How much should you offer?

How much should you offer?

The short answer is this: Offer an amount you are comfortable and capable of offering, and be prepared to make your best offer.

This is a loaded question. No two properties are the same. No two markets are the same. No two buyers are the same. I am going to answer this question today in terms of the Cambridge and Somerville market that I work in. Since about the middle of 2012, the Cambridge and Somerville market has been hot, hot, hot. Average sale prices in both Cambridge and Somerville are over the asking price. Bid deadlines and multiple offers are very common. It's not unheard of for someone to bid $100,000+ over the asking price - and come up short. As I said - hot, hot, hot.

Okay, then. Back to the question. How much to offer?

Step #1 - Valuation analysis for the subject property

A good first step is understanding the value of the subject property. As a buyer's agent, I complete a valuation analysis of the property for my buyer client. Let's say the property is listed for sale for $500,000. My analysis might indicate

A) The property is underpriced
B) The property is priced at market value
C) The property is priced at a premium

Knowing how the property is priced can be helpful in terms of understanding what you are comfortable bidding. If the property is priced at a premium, is the property in premium condition? In a premium location? Have strong upside value?

Step #2 - Understanding your own situation and market conditions

Regarding your own situation:
Is this an investment property for you? (If it is, how much to bid is likely informed by an Excel spreadsheet analysis)
How long will I live in the property? What are my future plans for the property?

What's going on in the market right now?
What is the average sale price for like kind properties?
How many offers are expected on the offering?

Step #3 - Making a decision
Ultimately, you are going to have to make a decision regarding how much to offer. As an experienced buyer's agent, my role is to make known to you the relevant information so that YOU can make an informed decision and make an offer you are comfortable and capable of making. It's your offer. You own the decision. You make it.

It's worth noting here that there is no guarantee of a second round of bidding. That is, there is no guarantee you will get a chance to improve your offer. If you really want to secure the property, you are best served by putting your best offer on the table. If you do that and there is still a second round of bidding - or, for whatever reason, you are afforded the chance to further improve your offer - you reserve the right to disagree with yourself (:)) and make your best offer even better.

If you put your best offer forward and you do not secure the property, at least you know you made your best offer. It's a whole lot easier to sleep at night if you gave it your best shot. Either best shot wins or best shot falls short and you know you gave it your best shot.

Of course, an offer is about more than the offer amount. It's also about the contingencies. YES, way over the asking price, all cash, with no contingencies is the top of the mountain for the Seller. How high you climb up that mountain as the Buyer is determined by what you are comfortable with and what you are capable of. You will want to look at caarefully consider not only the amount of your offer but also the contingencies that are part of your offer. An experienced buyer's agent can help you arrive at the right offer for you.