Many buyers experience a great deal of anxiety when it is time to actually make the offer. Fortunately, making an offer on the home you want to buy in the Bay Area is not just a roll of the dice, and your real estate agent can help you find a price range and terms that make sense. While your agent will most likely be reluctant to give you a price, they will help you through this overwhelming step.
Before you submit an offer in writing, it is a good idea to find out why the seller is selling, if possible. Here are other pieces of information that can help you craft a strong offer in the Bay Area.
How much did the seller pay?
The price the seller paid for the home has virtually no bearing on today’s market, or the home’s value. Still, a seller who purchased the home just a few years ago in a down market with little appreciation should be asking close to their purchase price.
Look at square-foot cost averages
Keep in mind that smaller homes have higher per square foot costs while larger homes have lower square foot costs. This means you cannot just take the average square foot cost and multiply it by the size of the home to determine a reasonable price.
Days on the Market (DOM)
If homes in the area typically sell within 2 weeks, the area is probably in a seller’s market. If homes stay on the market for at least 60 days, it is probably a buyer’s market. The longer the home remains on the market, the less power sellers have.
What are market conditions in the Bay Area?
Are you in a neutral, hot or cold market? If you plan to make an offer in a buyer’s market, you will have less competition and the seller will probably be more receptive to any offer after some time on the market. If you want to make an offer in a seller’s market, however, the seller will probably not consider an offer below list price, and the seller could be entertaining multiple offers. This means your offer needs to be as strong as possible to win out.
How much does your seller owe?
Unless the seller is in default on their mortgage and going through a short sale, they will most likely not accept an offer for less than their mortgage balance and closing costs. If the seller has a very high balance and the home in the Bay Area is vacant, you can assume the seller is making payments out of pocket, most likely on two homes. If the balance is low, the seller may not be motivated to sell quickly and can afford to wait it out to get what they want.
Look at comparable sales
When you look at comparable sales, you should look at only similar homes in terms of age, configuration and location in the Bay Area.
Look at price-to-sales-price ratios
Ask your agent to show you a trend report of the last six months. Look at the prices of the homes that were listed and compare the list prices to the sales prices. Is there much of a gap? Are homes selling for under list price or above? If most homes in the Bay Area are selling for 4% under list price, this may indicate a number the seller will accept.
What Your Offer Contains
The price is not the only thing included in your purchase offer, of course, and this offer becomes a binding sales contract once it is accepted. Your purchase offer will include:
- Address of the home
- Sales price
- Terms (such as whether it is an all-cash offer or subject to you obtaining a mortgage)
- Seer’s promise to provide clear title
- Target date for closing
- Amount of earnest money you will include with the offer
- Method by which utilities and real estate taxes will be prorated
- Provisions about who will pay for fees and costs associated with closing
- Type of deed to be given to you
- State-specific requirements, such as seller disclosures
- Time limit after which the offer expires
There are two common types of contingencies in a purchase agreement:
- The buyer must obtain financing for the purchase or the contract will not be binding
- A satisfactory report by a home inspector after acceptance of the offer.