We are first time buyers - no contigencies. What's an appropriate bid for a 1.3 mi house

Asked by Navin, District of Columbia Wed May 14, 2008

There are other houses for sale in the area - this one just came on, for 1.3 mil. We can do about 1.1 at the most.

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Don Tepper, Agent, Burke, VA
Sat Jul 19, 2008
Here are my suggested guidelines on an offering price.

First, determine the real value of the property. This can be done by consulting with one or more Realtors and obtaining a CMA (competitive market analysis). That gives you your "Value Number."

Second, if you've been pre-approved or pre-qualified, take that number. That gives you your "Prequalification Number."

Third, determine how much you can comfortably afford to spend, which may well be less than your pre-approved/pre-qualified amount. Figure out what you're willing to spend; how much you can spend without cutting into other investments and living expenses. That gives you your "Comfort Number." In your case, you say that's $1.1 million.

Take those three numbers: Value, Prequalification, and Comfort. Take the lowest of the three. That's the most--the MOST--you should spend for the property. We'll call that Interim Maximum Price Number.

Notice we haven't even discussed the listed price of the house? That's because it has nothing to do with the house's value, what you're qualified for, or what you can comfortably spend.

Now you can look at the listing price. Call that the "Listing Number." Take the Listing Number and the Interim Maximum Price Number. Select the lower of those two numbers. We'll call the results the Final Maximum Price Number. That's the most you can spend. (In your case, it's no more than $1.1 million, and perhaps less, depending on the house's value.) Take the lower of those two numbers. That's your new maximum limit. If the owner's asking for less than the value, less than you're pre-qualified for, and less than you're comfortable spending, then you lower your offer to the listing price.

That's the first part of the process. You now know the maximum you will pay for the property. Your offer should be no higher, and very likely somewhat less, than the Final Maximum Price Number.

There are dozens of different negotiating strategies at this point. And remember: It's not just price. It's also terms and conditions. You might be willing to pay more for a property if, for instance, you need a delayed settlement. You might demand a lower price if you're paying all cash and buying in "as is condition." Those are just examples. Keep the terms in mind, too.

Looking just at price, two often-used strategies are the following:

Split The Difference. The American version of "negotiating" often involves "splitting the difference." Let's say a house is listed for $1.3 million, and your Final Maximum Price Number is $1.1 million. The strategy is to offer $900,000. The sellers may counter at $1.1 million, and you have a deal. Or the sellers counter at $1.2 million. You counter at $1.0 million. And so on. Usually, you end up pretty close to the middle.

Best and Final. You sometimes employ "Best and Final" from a condition of strength--"take it or leave it"--or you do it when "Splitting the Difference" might result in an overly large gap. You make the offer as strong as possible. You provide supporting documentation for your price. You make it clear that it's a "best and final" offer. And you see what happens.

So: Go through the process outlined above. Seek input from your Realtor. Then make an offer.

Hope that helps.
2 votes
NonRealtor, , 23456
Wed May 14, 2008
If you wait a year, it may be only 500K. Prices are dropping in your area.
2 votes
Bill Eckler, Agent, Venice, FL
Thu Sep 11, 2008
You are sooo close.....you may find that excellent negotiation skills could bring you the home of your dreams.

Start at $900,000 and see where you end up....you have nothing to lose.

Good luck,
1 vote
Dana Scanlon, Agent, Bethesda, MD
Wed Sep 3, 2008
You say you have "no contingencies" -- that sounds like a dangerous path to take! Perhaps you mean you dont have a home of your own to sell first? I would recommend you have some contingencies (such as home inspection, financing) in order to protect your interests. This is where being represented by a highly-rated buyers agent becomes essential. Your agent should also prepare a thorough analysis of comparable properties that have sold recently (not what's on the market), a market absorption rate analysis for that neighborhood and look at the tax records to help you determine the appropriate strategy for purchasing this house.
When working with buyers who have a certain budget I usually look in a slightly higher and lower price range, but I generally don't look 20% above their price range, as its just setting the buyer up for disappointment. Remember that the agent whose sign is on the property represents the seller. You need a Realtor® to represent you and fight for your interests, above and beyond their interest in earning a commission. That's what an ethical real estate agent will do for you. Let me know if you need one. 301-575-4915
Web Reference:  http://www.homesbydana.us
1 vote
Carolyn Thom…, Agent, Rockville, MD
Sat Jul 19, 2008
Your bid should be deteremed by the value of the property. The fact that you have no contingencies could bring your offer down about 5%.
Web Reference:  http://buyandsellexpert.com
1 vote
Christopher…, , Westport, CT
Sun Jul 6, 2008
Hi Navin,

Your offer should be based upon comparable sold properties nearby the home you would like to purchase. Do not base it on the list price. I suggest seeking representation from a REALTOR who is not the listing agent for the home.

Also, you mention that you have no contingencies. Be careful with that. An inspection is a contingency and one I always recommend. I generally recommend a mortgage contingency unless the deal will be all cash or their is absolutely no doubt in getting the funding at the rate you want. This can also help protect you in case the appraisal comes in under your offer, though you can put an appraisal contingency in the offer separately.

As far as suggestions of waiting, prices may come down or stay where they are, but there are no assurances that this home that you love won't sell in the meantime. It is a good time to buy, and if this is the house for you and you can purchase it within your means, then don't take a chance of losing it.

Good luck with your home purchase!

Yours truly,
Christopher Rich - REALTOR
William Raveis Real Estate
Your Fairfield County CT Real Estate Agent
1 vote
Veronica Tay…, Agent, Richmond, VA
Wed May 14, 2008
Hello Navin,
I would first suggest having a REALTOR to represent you! When making an offer on a property,things most considered after price is contingencies and closing date. If you can offer a "quick" closing you maybe find. It would be best to contact an agent in your area who knows the market conditions. Do you know if the home is priced correctly? Send me a email and I will be able to refer you to an agent in your area that would best suite your needs. veronicataylor@msn.com
1 vote
Richard Helb…, , Bethesda, MD
Thu Sep 11, 2008
Dear Navin,

You've gotten good advise from all of the respondents below. I'll only add that Bethesda is one of a few communities where house prices have been up all year, and if the $1.3mm house has indeed been priced properly, that's where it will sell, and probably quite quickly. If it hasn't, it will stand around, and experience price reductions. A no-contingencies bid is always a strong advantage, but rely on a seasoned buyer agent to help make the call, and advocate, for you.

0 votes
Regina Weitz, Agent, Potomac, MD
Mon Jul 21, 2008
Good morning Navin.
The first step is to have your agent research properties sold in the neighborhood (or zip code) that are similar to the house in which you're interetsed to see the actual sale price in the last 180 days (if there are no records for the last 6 months, increase it to a year). Based on this analyses, how many days the property has been on the market, and how much you want the home you and your agent should make an informed decision as to the initial offer price. Keep in mind that most likely you will receive a counter offer, so factor that into your equation. Good luck!
0 votes
Mary, Both Buyer And Seller,
Sun Jul 6, 2008
exit strategy? yes, you will need to know if this house will resell quickly or stay on market due to things like busy street, condos/apt near by, lower rated schools, outdated features, .due dilligence..oh, did I mention due dilligence?
now for the story..I have a friend who put in an offer on a home in Los Altos, CA (circa 2006)-- equivalent area in Maryland would be Bethesda or Potomic in terms of housing. There were 4 offers..the first offer was over asking price, but the financing fell through, second buyer found another house, third buyer lost interest, fourth buyer was my friend. A month and a week later they got a call from the listing agent asking if they still wanted to purchase the home. They purchased it at the lowest of all the bids, renovated the home and sold in July for profit -- price, price, location.
Best of luck,
0 votes
Maria Morton, Agent, Kansas City, MO
Wed Jul 2, 2008
The listing, or seller's, agent represents the seller. In the 1990's consumer advocacy groups demanded that buyers be given the same rights of representation that seller's had/have. Lawmakers created the buyer's agency agreement in response to these demands. As a result, you have the right to choose to be represented by a professional. When you sign an Exclusive Buyer's Agency Agreement with a licensed Realtor, that realtor is obligated to give you fiduciary responsibility. Without this agreement in place, you are an unrepresented buyer. Each state will have a place in the real estate contract/ offer to purchase to provide for this, should you choose to be unrepresented.

A Buyer's Agent will provide you with their professional opinion on each property you consider, a market analysis of each area you are interested in, advice on what to put into the contract (terms as well as price), assistance in arranging for inspections, gaining access for inspectors, protecting your best interests during negotiations, running title checks, setting closing appointments, correctly filling out all of the legally binding documents, monitoring the processing of these documents so that you can close on time with no surprises, assistance in selecting the best financing options for your particular situation, and more. The National Association of Realtors published a list of over a 150 things a realtor does on each real estate transaction.

The seller(s) are already represented by a professional realtor who transacts more real estate deals in a year than most people do in a lifetime. Why would you make one of the largest investments of your lifetime without your own representation?

The buyer's agent is usually paid after closing. The commission agreed upon by the sellers and their agent/broker determines what amount this will be. Usually, half of that amount is paid to whatever buyer's agent/broker represents the buyer. If the buyer is unrepresented, the seller's agent/broker takes all of the commission.
0 votes
Ann Marie Cl…, Agent, Gaithersburg, MD
Wed May 14, 2008
I would look at all the recent sales in the area (with your Buyer's agent) and then look at all the homes that are currently on the market. I would not hesitate to make an offer that you feel is your best offer. The seller can always turn it down if it doesn't meet there needs and they may just take it! Good Luck!
0 votes
Gary Anthony, , Georgia
Wed May 14, 2008
As everyone has said a your Realtor will help you in that process. It really is a good time to be a buyer because there are some good deals out there. I myself am in Montgomery County. Let me know if I can be of any assisstance to you.
0 votes
Tina and Mike…, Agent, Owings, MD
Wed May 14, 2008
Hello, What a great question. There are many factors that effect your offer on a home. The financial condion of the sellers, the comps on homes in your area, your type of financing , contingencies and how quick you can close. Your buyers agent ( Realtor ) will be able to give you the proper guidence in your market area. Good luck and what a great time to be a buyer.
0 votes
Kelly Willey, , Harford County, MD
Wed May 14, 2008
Your real estate professional who is well versed in home values for your area will give you a detailed price analysis of the property and advise you on negotiation strategies. They will then walk you through each and every stage of the transaction. Let me know if you need any suggestions.

Kelly W
0 votes
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