Although it may not seem like it while you’re knee-deep in the North Oaks house-hunting process, the day will come when you find the perfect home and decide to make an offer to purchase. Before you commit, there are a few things to consider:
- The average monthly utility bills and maintenance costs may push your budget over the limit if you are buying at the top of your approval range.
- Is the house priced properly? I’m happy to crunch the numbers to determine the home’s current market value and the percentage of list price that homeowners are realizing in the current market. This way, you’ll have a better idea on how much to offer.
- Is the home located in a floodplain? If it is, your lender will most likely require you to buy flood insurance, which adds to the cost of the home. The average premium in Minnesota for a homeowner’s policy is about $663 a year. This breaks down to a little over $50.00 per month. A buyer who is purchasing at the loan limit may find the monthly cost prohibitive.
How Much to Offer
If you’ve ever spent time in Mexico, you probably think you’ve honed your negotiating skills to a fine point. Bargaining down the price of a nicknack, however, and negotiating the price of a home couldn’t be more different.
Let’s take a look at some things to consider when determining how much to offer on the house:
- The market – Is it a buyer’s market or a seller’s market? Remember: in a buyer’s market, you are in the driver’s seat. In a seller’s market you’ll need to come in clean, with your highest and best offer.
- Market value – Is the home overpriced? What percentage of the asking price are sellers realizing at the close of escrow? Answers to both of these questions help determine an appropriate offer.
- Concessions – Take into account any concessions – such as new carpet or closing costs – the seller is offering.
- Condition of the house – A turnkey house deserves an offer close to asking price, whereas the buyer of a house that needs work deserves a price reduction.
- Expected appreciation – This is something many buyers don’t consider in their rush to nail down what they consider the home of their dreams. It’s important to understand that someday you’ll sell the home. How much will it be worth?
Next week we'll break down the purchase agreement and point out the things we'll want to pay close attention to.
Excerpted from "Home Buying Made Easy," by Kris Lindahl, 2013. All rights reserved.