Should You Offer More Or Less Than Asking Price?

Making an offer on that amazing house you just found requires some strategic thinking. There's almost always some negotiation involved and a little knowledge can help you come up with a good offer. The advice of an experienced real estate agent can prove invaluable during this step. Here's what you need to know to make a great offer and help get you in that new home you've been dreaming of.

Market conditions matter

Current market conditions are the biggest factor to consider in your offer. In a buyer's market, there are plenty of houses available and buyers have more negotiating power. Sellers are usually more flexible since they aren't getting as many offers and houses often take longer to sell.

In a seller's market, there are lots of buyers and not as many houses available. There is more competition among buyers and homes sell faster. Sellers are likely getting multiple offers and buyers are willing to pay more or negotiate less. It isn't unusual for homes to sell above the asking price.

When to offer asking price or higher

There are factors other than the current market conditions that determine what kind of offer you can make. These are some instances where you might be offering more than the asking price.

• You're competing with multiple offers. If they're willing to offer over list, you may not have a choice. In this situation, you might be competing with cash offers and buyers who are willing to waive contingencies too. You'll likely have to find other ways to make your offer stand out as well.
• It's absolutely THE house. How much do you really want it and are you likely to find another home you love? If you've been looking for a while or are desperate to get in a home, a higher offer can let the seller know you're serious.
• It's a newer listing. When a listing is new, it's unlikely the seller would immediately lower their price. You'll probably need to offer at least list price.

When a low offer could work

Everyone wants a good deal, and there are times when a low offer can get you exactly that. The offer shouldn't be so low that the seller is unwilling to negotiate. You're still getting a deal if they counter with an offer above yours but below list. As a general rule, an offer of 20% - 25% below asking would be the bottom limit, and few sellers would accept that. But there are situations where low offers can pay off.

• It's an older listing. Most sellers don't want their house on the market indefinitely. If there hasn't been much interest, they'll be more likely to accept a lower offer.
• Look at the comps. If the comps indicate the house is priced high or one with more updates sold for $10,000 less than what they're asking, you have a good argument for a lower offer. 
• You're paying cash. All cash offers are usually significantly lower since they have a lot of benefits for the seller.
• The house needs major work. Fixer-uppers aren't necessarily a bad thing, as long as you know what you're getting into. A low offer is appropriate to help offset the cost of major repairs.
• The house needs minor updates. If comps in the neighborhood are updated, and the property you're looking at isn't, you may be able to make a slightly lower offer.

Making your offer appealing is important and that starts with the price. Understanding how different factors affect your offer can help you work with your real estate agent and get you into that new home.

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