency.