The list price of any Chicago home is seldom absolute. The actual sales price that seals the deal could be well above, or below, the original list price. So, once you’ve found the right home, how much should you offer for it?
There’s no simple answer to this question. Every home is unique, and every home seller has unique motives and financial circumstances.
Generally, a home seller has a figure in mind that they’d like to see at closing. Prior to listing the property, their agent will have prepared a “net sheet” for them, estimating their closing costs and potential profit. The home’s sale price usually has to accomplish these things:
- Payoff of any outstanding mortgages or other liens
- Payment of closing costs related to the home sale
- Payment of the listing agent’s sales commission
- Sufficient profit to cover moving expenses
- Sufficient profit to provide a down payment on their next home, or fund another goal
Even though a home might be listed for a handsome sum, the net proceeds to the seller could be very modest, depending on their home equity and transaction-related expenses. Sometimes, a home seller invests in repairs, updates and new appliances before putting their home on the market, in hopes of drawing a top-dollar offer. In that case, they’re also hoping to recover some of that investment.
As the home buyer, you have no idea what the seller’s “wiggle room” is on the price, if any. In a hot market where bidding wars are the norm, you won’t have the luxury of experimenting with your offer and testing the waters.
Yet there’s no reason to overpay for the home! Educating yourself about local market conditions, with the help of your StartingPoint Realty broker, will give you a sense of direction. Here are some questions to consider:
In your target neighborhoods, is there an ample supply of homes for sale in your price range? Or is home inventory scarce?
Are homes in your price range and neighborhoods selling quickly? On the average, how soon do they go under contract after being listed?
What are average home sale prices in the neighborhood, based on recent sales comparisons? Are sellers getting their full asking price?
Next, when you’re looking at a specific home, consider these questions:
How long has the property been on the market? Homes that have been on the market for several weeks, or months, could signal a seller who’s ready to deal. Or, it could signal a seller who wants a price that the market won’t support. Or, the home may have an issue.
How long have the sellers owned the property? What was the last sales price? What is the home’s sales history? A home that is frequently on the market, with relatively short periods of ownership, could spell caution.
What kind of liens are outstanding against the home? What is the home value according to the most recent property tax assessment? None of this affects current market value, but it could tell you something about the equity the sellers have, and how motivated they might be.
Is the home priced fairly for its condition? Don’t assume the seller will adjust the price after the home inspection!
An understanding of local market conditions, combined with a little detective work through public records and MLS data, can give you a feel for how aggressive your offer should be.
If you’re competing in a bidding war and money is flying around everywhere, strategy might go out the window. But, at least you’ll know more about what you’re getting into, and whether or not it’s worth it!
StartingPoint Realty – expert guidance for first-time home buyers!
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Ryan Gable Broker/CEO Starting Point Realty
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