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One of the most important decisions homebuyers face is how much to offer for their home.  Buyers think they need to run spreadsheets or do fancy math to make a smart offer.

But the fact is, there is a list of steps you need to take to make a smart offer, one that gets you a great value, but is also likely to be successful at getting you the property.  Remember, a low offer does not make for a great deal if you don't get the house.

• Step 1. What do the comps say? When it comes to pricing a home or making an offer to buy one, the first thing to consider is the home's fair market value.  Both buyers and sellers should work with an experienced, local agent to understand what the home's value is.  Most agents will do this by offering you a look at similar properties that have recently sold in the neighborhood; that is, the comparable sales (or Market Analysis).

Look for comparables that are very recent sales, very similar properties (same number of bedrooms, bathrooms, square feet, and similar style, condition and amenities).  If you do get into a contract, these may be the same comparables which will be considered by the appraiser.  The Market Analysis will provide the following

1. facts to  support for a lower-than-asking offer or for the asking price in a negotiation, and
2. result in a sale price at which the property will actually appraise; thus, avoiding the common setback of the deal falling through because the appraisal came in below the agreed upon price.

• Step 2:  What can you afford?  This step is much more critical for buyers than for sellers.  (Unfortunately, sellers, the fact that you need to net a particular amount to buy your next home or pay your existing mortgage or credit card bills off has no relationship to the price at which you should list or will sell your home.)

Buyers, it's a must to make sure that your offer price for any given home falls within the range of what is affordable for you.  This includes offering a price within the range for which your mortgage was preapproved, but also includes making sure that the monthly payment and cash you'll need to close the deal (down payment plus closing costs) are affordable in light of the particular house.  If the property will require repairs for which you'll need extra cash, you'll need to restructure your offer accordingly.

• Step 3: What's your competition? What's theirs?  You need to know what level of competition you'll face, whether it's a buyer or a seller.  As a seller you can find this out by looking at things like how many comparable homes are listed in your neighborhood in your general price range (your agent will brief you on this).  Sellers should also consider what type of transactions their home will be up against -- the more distressed properties (foreclosed homes and short sales), the more aggressive you must be with your pricing to get your home sold.

The more competition you have as a seller, you should make small adjustments to your list price to attract buyers to come see your home because the more buyers who come to see your home, the more likely you are to get an offer.

Buyers should also be aware of the competition level you will face for homes.  Even in today's market there are properties and neighborhoods in which multiple offers are the name of the game.  Work with your agent to understand the list price-to-sale price ratio, which lets you know how much under or over the asking price properties are selling for in your target home's neighborhood. 

Your agent can also brief you on the following:

1. The number of offers that have been presented on your property.  If there are other offers, you may want to make a higher offer to compete successfully, and
2. The number of days the home has been on the market relative to how long an average home stays on the market before it sells -- the longer it has been on the market, the more pressure is on the seller, pricewise, and the less competition the buyer is likely to have.  But one exception is the sweet spot scenario, when a property that has been on the market for a long time has a price reduction and gets a bunch of offers as a result.

• Step 4. How much do they need to sell or buy it?  Buyers, has the listing that you're interested been reduced at all?  By how much?  Has the listing agent informed you that her clients are highly motivated, flexible or have an urgent need to sell?

Sellers -- most buyers are not in a high state of urgency to buy these days, given the long-term, high affordability of homes and interest rates, except when they have an urgent personal reason for moving, for example, buyers who are relocating for work. 

• Step 5.  How much do you want to buy or sell the place?  This step is all about you -- what's your level of motivation?  Now, buyers, you certainly shouldn't offer a price way above what the price is worth just because you really, really want it, unless you have the cash to throw around.  But within the range of the home's fair market value, it may make sense to move higher within that range if you are highly motivated to get that particular property.

Sellers, think of your list price as the most powerful marketing tool at your disposal.  If you really want or need to sell, get aggressive about setting your price as low as makes sense for your home's value and local market dynamics to attract qualified buyers and help your home stand out against all the competition.

If you are thinking of buying or selling, please call Uletas Greene Carter today for a free market analysis (626-388-1500).  Licensed by the Department of Real Estate #01045375