Once you find a home you want, the big question arrives: how much should you offer? No formula produces the perfect number, and the list price is only one piece of information. A thoughtful offer comes from combining several clues with your own budget. Here is how that process generally works.
Start with comparable sales
Your agent will usually begin by pulling recent sales of homes similar to the one you want, often called comparables or comps. The best comparables are nearby, similar in size, age, style and condition, and sold recently. Your agent will also look at homes currently listed or under contract, since those show what other buyers are seeing right now.
No comparable is identical, so the next step is adjusting for differences. A comparable with an updated kitchen, a larger lot or an extra bathroom likely sold for more than the home you are considering would without those features, and the reverse is also true.
Read the market around the home
Comparable sales tell you about value. Market activity tells you about competition. Useful clues include:
- How long the home has been listed compared with similar homes nearby
- Whether the price has been reduced
- How quickly similar homes have been going under contract
- Whether the listing agent mentions multiple offers or an offer deadline
- How comparable homes sold relative to their list prices
A home that just hit the market in a busy season may draw several offers. A home that has sat for a while may leave room to negotiate. Your agent can interpret these signals in the context of your local market.
Factor in condition and the seller’s situation
Think about what the home will need. A roof near the end of its life, older heating and cooling equipment or a dated kitchen does not make a house a bad buy, but it may affect what you are willing to pay. If you have an inspection contingency, the inspection may lead to further negotiation, so your first offer is not your only chance to account for condition. Still, visible issues can reasonably shape your starting number.
Price is also not the only thing sellers care about. Your agent may learn whether the seller needs a quick closing, more time to move or a buyer with fewer contingencies. Meeting those needs can sometimes make a lower offer more competitive than a higher one with difficult terms.
Know your own limit
Before you write the offer, decide the most you are willing to pay, based on your budget and the home’s value to you, not just what you are approved to borrow. If you offer more than the home appraises for, you may need to cover the difference in cash or renegotiate, depending on your contract. Setting your limit ahead of time keeps excitement from making the decision for you.
The right offer is one you can stand behind whether it is accepted or not. Data from your agent, a clear-eyed view of the house and an honest budget are the three ingredients that get you there.
A Step-by-Step Approach to Your Number
Pulling the clues together into an offer is easier with a structured conversation. Many buyers and agents work through something like this:
- Review three to six of the best comparables. Look at photos and descriptions together, not just prices, so you can judge how similar they really are.
- Discuss adjustments. Note where each comparable is better or worse than the home you want, such as size, updates, lot or condition.
- Arrive at a value range. Rather than a single number, settle on a range that reflects what similar homes have sold for.
- Layer in competition. Consider days on market, any offer deadline and how quickly similar homes have sold.
- Consider condition and costs. Factor in visible needs you would have to address soon after closing.
- Check your budget. Make sure the number fits the limit you set before you started looking.
- Decide on terms. Choose your earnest money, contingencies and closing date to complement the price.
When Comparables Are Hard to Find
Some homes do not have many close comparables. That is common with properties on acreage, unusual designs, homes with significant outbuildings or houses in areas where few sales have occurred recently. In those cases, buyers and agents often:
- Widen the time frame or the geographic area, and adjust more carefully for differences.
- Look separately at the value of land and the value of the house.
- Consider pending sales and active listings to understand current competition.
- Think about how an appraiser might approach the same challenge, since the appraisal will need to support the price for financed purchases.
The fewer the comparables, the more judgment goes into the number, and the more important it is to stay within your own limit.
Common Mistakes When Choosing an Offer Price
- Anchoring on the list price. List prices are set by sellers for many reasons. The comparables matter more.
- Relying only on online estimates. Automated values cannot see condition or recent updates and can be well off for an individual home.
- Using old sales in a changing market. A sale from many months ago may not reflect current conditions.
- Bidding against yourself. In a quiet market, a very high first offer can leave money on the table. In a busy one, a lowball offer can lose the home.
- Overlooking the cost of time. Losing a home you love over a small gap may cost more in rent, stress or a missed opportunity than the difference itself.
Questions Buyers Ask
Should I offer below asking on every home?
Not necessarily. In some situations a below-list offer is reasonable. In others, it is unlikely to be competitive. Your agent’s read on comparables and competition should guide the decision.
What is an escalation clause?
Some offers include terms that automatically raise the price by set increments above competing offers, up to a cap. They are not used everywhere and can have drawbacks. Ask your agent whether they are common and appropriate in your market.
What if my offer is rejected?
The seller may counter, or you can revise your offer if you still want the home. If the gap is too large, it may be a sign to keep looking.
Whatever happens, keep the comparables and notes from each offer. They build a clearer picture of the market with every round, and they make your next decision faster and more confident.
