How to Determine the Perfect Offer on a House in Any Market

A photo to accompany a story about determining how much to offer on a house Adobe Stock/Illustration by Next Advisor
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You’ve likely heard the horror stories: Hopeful homebuyers across the country are getting drawn into intense bidding wars that drive up prices and leave them disheartened.

If you’re a buyer in this red-hot seller’s market, how can you figure out how much to offer so you can snag your dream home without overpaying? A lot of factors go into coming up with your offer (not just the price), and most of those decisions can be made with the help of an experienced real estate agent

And while sellers might have the advantage in the market right now, that won’t always be the case. Here’s how to come up with an offer, no matter what type of market you’re buying in.

A Seller’s Market vs. a Buyers Market

What Is a Seller’s Market?

“A seller’s market essentially means that there are too many buyers, and not enough homes,” says Quen Williams, a realtor in Austin, Texas. “Sellers have leverage in negotiation,” she explains.

This means that buyers are competing with each other, while sellers hold a lot of power to choose the offer that works best for them.

What Is a Buyer’s Market?

“A buyer’s market is when there is way too much inventory out there and buyers have lots of options to choose from,” says Phillip Salem, a licensed real estate salesperson at Compass. “The buyer has the upper hand in the situation,” he says.

Because sellers aren’t receiving as much interest in their homes in a buyer’s market, they might be more willing to negotiate. This could mean taking a lower price, or being more flexible on other parts of the deal, such as working with the buyer’s timeline or paying for some or all of the closing costs

How to Bid in a Seller’s Market

Coming up with a bid in a seller’s market is a fast-paced, potentially stressful process. But here’s how it should go:

  1. Get your finances in order. Before you even start looking at homes and coming up with offers, talk to a mortgage lender and get pre-approved for a loan. This both gives you an idea of how much you can afford to spend and will make your offer more competitive. “Every other buyer already has that [pre-approval] in place, and time is of the essence,” Salem says.
  2. Know what your boundaries are. Use your pre-approved loan amount to determine the range you’re willing to pay for a home, and don’t go over that number. “That adrenaline of these bidding wars becomes its own thing,” says ​​Kerry Melcher, a Realtor and head of real estate at the digital real estate company Opendoor. Stick to your budget no matter how intense the bidding becomes.
  3. Look at other recently sold homes in the same neighborhood. Your agent should provide you with similar, nearby homes that have sold in the last three months. These will give you an idea of what a home is worth, and how much you should pay for it. “An agent should always provide the historical [comparisons]. If they don’t, they’re not doing their job,” Salem says.
  4. Have your buyer’s agent talk to the seller’s agent. That will help you understand what other offers may be on the table, and then you can decide if you want to bid higher, Williams says.
  5. Make your offer. In a seller’s market, bidding at or above listing price is almost always a good idea, experts agree. It will show the seller you’re serious, and could put you above other offers on the same home.

How to Bid in a Buyers Market 

In a buyer’s market, the power dynamic is the exact opposite: Buyers have the leverage and sellers are more willing to negotiate. You’ll still want to start by getting your finances, pre-approval and boundaries in order. When you’re ready to start house shopping, you can take these steps:

  1. Do some window shopping. Because there’s more inventory and less pressure in a buyer’s market, Salem suggests taking a casual look at a lot of properties to get a sense for what you like best, and what you can afford.
  2. Choose a property to make your offer on. There may be multiple listings you like, but go with the one that makes the most sense for you, and start formulating your offer.
  3. Look at both recently sold homes and current listings.  For example: A similar home may have sold for $300,000 a few months ago, but if homes in that neighborhood are now listed closer to $275,000, that may be a signal that prices are headed downward, says Melcher.
  4. Consider aspects of the offer besides the offer price. “In a buyer’s market, you can get everything,” said Melcher. That means not just a favorable price, but also a closing timeline that works for you, and other concessions that might make the deal more appealing for the buyer.
  5. Make your offer. In this type of market, you can start by offering $20,000 or $30,000 less than asking price, if the comparative sales support it. But be careful not to go too low, or you risk offending the seller. “Sometimes buyers get unrealistic,” Salem says. Even in a buyer’s market, the seller may still have other options like renting out the property or taking it off the market altogether if they’re not desperate to sell. 

Consider the Seller’s Point of View

In both types of markets, you should think about what the seller’s priorities are. Sure, they may want the best price for their home, but they may also feel sentimental about selling and want to see it go into caring hands. Or, they might be in a rush to sell and be willing to take a low price for the sake of speed. 

Pro Tip

The price isn’t the only part of your offer. Work with your agent to make other aspects of your offer attractive, too.

Just don’t get too carried away with this, experts warn. “I always say, if my buyer is a little unrealistic, put yourself in the seller’s shoes,” Salem says.

If your offer is too low, for example, a seller might decline to respond to it and take you out of the running for the home. Or, if your offer has too many strings attached, or you need too much time to close, that could also turn off a potential seller.

“The buyer always wants to save as much money as possible while trying to win the offer, but sometimes they get a little lost in what they want and not what the sellers want,” Williams says.

Only Offer What You Can Afford

It’s easy to get swept up in the emotions of home buying, no matter the type of market. Remember, however, that you’re on the hook for paying for this house, so don’t offer more than you can realistically afford.

“If you overpay, that can actually be quite difficult for you for a number of years,” Melcher says.

A lender can help you understand what you can afford (and how much they’re willing to lend you). You can also use a mortgage calculator to see how much your monthly payments would be with a specific loan value and interest rate. One good rule of thumb: Your mortgage payment shouldn’t be more than 28% of your monthly pre-tax income, and 36% of your total debt.