How Much $?$ when Making an Offer on a House

Making and Offer on a House

Choosing the correct amount when making an offer on a house is the most important part of buying property. You need to balance how much you are willing to pay with what the seller will accept. Making an offer on a house can be really simple or really complicated depending on your position. In this article we will discuss the general things to consider first and then address Owner occupants and Investors separately.

General Things to Consider when making an offer on a house

When making an offer on a house you need to do a little bit of homework first. If working with an agent, they should be able to help you with most of this data. First, you want to determine the conditions of your local real estate market. Is it a Buyers market with a less competition or a Sellers market where you can expect others to be bidding against you? If the market is strong you may need to put a more competitive offer in to land the house you are wanting. Next, you want to examine the comparable sales in the area. You must compare properties in similar condition and use comps on similar condition properties. This is essential to getting an accurate number. An agent can provide you with the most recent comps but if you are working the numbers yourself you can get a good idea from Zillow. (Here is link to a Video we provide that helps you Determine the value of a home with Zillow). Finally, you want to determine the cost averages per square foot on the sold property in the area. After that most other things are irrelevant and probably should not weigh to heavily into your decision. Does the price the seller paid have any influence over the current value? How about the seller loan balance?

Making an offer on a House for Owner Occupant

I know you are thinking that you are paying a realtor to help you, shouldn’t they just tell you what to offer. While an agent’s role is to help you with the transaction it is not the agents purchase or his/her money, so you don’t want to blindly follow their advice. A good agent will provide you with enough guidance on what to offer and how to negotiate with the seller. They should provide you with the information above and you should take your time to look at the information and ask them if you have any questions. The final decision as to what you offer is up to you the BUYER not the agent. Most importantly, make sure you are comfortable with your offer and be ready to negotiate!

Making an offer on a House for Investors

Investors likely approach making an offer on a house a bit differently than an owner occupant. An investor should determine buying criteria ahead of time. What is your required ROI and property criteria? If the property fits your criteria, then its simply a matter of calculating the ROI you are seeking and offer based on that. Here is an Example :

We like to see a 25% cash on cash return or better. For simplicity sake lets assume we are paying all cash. If a property nets $1500/mo after all expenses your maximum allowable offer would be $72,000. ($1,500 x 12mos = $18,000 annually, we then take $18,000 / 0.25 = $72,000).
** Note: when financing a property your cash on cash returns can increase, but you must remember to use the net income

Remember as an investor you should detach emotion from your offer and be able to walk away from a property that does not make sense for your portfolio.

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