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What makes a good offer?

After sifting through multiple listings and attending many open houses, you’ve finally found the home of your dreams. Now it’s time for you to make an offer.

How do you determine an ideal price? What are you going to do in case there are competing offers?

When making an offer, it can be difficult to set your emotions aside, since it’s your new home that’s at stake. In order for you to have a better chance at landing a better deal, you need to view the transaction objectively.

Here are three factors to consider:

Current market conditions and inventory

Take a look at homes for sale in your area and find out if there are plenty of similar homes up for sale. Also take note of the length of time they stay on the market, whether they remain available for a single month or more on average. These signs indicate a buyer’s market, which will put you in an advantageous position at the negotiation table. You may want to make an initial offer below the home’s listing price.

If there aren’t a lot of similar homes and properties go into contract a week or two after they’re listed, you may be looking at a seller’s market. This means you’ll have to make an offer at least equivalent to the listing price.

While your realtor is usually in charge of gauging the local market, it helps if you’re also familiar with these factors yourself.

Length of time on the market

The length of time a home has spent on the market is a good indication of whether it is fairly or unfairly priced. For example, let’s say the average time it takes for most homes in the area to go into contract is one month. If the home you’re looking at has remained on the market for over two months, the seller may have priced it too high.

You may attempt to make a low offer on the home. However, this could also be a sign of the seller’s lukewarm motivation. A new listing with a reasonable price will likely need a full-priced offer immediately.

Competing offers

In a hot market, homes often receive multiple offers. This means that as a buyer, you may be facing not just home buyers like yourself, but also investors wielding “all-cash” offers. One way for you to gain advantage over competing buyers is to include an “escalation clause” on your offer.

This is how an escalation clause can give your offer an edge: Let’s say the home’s listing price is $300,000, and there are several offers on the table for it. You place an offer for $305,000, with an escalation clause to $315,000. If the home does not receive any higher offers, yours will remain at $305,000. If it gets a higher offer, then your offer automatically increases to the limit, placing it above the other one.

Before you place an offer, it’s always a good idea to get pre-approval from a mortgage lender. In a competitive market however, this step becomes imperative, as approval from a reputable lender will make your offer stand out.