Some time ago, we wrote a piece about how the asking price listed for a home often doesn’t hold much value. In a market condition like today, where the seller has the most leverage, we wanted to highlight that instead of reflecting the home’s true value, the seller’s asking price is often intended to motivate the most eyeballs or buyers to see or consider the home.
When pricing your offer, you should consider the following:
- Don’t take the asking price to heart.
- Data goes a long way, but not all the way.
- Understand seller motivations and think about yours.
We will go into more details with these below.
Don’t take the asking price to heart.
If the asking price doesn’t hold as much value as most generally believe, then what is the best way to price an offer on your dream home? Well, unlike buying a chocolate bar that has a defined and decided value at the convenience store, when purchasing a home, the market of interested buyers decides what the home is worth.
Remember economics? Demand vs. supply? Knowing what the market (folks like yourself) have been willing to pay (demand) for a similar home in the last 6 months is most important. It’s a great indicator of how much interest there may be today and what types of homes are sought after. The lack or surplus of that type of home (supply) will also dictate this.
Pricing to the market is more important than pricing to the asking price. Sometimes the asking price is artificially low, so expect to offer above. On the contrary, sometimes the asking price is higher than what it’s worth. So — either way, we stick to understanding what the market has been willing to bear.
Data goes a long way, but not all the way.
A home pricing analysis compares similar homes, but varying conditions/quality, size, and location recently sold or under agreement. The home pricing analysis greatly helps value a reasonable price and helps set a floor price in your mind. Much of the analysis considers the average price per square foot in a particular area and then factors in the home’s unique aspects. You can request a free home pricing analysis on any home you are interested in or maybe offer worthy. We provide this because it is guidance any interested buyer deserves to have at any stage of their home buying process.
Hopefully, this helps answer the question you might ask your Nuhom agent, “So what do you think this home is worth?” Right? Not quite yet…While a pricing analysis will help guide you early on price, there are two wrinkles. 1) Your price will also be dependent on your terms and dates. Price is one of three main factors that a seller considers when reviewing your offer. Terms and dates being the other two. 2) People value homes subjectively; your price will depend on how much you want this home and your budget. What may be super important to you may be less important to others.
Understand seller motivations and think about yours.
Each seller is different, and their motivations are different. Some may value quickness (closing on their timeline) and certainty in a sale (fewer contingencies, higher down payment, or cash offer), while others will value the highest price more often. A lack in one area may compensate in another area, but the full package is ultimately what the seller will consider, also known as your “highest and best” offer. This is where a bit of art or finesse comes into offer-making. Your Nuhom agent will try to collect what information they can to understand the seller’s motivations. Incorporating the motivations that you can will help you succeed in being the best offer.
In parallel, you will want to heavily consider how much a particular home fits your needs and wants. While a pricing analysis may set a floor price and define what the market has been paying, if a home is a great fit for you, you may decide that it’s worth paying more for. You should remember there will only be one winning buyer. This is where subjectivity and your budget play a role.
Today’s market and being realistic.
In today’s market, the historic low-interest rates, the tight housing supply for sale, and the newfound demand for housing by millennials have led to some significant price increases in particular areas. In the Boston area, this has most affected the price and offers made on single-family homes (newer ones especially) where most want to enjoy their new normal with more space indoors and out. There can be a handful to over thirty offers for these types of homes, which include high prices and little to no contingencies. Alternatively, while condominiums and multifamilies have also seen price increases, the competition is not even half as strong. Reach out to Nuhom to get guidance on how to navigate your home buying journey.
In summary, a recipe for success on pricing when you’re interested in a home…
- Consider the asking price, but don’t heavily weigh your thinking on it.
- Request a free home pricing analysis on any home you are interested in or which may be offer worthy to understand what the market has been willing to pay.
- Understand the seller’s motivations and what type of terms and dates you can offer.
- Think about your motivations. Does this home meet your needs and wants? Is it in your budget?
- Put your best foot forward!