real estate

How to make the best offer on a house

Steve McLindenq_v2.gifDear Real Estate Adviser,
What is the usual amount -- or percentage below asking price -- to offer on a house? Is there a set way to figure this out? I'm a renter at present who is looking to become a first-time homebuyer in the next few months or so.
-- Susan

a_v2.gifDear Susan,
There's really no "usual" percentage because making an offer on a house is based on a wide variety of factors, and real estate is so property-specific. Among those homebuying factors are the health of the overall market, the physical condition of the house, desirability of the neighborhood, sales prices of "comps" (nearby comparably sized homes), resale potential and seller motivation.

In a seller's market, still a rarity in most of the U.S., you don't want to start too low and risk insulting the seller, who in turn may decline to deal with you. But these days, sellers in this country's many buyers' markets are usually entertaining any offer from a potential homebuyer, but they anticipate lowballing by building wiggle room into their selling price.

You have another bargaining chip since your purchase will not be contingent on having to sell your own house. That has been a big stopping point in transactions over the past few years. If you're a homebuyer with cash, that's another point in your favor because the seller is assured that your financing won't fall apart. If you are taking the much more common mortgage route, be ready to show the seller proof you are preapproved from your financial institution.

Once you're ready to make an offer on a house, get a list of "comp" sales from a real estate agency or from your buyer's agent. Your offer should factor in the prices of all sales, including local foreclosures and short sales because those are a very real part of the home's value equation these days.

If you're really serious about a particular house, you should hire an appraiser to help estimate its value. If you want to do this after making your offer, make sure you stipulate on the purchase contract something like "offer is contingent on estimated value of buyer's appraiser being higher than or equal to the purchase price."

Also, you can best determine the condition of the home's mechanical and electrical systems, foundation, plumbing, roof and other elements by hiring your own home inspector. The seller's willingness to repair any problems uncovered by the inspector will determine whether you should seek additional price adjustments.

If the house has languished on the market for several months, you have even more clout as a homebuyer. A good agent will be able to determine if there are other seller motivations such as a divorce, estate settlement or relocation issues. Realize that some of your negotiation clout can come in the form of a credit toward closing costs.

Nationally, homes are selling for an average of 5 percent below list price. Using that as a rule of thumb, you might offer $180,000 on a home listed at $200,000 in hopes of settling at around $190,000. But that's just an average. Your specific market's dynamics will come into play when you make your own offer on a house.

Good luck in your first home purchase! Don't forget the qualifying deadline for the federal first-time homebuyer tax credit of up to $8,000 is April 30, 2010, though you have until June 30 to close as long as you signed a binding sales contract by the April 30 date.

Bankrate's content, including the guidance of its advice-and-expert columns and this Web site, is intended only to assist you with financial decisions. The content is broad in scope and does not consider your personal financial situation. Bankrate recommends that you seek the advice of advisers who are fully aware of your individual circumstances before making any final decisions or implementing any financial strategy. Please remember that your use of this Web site is governed by Bankrate's Terms of Use.

Read more Real Estate Adviser columns and more stories about mortgages. To ask a question of the Real Estate Adviser, go to the "Ask the Experts" page, and select "Buying, selling a home" as the topic.

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