How much to bid on a house
If you are a buyer in this bustling seller’s market, how can you determine how much to bid so that you can buy your dream home without paying too much? There are many factors that go into crafting your offer (not just the price), and most of these decisions can be made with the help of an experienced real estate agent.
And while sellers may have the edge in the market right now, that won’t always be the case. Here’s how to make an offer, regardless of the type of market you’re buying in.
A seller’s market versus a buyer’s market
What is a sellers market?
“A seller’s market essentially means that there are too many buyers and not enough homes,” explains Quen Williams, a real estate agent in Austin, Texas. âSellers have bargaining power,â she explains.
This means that buyers are competing with each other, while sellers have a lot of power to choose the offer that is best for them.
What is a buyer’s market?
“A buyer’s market is when there is too much inventory and buyers have many options to choose from,” explains Philippe salem, a licensed real estate seller at Compass. âThe buyer has the upper hand,â he says.
Since sellers don’t get as much interest in their homes in a buyer’s market, they might be more willing to negotiate. This could mean taking a lower price or being more flexible on other parts of the transaction, such as working with the buyer’s schedule or paying some or all of the closing costs.
How to bid on a seller’s market
Making an offer in a seller’s market is a quick and potentially stressful process. But here’s how it should be:
- Get your finances in order. Before you even start looking for homes and putting up deals, talk to a mortgage lender and get pre-approved for a loan. This both gives you an idea of ââhow much you can afford to spend and will make your offer more competitive. âAll the other buyers have already [pre-approval] in place, and time is running out, âsays Salem.
- Know what your limits are. Use your pre-approved loan amount to determine the range you’re willing to pay for a home, and don’t go over that number. “This adrenaline rush from these bidding wars becomes its own thing,” saysKerry Melcher, real estate agent and real estate manager at the online transaction company Opendoor. Stick to your budget, no matter how intense the auction is.
- Look at other recently sold homes in the same neighborhood. Your agent should provide you with similar homes nearby that have sold in the past three months. These will give you an idea of ââthe value of a house and the price to pay. “An agent must always provide the history [comparisons]. If they don’t, they don’t do their job, âsays Salem.
- Have your buyer’s agent speak to the seller’s agent. This will help you understand what other bids may be on the table, and then you can decide if you want to bid higher, Williams says.
- Make your offer. In a seller’s market, bidding above or above the asking price is almost always a good idea, experts agree. This will show the seller that you are serious and could put you above other offers on the same house.
How to bid in a buyer’s market
In a buyer’s market, the power dynamic is the exact opposite: buyers have the advantage and sellers are more willing to negotiate. You’ll always want to start by getting your finances in order, your pre-approval, and your limits. When you are ready to begin your home shopping, you can do the following:
- Shop around. Because there is more inventory and less pressure in the buyer market, Salem suggests taking a casual look at many properties to get a sense of what you like most and what you are looking for. can you afford.
- Choose a property on which to make your offer. There may be several ads that you like, but pick the one that works best for you and start framing your offer.
- Look at both recently sold homes and current listings. For example: A similar house may have sold for $ 300,000 a few months ago, but if homes in that neighborhood are now listed closer to $ 275,000, that may be a signal that prices are dropping, Melcher says.
- Consider aspects of the offer in addition to the price of the offer. âIn a buyer’s market, you can get it all,â Melcher said. This not only means a favorable price, but also a closing time that works for you, and other concessions that could make the deal more attractive to the buyer.
- Make your offer. In this type of market, you can start by offering $ 20,000 or $ 30,000 less than asking price, if comparative sales warrant it. But be careful not to go too low, or you risk offending the seller. âSometimes buyers get unrealistic,â says Salem. Even in a buyer’s market, the seller may still have other options, such as renting the property or taking it completely off the market if they are not desperate to sell.
Consider the seller’s point of view
In both types of markets, you need to think about the seller’s priorities. Sure, they may want the best price for their home, but they may also feel sentimental about selling and want to see it in caring hands. Or, they might be in a hurry to sell and be willing to accept a low price for the sake of speed.
The price is not the only part of your offer. Work with your agent to make other aspects of your offering appealing as well.
Don’t get too carried away by this, experts warn. âI always say, if my buyer is a little unrealistic, put yourself in the seller’s shoes,â says Salem.
If your offer is too low, for example, a salesperson may decline to respond and disqualify you for the house. Or, if your offer has too many terms or you need too much time to close, that could put a potential seller off, too.
âThe buyer always wants to save as much money as possible while trying to win the deal, but sometimes they get a little lost in what they want and not what the sellers want,â says Williams.
Offer only what you can afford
It’s easy to get carried away by the emotions of buying a home, regardless of the type of market. Remember, however, that you are obligated to pay for this house, so don’t bid more than you can actually afford.
âIf you pay too much, it can actually be quite difficult for you for several years,â says Melcher.
A lender can help you figure out what you can afford (and how much they’re willing to lend you). You can also use a mortgage calculator to see how much your monthly payments would be with a specific loan value and interest rate. A good rule of thumb: Your mortgage payment shouldn’t exceed 28% of your monthly pre-tax income and 36% of your total debt.