Top 10 Questions Buyers Ask: #7

24 05 2011

#7. How much should our inital offer be?

This is an interesting question to answer because it depends on a lot of variables. Is there a certain amount you should offer initially to start the negotiations? What is the market telling us how much this particular property is worth? Some clients ask me if there is a rule of thumb of how much lower they should offer from the listing price.

We need to look at a few variables.

First, you look at most recent comparable sales of similar units. Depending on how much better or worse the subject property is (compared to recent sales), you need to decide how much the property is worth to you. Market value is the price the market (buyers) are willing to pay for that particular piece of real estate. A lot of people from the suburbs might not understand that a condo for sale in Toronto could cost as much as a freehold detached home in Mississauga. So you need to look at the most immediate area and the comparable sales that have occured most recently. Does the subject property have more upgrades and other features/amenities/views that are better than comparable sales? The market determines how much a certain property is worth. The list price (asking price), can be set low or set high, so you need to have a realtor who will do their job in finding out if you’re paying too much or if you’re getting a steal, instead of just getting a sale at any cost to you.

Depending on the time of the year or how much activity is going on in the market, if it’s in a hot market, you might encounter a multiple offer situation. That changes how you approach the offer table. If you’re in a multiple offer situation, there isn’t much negotiation room for you as a buyer. The ball is in the sellers court. The best way to handle it, if this is the house of your dreams, is to put your top dollar, with minimal conditions put in (make sure your agent is still protecting you). When you take out conditions, depending on the property, you might want a home inspection (for Freehold homes), or a status certificate (for Condominiums), and depending on your financial situation, you might want to keep the financing condition in the offer. Sellers in a multiple offer situation would want an offer with minimal to no conditions, but that is definitely not a beneficial situation for a buyer to be in.

A lot of my first time home buyer clients want a deal on their purchase, well, who doesn’t? Either way, when you are in negotiations, perhaps you might feel like the sellers are unreasonable on their price (which may or may not be the case, refer to above). Let’s assume that it’s a little over the most recent comparable sales, if you think about it, you’re looking to buy a piece of real estate for a large sum of money. $250k, $400k, $650k? If you’re planning to live there for the next 3-5 years minimum, a couple thousand dollars in the negotiations shouldn’t be a deal breaker. If it’s got what you want, location, size, layout, features, etc, it might be worth it to you to meet the seller’s offer (be it the asking price or counter offer, etc).

Having said that, please consult with your realtor, and if you don’t have one, remember: Steven Ho is in the House!!

Feel free to contact me at anytime.

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