If you're wondering how to go about deciding what price to offer for a home, read on. First off, look up the going prices for similar homes in the same area. Your agent can be a valuable resource here. She should be able to provide information on comparable sales prices for the area.
Next, determine how "hot" the local market is. If demand for housing is high (sometimes referred to as a "seller's market"), you won't have too much bargaining power. Homes priced reasonably will sell quickly, for a price close to the asking price. In some super-hot markets, homes may sell above the asking price, as buyers compete with other buyers. In a slow-paced market (sometimes referred to as a "buyer's market"), though, you may be able to buy a home for 5% (or more) below the asking price.
Check out the market history of the home. Has it been on the block for a long time? Has the price been reduced over time? If so, when was the last price reduction? (If reductions are a pattern, and it's been a while since the last one, the sellers may be mulling over another reduction.)
Have there been any offers on the house? If so, for how much? Find out if others who made an offer are still interested, or if they were rejected (and why!).
Some other considerations:
- Be pre-approved for a mortgage before you bid. You'll be a more-attractive prospect because you'll be seen as seriously interested and ready to buy.
- Know where your boundaries are. Don't bid more than you can pay. Don't become so enamored with a house that you find yourself paying more than you should (and sacrificing other goals, such as saving for retirement).
- Think twice before making an extremely low offer. It might work... but, then, it also might turn off the sellers, perhaps turning them into stiffer negotiators. Worse, you might lose out to another bidder making a more reasonable offer.
- Become very familiar with the house and its condition. Find out if any repairs need to be made and if they'll be made prior to closing the sale. If $10,000 needs to be spent on the roof, that's a big deal. If the sellers promise to make any repairs, make sure that's part of the formal written agreement. Understand too, that sellers might not have your taste or willingness to spend money on a home they're selling. For cosmetic changes -- a worn carpet that needs to be replaced or the paint peeling on the walls -- ask for a monetary allowance so you can pick what you like, even if you have to do the repairs yourself or hire someone. Monetary allowances should also be spelled out in writing.
You'll find more home-buying tips in our Buying a Home area. You can learn about refinancing your mortgage there, too, and can even find some attractive rates.