How Much To Offer On A House: Finding The Sweet Spot
Katie Ziraldo6-Minute Read
February 08, 2022
So the home search has ended – at least for the time being – and you found a house you want to buy. Hurray!
Whether it’s a starter home, an investment project, or your dream forever home, the next thing you may be wondering is how much to offer for it. Fear not, because we’re here to take you through all the ins and outs of that exact question so you’ll be able to find your offer “sweet spot.”
Consider The Market
How much you should offer on a house largely depends on the market conditions in your area. If there are more homes than buyers, making a lower offer may be acceptable. But if there are more buyers than there are homes for sale, you may need to offer a larger amount to encourage the seller to accept your bid.
The local market can favor buyers, sellers or neither, depending on a slew of variables. Let’s take a look at how each type of market may affect your offer price.
A buyer’s market means home prices are low, inventory is high, or both. This ultimately means there are more homes for sale than there are buyers looking to purchase them. In these types of conditions, buyers can generally make offers that are lower than the asking price and insist on more contingencies. As you have likely realized by now, this is not an ideal market for sellers.
When home prices are higher, inventory is low, or both, it’s considered a seller’s market. Seller’s markets happen when there are more buyers than there are homes for sale. With many buyers competing for the same homes, it’s common for bidding wars to arise. In this market, the buyer with the most competitive offer will typically get the home, so buyer competition and fewer homes to choose from means you’re likely to pay close to or over the asking price.
In a balanced market, buyers and sellers have roughly equal power. Home prices are not too high or too low and/or inventory follows the same trend. Since both sellers and buyers can walk away from any transaction, balanced markets are ruled by comparable properties (comps) as the basis of negotiations. This makes having your agent use their expertise to research the market value of the home even more important.
The Condition Of The Property Matters
Of course, the home itself also plays a big role in determining how much you should offer. Homes can come in a wide range of conditions regardless of the real estate market, and the homes that are move-in-ready typically go for higher prices than those in need of repairs.
Consider the condition of the property before deciding how much you’re willing to pay. Is it going to require significant repairs or remodels to fit your lifestyle? If so, it may not be worth as much.
Be Mindful Of Your Budget
The key to deciding how much to offer on a house lies in the buyer or buyers’ understanding of their budgets. You likely had a number in mind that you were willing to spend before you even started searching, but a quick recheck before you submit an offer is always a good idea.
While this isn’t the most exciting part of home shopping, it is one of the most important parts, because without a reliable budget to work with, it can be hard to know how much home you can actually afford. Remember to factor in all of your planned expenses, including mortgage payments, utilities, and other homeowner costs. To be even more exact in your calculations, try using a home affordability calculator.
When To Make Larger Offers
There are times when making an offer over the asking price may be a good idea. If you find your ideal forever home, it may be worth it to pay a little more for the property when the alternative is to buy a temporary house you’ll have to resell in just a few years. If there’s hefty competition for the property, a larger offer might give you a better chance at winning the bidding war.
How Much Should You Offer Over The Asking Price?
Precisely how much you should offer is another question entirely. To find this number, have your real estate agent take a look at similar homes in the area and how much they’re selling for. Consider this information alongside your budget to determine the highest offer you’re comfortable making without overextending yourself financially. The last thing you want to do is end up in an overpriced house that you can’t afford in the long run.
When the time comes to make an offer, there are two main strategies buyers employ to determine how much is reasonable. In a bidding war, some buyers offer between 1% and 3% over the asking price to make their offers stand out, while others rely on their real estate agent to find out what other bids are on the property, then offer a few thousand dollars above the highest one. To make your offer even more competitive, you can also consider waiving contingencies.
When To Offer Below The Asking Price
Alternatively, there are times when it’s possible to purchase a house for less than the asking price. This typically occurs when there is little to no competition for the property, often during a buyer’s market.
But how little is too little and how much is too much? Although buyers are free to offer what they see fit, there are a few guidelines you can follow.
Less Than 10% Below Asking
If the home is in good condition but could use a little cosmetic updating, this price range might make sense. While this may not lead to dramatic monthly savings, you might be able to save enough to cover the finishing touches to make the house your home.
But if the property is in great shape, move-in ready, needs no repairs and fits your needs, it may be best to offer close to the asking price – even if you find yourself in a buyer’s market. This can make it easier to buy the home and move faster to closing.
Between 10% And 20% Below Asking
If the home is dated and in need of some fairly major renovations, it may be appropriate to offer 10% - 20% below the asking price. Consider this price range if the home needs new appliances, fixtures or cosmetic updates like new carpets or flooring. For example, if you think a bathroom will need to be gutted and estimate the cost at $10,000 then bringing in the offer at $10,000 under ask could be a good strategy.
Offering 20% Below Asking
Sometimes referred to as a lowball offer, this price point is justified if the home is in need of extensive repairs to bring it up to code or to make it habitable. If the property has problems like roof damage, plumbing and electrical issues or foundation problems, it may be reasonable to offer 20% below the asking price. Coming in this low will allow some wiggle room in your budget to help cover the cost of repairs.
The Bottom Line: How Much You Should Offer Depends On The Property
Finding the right price for your home is part science, part negotiation. The exact offer buyers make should be based on both the market and the property itself. Remember that in a competitive seller’s market, you may need to offer a higher price, while you may be able to get away with a lower price during a buyer’s market.
Doing your own research is important, but you should also listen to the advice of your real estate agent. Together, you can come up with a price that gets you comfortably into your new home.
Ready to take the next step toward making offers with confidence? Get approved with Rocket Mortgage® to find out how much you can really afford.
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