Real Estate Blog

How Much Should I Offer?

This is a question that nearly every one of my clients who are buying a home asks me; and it’s a good one. As the professional from whom they seek advice and guidance, this is a question that I answer with knowledge and forethought. The answer isn’t a one-size-fits-all. It is based on several factors, the biggest of which is “what is the home worth.” That’s the real question, isn’t it? What is the home’s market value?

Market Value is generally defined as the price that someone is willing to pay for a certain item (in this case, a home). In order to determine what I feel my client should offer for a home, I look at the following:

• What are similar homes selling for NOW, or at least within the recent past.
• Does this home have any outstanding features that set it apart from the other homes that have sold or are listed? Upgrades, a pool, extra large lot, etc.
• Does this home need significant repair?
• How long has the home been listed for?
• How many homes are currently available in this neighborhood (that are comparable)? More inventory, lower value, generally speaking.
• How quickly are homes currently selling in the area?

Do you notice that I did NOT list “is this home lender owned, short sale, or individual sale.” In my opinion, that is more or less irrelevant. The selling party shouldn’t affect what the home is actually worth.

Some people say that you should offer no more than 80% (or %85, or %90), but that’s too simple. The percentage of asking price will be dependent on how close to market value the home is listed. If it’s listed under market value, then even offering full asking price may not be enough. On the other hand, if it is listed much higher than its worth, then even a “good” offer may not be enough if the seller isn’t reasonable about his/her home’s true value. In the end, the home must appraise for at least what you’re paying, or else the bank will not approve the loan.

So, in the end, how much you offer will depend on many factors, which you and your Realtor can discuss once you find the home that you love. If you would like to find a home in Peoria, AZ or anywhere in the general Northwest Valley, please call or email me today. I promise to be there not only to show you homes, but to guide you every step of the way! Have a great day! Visit me at http://www.azhouseagent.com

AWC stands for "Accepted (a contract) With Contingencies." The sale is contingent upon something else happening. If that "something else" doesn't happen, then the contract is dead. With a short sale, the seller can accept an offer, but the bank then reviews it and must approve the price. That is the contingency, bank approval. That's most of the AWC's these days. In a short sale, the owner still owns the home but it's heading into foreclosure. They are selling it for less than what they owe the bank and asking the bank to waive the balance due on the loan - selling it short of the amount owed. That's why the bank has to approve of the sale. On the buyer’s side the sale is not much harder, but it can take along time to get the bank to review the offer, sometimes even a few months. Not great, but most of the homes for sale right now are short sales. Once the seller has accepted an offer and the offer has been submitted to the bank for review, any other offers made will be in “backup position.” If the first offer falls through for some reason, then the next offer is submitted to the bank.

AWC-C - Contingent upon the sale of the buyer’s property. In this market, if you have to sell your home in order to purchase another, then you will likely not be able to buy a lender owned or a short sale. Banks will only accept offers from buyers who are ready to move forward. However, because a short sale can take so long, it is sometimes a good idea to start looking before you sell your home so that you have time to navigate a short sale. In this case, we put out a regular offer, and hope your home sells with the correct timing. It's a bit complicated, so let me know if you would like to discuss the timing of selling and buying a home in more detail.

AWC-O The home is under contract. The buyer may not purchase the home, but he/she has the “Option” to purchase it. Usually, this is someone who is renting a home with the option to purchase. While they have the option active, the owner cannot sell the home to another. Usually, the buyer has a written timeframe in which they have the option to purchase the property. Once that time expires, then the seller is free to offer the property to others.

AWC-I - Awaiting bank approval of the purchase price. This means the offer has been accepted by the seller and is now awaiting the bank’s review. Meantime, it is not a finalized contract, so the seller can continue to market the home and accept backup offers. This is by far the most common AWC right now. Buying a short sale home is not necessarily harder, but it does take some patience. If you have a short timeframe in which to purchase a home, you may not be able to consider the short sales.

How much cash up front do you need to purchase a home? It’s a good question, and the first one you really need to answer. Second question you need to answer is: Do I qualify for a loan? We’ll address the second question at another time. Right now, I just want to give you a VERY rough estimate of the amount of money you will need to have in cash, in order to purchase a home.

In order to get the best interest rate and avoid paying the extra monthly cost of mortgage insurance, you’ll have to put down at least 20% of the purchase price. On a $100K home, that would be $20,000. However, if you qualify, you can finance using an FHA mortgage and put down just 3.5%, which would be just $3,500 down payment on a $100K home. There are even some homes that you will need just 3% down, they are sold through FannieMae and the program is called HomePath. I’ll go over that at another time, or you can call me if you’re interested. Also, visit www.homepath.com.

In addition to your down payment, you’ll need to pay for a bank appraisal, a year’s worth of home owner’s insurance, a home inspection (optional but strongly recommended), and closing costs. Sometimes, we can get the seller to pay the closing costs but not always. It’s really a case-by-case basis.

I’ve outlined most of the basic costs you will incur up front to purchase your home. The first is with the seller paying your closing costs and the second number is adding those closing costs to your needs. Keep in mind, that if you are a first time home buyer, you will get an $8,000 Tax Credit next year, which is a good chunk of those costs back to you. Not a bad deal at all! It really is a great time to be a first time home buyer. Don’t assume you cannot afford a home. Save as much as you can and then talk to a mortgage broker to see if you qualify. If you don’t for some reason, he/she can give you advice on what you need to do in order to qualify in the future. Trust me, home ownership is well worth the sacrifice it takes to save up a down payment.