How Much Should You Offer on a House?

In home-buying television shows, the decision about how much to offer on a house always looks quick and easy. In real life, there’s a lot that goes into it. If your offer is too low, you might risk insulting the seller and getting a rejection before you can adjust your offer. If you bid too high, you might be overpaying. In a competitive market, putting in the right offer is critical; you won’t have time to reconsider the figure before another buyer snaps the property up.

So what home offer strategy should you use in your situation? What are the key variables that play a role? Understanding successful strategies is the key to getting the home you want at a fair price.

Factors Affecting How Much to Offer on a House

Before bidding on a house, gather some information about the market and the property you want to buy. Here are the main variables you should consider:

Market Conditions

Is it a buyer’s market or a seller’s market in your area? In a buyer’s market, inventory outstrips demand, and you can get away with offering under asking. In a seller’s market, inventories are much lower, and there’s more competition for real estate. If you’re bidding on a house in a seller’s market, it’s better to go in at full price or even slightly above.

Consult with your real estate agent about how much to offer on a house in each of these markets. In general, don’t go below 10% of the list price, and only in a strong buyer’s market. Although you want to get the best price possible, you don’t want to risk annoying the seller and having your offer rejected on that basis.

List Price of the Property

When you’re figuring out how much to offer on a house, compare the list price with the fair market value. For this, you will need to perform a comprehensive market analysis. If you’re working with a real estate agent, they will provide one for you. A comprehensive market analysis looks at comparable homes in the area to see how much they ultimately sold for.

Time on the Market

A home that’s been sitting on the market for a while might be priced too high or might have features that make it less desirable. The sellers might be amenable to a lower offer, even in a seller’s market.

Competing Offers

For a particularly desirable property that is well priced, there could be multiple competing offers. If that’s the case, you should come in strong with a competitive bid and few concessions.

Your Budget and Pre-Approval Amount

Before you decide how much to offer on a house, get a mortgage pre-approval. A pre-approval will give you a good sense of how much you can afford to spend and put you in a stronger negotiating position. A seller will be less concerned about accepting an offer from a buyer who has a pre-approval.

When to Offer Less on a House

When does it make sense to offer below asking, and how much less should you offer on a house without risking offending the seller?

As discussed above, offering below asking is common in a buyer’s market or when sales are otherwise depressed. However, there are other situations when it makes sense to go lower, such as when the house is overpriced compared to comparables, when it needs significant repairs, or when it’s been on the market for more than 60 days.

If you can make significant concessions, such as a cash offer or a quick closing, you can also use that as justification to make a lower offer.

Be advised that you still need to be diplomatic and tactful when making an offer that’s below asking. Real estate transactions can be emotional, and A lowball offer can easily backfire if it’s not handled correctly. Work with your agent to frame the offer as reasonable, using data to back that up.

How Much Lower Should You Offer on a House?

Since it’s a negotiation, it makes intuitive sense to offer less than the list price for a home, but that’s not always wise. In a hot market, you could easily lose out to the competition with a lowball offer, or even one that’s slightly below the asking price. Depending on your budget, this type of market requires offers at or above asking.

In a neutral market that doesn’t favor either buyers or sellers, you can get away with offering 1% to 3% below asking.

In a slow market, you can go up to 10% below asking, but do your research in advance. Going into the negotiation with data about comparables and needed repairs will put you in a stronger position.

Structuring a Strong Offer

Price is only one component of a good offer. When you’re thinking about how much to offer on a house, also consider these elements of your bid:

Closing Timeline

Even if your offer is not the highest one that a seller receives, they may be looking for a particular closing date. Your offer is more likely to be accepted if you’re flexible. If the seller wants to close quickly, there’s a lot of value for them in a buyer who can close in 30 days.

Concessions

In a seller’s market, you can consider waiving certain concessions such as financing and the sale of your current home. Weigh the pros and cons of these options in consultation with your real estate agent.

There’s often pressure in fast-moving markets to waive the home inspection. This is a difficult choice and one that shouldn’t be entered into lightly. Again, your real estate agent can help you evaluate this part of your home offer strategy.

A Personal Letter

Although it’s not a requirement, it doesn’t hurt to include a personal letter with your offer telling the seller about you and why you’re interested in their home. Make your note as heartfelt and authentic as you can. Run it by your real estate agent beforehand to make sure the tone and content are appropriate.

How Much to Offer On a House?

How much to offer on a house is a complex decision. Understanding the market is the first step to getting it right, but keep your budget and your long-term goals in mind. Work closely with your real estate agent for advice and guidance; a good agent will help you set the right price and put together a great offer.