Everyone has read the story of Goldilocks and the Three Bears.  After doing a little breaking and entering, Goldilocks proceeds to try out the bears’ porridge (”too hot, too cold, juuuust right!”) and then gets a little sleepy and tries out the bears’ beds (”too hard, too soft, juuuust right!”)

That’s kinda like the way it is when home buyers place offers on houses they want to buy…or think they want to buy.

Too Low

This is becoming more and more common. Unfortunately, it is also becoming the least successful strategy for purchasing a home.

The idea here is that you find a home you like.  Sure, it needs some fixing up but it’s in generally good shape and the neighborhood is nice, the commute to work is tolerable and it might even be close enough to your favorite school and METRO. Now, you make the offer.  Everyone has told you it’s a buyer’s market — the media, your neighbors, your co-workers, even your Realtor. A buyer’s market means you get to name your price, right? You can go low, low, low and the home seller (or bank) will say, “Sure.”

Not exactly.

Even if the home seller has equity in their home and there is no danger of mortgage distress they may still have a mortgage to pay off.  If you go too low it may mean the home seller will need to approach the bank to see if they can do a short sale.  In other words, sell the house for less than what they owe the mortgage company.  The chance of that happening are between slim and none. Even if the home seller has paid off their mortgage, it doesn’t mean they’re willing to sell for pennies. I’ve worked with many a home seller that told me that “They weren’t going to ‘give it away’!” and they don’t. They take the house off the market and sit back and wait for the market to become more favorable.

End result: they don’t sell, the potential home buyer loses out on an otherwise fine home. Everyone loses.

If a bank is involved it becomes even more complicated because the bean counters at the bank just don’t care if the house sells today, tomorrow or sometime next year.  There are thousands of these types of homes on the market and this one is, well, just one.  It may be the one for the potential home buyer but, for the bank, it’s just another short sale or REO property that needs to slowly wind its way through the pipeline.

Too High

The “too high” offer is the one thing that strikes fear into the heart of every potential home buyer.  What happens if the home buyer places an offer on a house and the home seller says, “Sure” without blinking an eye. Doesn’t that mean that the home buyer offered too much?  Maybe they could have gotten it for less, gotten more closing help, points, whatever.

Maybe.

There’s an old saying about not looking a gift horse in the mouth.  Sometimes a home buyer hits the right amount the first time.  Maybe the house has been on the market forever and this particular offer is the third or fourth or fifth one and the home seller finally got the message that they are going to get what they wanted. Maybe the bank has a secret formula that tells them what price to sell it at under what conditions (financing contingencies, inspection contingencies, etc.).  Who knows?  There will always be a feeling of having paid too much if the home seller — whether it’s a real person or a bank — agrees too quickly.

My philosophy is this: if you like the house, the neighborhood and every other aspect about your decision to pick this house, you’re OK.  This is not some stock market pick.  This is a place you will live for the next few years…or longer.

Just Right

Wouldn’t it be nice if there was some magic formula or some special feeling you would get if you placed an offer on a house that wasn’t too low or too high?  My take is that this feeling comes at the settlement table when you get the keys.  Earlier than that the whole purchase process is filled with doubt and second guessing.

I can guarantee that “just right” is a different number for the home buyer than it is for the home seller.  Even if the home buyer offers full list price with no contingencies (a perfect arrangement for the home seller), the home seller may feel they listed the home for too little.  If the home buyer gets every concession and pricing request (a perfect arrangement for the home buyer), the home buyer will probably think they could have gotten more.

Getting the “just right” price is a balancing act that requires some experience and knowledge of the market. Even so, there may be a little guess work involved since it is impossible to determine exactly what the home seller is willing to sell their house for — not one penny less.  That’s where a good Realtor can come in handy (see upper right corner for contact info!). A good Realtor can get you the listing history of the particular house your looking at as well as the information about other homes in the neighborhood.

Working with an experienced Realtor to strike the right balance is important.  Give me a ring at 240-417-9100 or shoot me an e-mail.