Buying a house is a big investment, and you don't want to pay more than you have to. If you have a mortgage, you'll be living with that payment for a while. It's tempting to offer a much lower price than the asking price, especially if the house you want has been on the market for a while, but there's an art to that.
Here’s what you should know before deciding just how low you can go.
Are you in a buyer's or seller's market?
Ask your real estate agent to explain the market conditions in your area. If the market favors sellers, meaning that there are less homes on the market than people want to buy, your potential home might end up getting multiple (above asking) offers. In that case, your offer is probably going to be thrown out without being considered. But if it’s a buyer’s market and homes aren’t selling that quickly, chances are better that your offer is going to be competitive, even if it’s below asking.
What about the comparables?
Whenever a house goes on the market, the real estate agent takes a close look at comparables, or how similar homes in the area are selling. So, if other homes in the area are selling for $200,000, you probably won’t get very far if you’re only offering $150,000. The seller is probably keeping a close eye on these, so make sure you try to stay within a good range of the comparable sales.
How long has the house been on the market?
If the house just came on the market, sellers are going to be more willing to pass up a low offer in hopes of something better coming up. Your real estate agent can help you get a better feel for how long the house has been on the market and how motivated the sellers are.
What are you willing to give up?
If you’re offering below asking price, chances are you’re going to have to make some concessions in other areas. Some, like paying for closing costs and not asking for a home warranty, will appeal to most sellers since it saves them money up front. But don’t forget that each seller has a unique situation. Talk to the sellers (or ask your real estate agent to check) and try to figure out what’s important to them. Do they need flexibility on the closing date? Would they rather not be responsible for filling in the pool? Or are they downsizing and want to leave their living room furniture at the house?
What else can you offer to make your bid more attractive?
Maybe you're willing to show your commitment to the sale by letting their attorney hold your escrow money. Maybe you're willing to let them stay an extra month to make moving easier. You might not want to ask for any repairs as a condition of sale. Whatever you can do to make your offer easier will help.
Ultimately, there's only one question you really need to answer:
Are you prepared to lose?
There’s a fine line between getting a good deal and losing the house altogether. So if this is the only house for you, your offer should reflect that. If not, then be hopeful, but have a backup option. And if your backup option is offering a higher price? You might want to consider going with that first, because some sellers will balk at a low offer and not want to deal with you at all.
As you prepare your offer, if you're working with a real estate agent, she can help you craft an offer that's more likely to be accepted. Your ultimate goal should be to walk away knowing you got a fair deal, and the right house!