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The Art and Science of Making a Real Estate Purchase Offer

By Eleanor Boschert

You've finally found the home of your dreams. Now what? It's time to take the plunge and make a smart offer. Here are some tips on how to make an offer that is a fair price and hopefully facilitates a smooth real estate transaction.

Before you even decide on a number, you will need to put the excitement of finding a home aside and remember that the listing price is just a starting point. Ultimately, it is the market that dictates the asking and selling prices of all real estate transactions. And, with advice from your MassRealty agent, you can target your offer to meet market value.

Consider the Facts, the Comps, and Crunch the Numbers

Start with recent sales data. Your agent will conduct a Comparable Market Analysis (CMA) of similar homes (including foreclosures and short sales) on the Multiple Listing Service (MLS) that recently sold in the area. Looking at listing and final sales prices, days on market, and other parameters, they will provide you with a comparable price range within your spending limit. Taking it one step further, they will compare and adjust your number according to similarities or differences in factors such as number of bedrooms, bathrooms, square feet of living space, lot size, type of home, age, upkeep, features and upgrades. Finally, they will add in considerations for:

  • Physical condition: What needs work and cost of repairs
  • Potential resale value
  • Health of the current real estate market
  • Length of time on market and seller's motivation
  • Elements you can and can't live without
  • The reality of what you can afford as well as what you would give up in terms and conditions

Strategize High, Low, or Just Right?

Once you decide on a price range, it's time to strategize. You might want to bid low, then negotiate with the sellers if they counteroffer. In a buyer's market, you have more power to negotiate and can justify your low bid by pointing out deficiencies in the home, market factors and recent comp sales. If that doesn't meet their demands, then you could negotiate to have the seller paying for repairs or addressing issues.

But beware, in a seller's market, if you bid too low you risk insulting the seller who then may refuse to negotiate or even consider your offer. Worse, yet other buyers could step in and outbid you.

Yet, if you bid too high, especially over asking price in a competitive situation, not only will you overstretch your financial boundaries, you could run into trouble with finalizing your loan if the appraisal doesn't meet the purchase offer amount.

At this point, you may want to include contingencies in your offer that need to be completed before a closing can take place and you finalize the deal. They can run the gamut of demands, but standard contingencies usually include a home inspection, financing approval, and securing home insurance. If contingencies are not met within a certain time frame, then you, or the seller, will be able to back out of the deal.

How to Outfox the Competition

Once you make an offer, a seller can accept it, reject it, or counter offer. They can also entertain other offers. In today's simmering seller's market, you could easily end up in a buyer bidding war, so think before you leap in the heat of competition. Do you really want the home? How much work needs to be done and at what cost? Are the location, features, and amenities really that desirable?

If you're sure this is the home for you, then put your strategies into high gear, keeping in mind these tips for beating out the home buying competition.

  • Have your pre-approval letter
  • Make a solid, reasonable offer
  • Flash the cash for a larger deposit and down payment
  • Be flexible and willing to address the seller's needs
  • Don't add in unreasonable contingencies
  • Make the offer friendly, don't nit-pick over the little stuff
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