Leigh Anne Monk: Once you’ve found the home that’s right for you and you'd like to make an offer on it, one of the most important components of that purchase offer will be the price that you would like to offer for that home. So in this segment we are going to discuss that very key component and how working together with your agent you can determine the best offer price. Mark, how does the agent help with that?
Mark Wozniak: One of the first and most important things that we do is when you've finally found that home that you want to do some analysis on and find the correct offer price is to determine what’s the true market value of that home. And the way that we do that is we, as the real estate agents, will compare that home to other homes that are similar to it that have sold in the area and these are known as comparables or comps.
Part of what we are trying to do in that process is to take a look at that home almost the same way that an appraiser would, which is comparing it to homes that have recently sold that have sold in the surrounding area and that have similar characteristics with the home that you’re interested in and potentially in purchasing. So we’re going to bring all those statistics and get an understanding of, from a market’s standpoint, what the market value is for that home.
So that’s the first step but that may or may not be the price that’s right for you. And what I mean by that is maybe this house has just been recently listed and it has a lot of interest in and there’s a whole lot of traffic in it. So because of that traffic and interest there is a supply and demand issue, of course. There is only one home and a lot of people in it so you may decide that it’s worth going a little bit above that market value to try and win that purchase offer on the home.
Leigh Anne Monk: To secure the offer in your favor, right?
Mark Wozniak: Absolutely. On the other hand it may be a situation where this home is the home that is right for you, but it’s one you want to try to get for below what the current market value is and you’re willing to take that risk knowing potentially you’re going to lose it if another offer comes in at market value. But we need to look at these variables and together decide, "Well here’s the market value, but what’s right for you?" A question that I often ask is, "Do you really want this home?" and "How important is it to get this home?"
That will also determine the amount of risk you’re willing to take in putting that offer out there knowing that a) if it’s not the right offer it can get flat out rejected and you sort of lost your chance at bat or that 2) someone else comes in, in the meantime, with a better offer. So this is part of another incredibly important service that the agents give and a lot of times it is working through the agent’s experience that helps them advise a little bit on where to go relative to that market price on the home.
Now there is another thing for you to consider which is the price that you offer actually has to work in conjunction with another part of that purchase offer called a seller subsidy. Seller subsidy is how much the seller might be willing to contribute to your closing costs for the home. And it’s that offer price of the home together with the seller subsidy - both of those come together to determine the net price from the seller’s perspective that they’re offering on the home.
Leigh Anne Monk: And to be honest that is really the key price for the seller you could offer a great price but if you ask for 10-15 thousand dollars worth of subsidy that actually gets subtracted from that offer price so the net number is what they really care about.
Mark Wozniak: Sure. So just to use a quick example, if it’s a home that was worth four hundred thousand dollars but you were also asking for a subsidy of say ten thousand dollars for the closing costs. from the seller’s perspective that is actually an offer of three hundred and ninety thousand dollars. That's four hundred minus the ten. That’s a number that we’re going to keep a close eye on because it's really that three hundred ninety thousand in my example that’s going to be the important number to the seller.
One of the things to take into consideration as we were talking earlier about the home that maybe had a lot of traffic on it, a lot of interest and you want to get the home at a certain price but you don’t want to risk losing the home in case other offers come in a little bit higher. There is a strategy we used is called "putting in an escalation addendum on your offer," which means, "I am going to offer this price but if a another offer comes in higher and they can demonstrate that that offer is real and came in higher that I’d be willing to jump over it up to a certain price." And you put a maximum on that almost like an Ebay bid, if you are familiar with that.
So there are some strategies that we can use to make your offer price in some way variable with an escalation addendum but again you’d only want to do that if you’re in a situation that you think is highly competitive and you just don’t want to risk losing that home. So these are just some of the many things that we consider when trying to determine the offer price on a home.
Leigh Anne Monk: And I think you put all those things together along with - in another segment we’re going to talk about all the other components that go into writing a purchase offer - but the price is the key one and now that we have this discussed we will be discussing in a future segment the other actual component of writing a purchase offer.