# Looking at buying a home for the first time and don't know how much to offer them. Is there a formula to use?

Asked by Rondahugo1, Sobieski, WI Mon Feb 20, 2012

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Hi Rondahugo1,

Hire a Realtor (the seller usually pays the commission for both the seller's Realtor and the buyer's Realtor).

Once you've hired a Realtor, have them do a Comparative Market Analysis (CMA) using comps that have SOLD in the last 3 months that are within a 1 mile radius of the property (the closer, the better). This will give you current market value - this is what you should base your offer on (not necessarily on list price).

Good luck.

Shanna Rogers
SR Realty
http://www.RealtyBySR.com
1 vote Thank Flag Link Mon Feb 20, 2012
Yes.

The formula is: Pay no more than the CMA. Probably offer less.

Notice that what you offer has absolutely nothing to do with the asking price. Any formula that's based on asking price is fatally flawed.

Why?

Because the asking price may be more than, equal to, or less than the actual value of the home. Quick example: A seller is informed by his agent that his house is worth about \$200,000, based on a CMA. The seller--maybe being greedy, maybe wanting to leave some room for negotiating--adds 10% to the CMA valuation and prices it at \$220,000. Then you come along and--having read some advice somewhere--think that you should offer 5% less. So you offer \$209,000. The seller accepts.

What's happened? You've overpaid by \$11,000. The house may or may not appraise for \$209,000. You'd be in better shape if it didn't appraise for that amount.

Another example: The CMA says the house is worth about \$240,000. But the sellers want a quick sale, so they price it at \$220,000. You make an offer of \$209,000. Someone else comes along and makes an offer of \$220,000. You lose out and the winning offer--even though it's full price--got a real bargain.

So: Pay no attention to the list price. Look at the CMA. Pay no more than the CMA. Probably offer a bit less.

Hope that helps.
MVP'08
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Be aware that CMAs do not replace appraisals. On the other hand, they are quick and are free. In my area, which is rural, I have not found them especially accurate.

The rule of thumb I use is that if someone gets a property for 10% under the asking price, he has done quite well. Often a 5% discount is also good. Less than 2.5% and I'd wonder if it was worth it.

Having said that, let me also say that rules of thumb are meant to be broken. In addition to being a broker, I also buy professionally. I have paid full price and thought I had a good buy, and will no doubt do so again before I am through. And I have bought places at 40% discounts. If you rely upon my rule of thumb too much, you will miss out on opportunities.

Also look at assessments (don't rely upon them!) and definitely see enough other properties so that you have a good idea of what your money can buy. And decide just how much you want a place, what's it worth to you. Sometimes good buys can be over market value too. If it is going to be your residence for a number of years, a few thousand one way or another makes little difference, especially when compared to your happiness and pleasure in ownership.