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Asking Price and Bid Price

So many factors go into selling a home and the asking  price the home will be listed for on the market.

Setting the asking price

How do sellers set their asking price when listing their home for sale? The listing price of a home is the “asking price”, also known as the sales price of the home. This price will either draw in perspective buyers or have buyers look past the property.  

The selling market trend will have a huge impact on the asking price of the home along with any home updates and seller incentives being offered.

How much can they ask for? The internet is flooded with home valuation tools, there are pros and cons to using these automatic calculators.  The calculators will ask for some specifics such as; Real Estate agent fee (the fee charged for working with a Realtor to list and represent you during the selling of your home), Seller concessions ( closing cost the seller of the property is will to pay on the behalf of the home purchaser), estimated cost of repairs on the home, and the big one MORTGAGE PAYOFF.

Sites like Opendoor, NerdWallet.com, and Redfin.com. A realtor will use comparative market analysis and a professional appraisal will provide the most accurate valuation of your home.

Influencing factors

Sellers need to establish realistic expectations for listing their home. The factors that will have an influence on the home’s value will be items such as, home size and age, location and local market conditions, comparable homes that have sold recently, current interest rate, economic conditions, completed renovations and needed repairs.

Not all home sellers will offer to have repairs done prior to the house being sold. Some homes may be listed, “As Is”.  A home buyer may be able to use the “As Is” condition as  wiggle room to offer a lower price on the home in some situations.

In a Sellers market home buyers will notice home prices are higher and there is not much room for price negotiations. The opposite takes place in a Buyers Market, buyers are able to negotiate prices,seller concessions, and home improvements with more ease.

Interested Buyers

Home buyers will offer a bid or offer price against the asking/listing price. Average offers need to exceed at least 1% to 3% over asking price to be considered competitive. However, in Colorado’s recent housing market offers have reached as much as $90,000 over asking price in some cases.

Over bidding against Appraised value

Home buyers will bid(offer) above asking price because they want to better their chances in buying the house from the homeowner. However, be cautious about overbidding if the home does not appraise for the offered price because banks will not lend for the bidding offer.

The bank will only lend up to the appraised value leaving the difference for the buyer to pay the remaining offered price using other financial means such as cash.

Inflated home prices are a result of high demand and low supply. The housing bubble is caused by a variety of factors including rising economic prosperity, low interest rates, wider mortgage product offerings, and easy access to credit.

Working with a buyers realtor will help you understand the current market trend in the neighborhoods you are interested in purchasing a home in. Your realtor will discuss with you what homes are appraising for and what homes are received cash offers to meet the purchase offer.

Your Broker and your offer

Any bubble is temporary, the purchase price of a home should not leave the buyer house poor or put them in any other financial strain lowering the financial quality of life. Buyers need to speak with their broker, the broker will evaluate their purchasing power and the best strategies to use if they may need to over bid on a home offer.  

Pre approvals for a home loan lets the future home buyer know what is the most the bank can lend on behalf of the borrower/buyer. The borrower can choose to spend the full amount or just a portion of the offer credit line. Buyers will need an approval letter when making an offer on a home. When making offers in a Seller’s Market the buyer and lender will need to move fast to issue an approval letter to the seller.

Continued communication between buyer, realtor and broker should be a practiced strategy for a successful buying experience.

A higher than customary earnest money deposit can sometimes impress sellers when there is a bidding war. Offering an “Escalating Bid”, can also be attractive to a seller. Escalating bids offer and additional stated dollar amount to any bid that out bids the buyers original offer. Example. Buyer 1 bids $380,000 with an escalating bid of $10,000 if a competing buyer offers more then the $380,000.  

When using the escalating bid method the buyer must keep in mind the bank loan will only be available up to the lesser of the two amounts;  the approved loan limit or the appraised value of the property.

Too Much House

What if the credit line is more then the buyer wants to spend? Being approved for a home loan larger than what you need is a very intoxicating self-esteem boost. Some home buyers may choose not to max the approved purchasing limit.

Home buyers who choose not to max their purchasing limit do so for many reasons. The new home may be their 2nd or 3rd home and the buyer is looking to downsize their living space.  The new home may not be their forever home, the buyer is looking to own the home less than five years. Some home buyers want to spend quite a bit of time traveling and choose small mortgages allowing for a larger cash flow to go towards extended vacations.

These savvy buyers will show approval letters for the amount being offered on the prospective purchase home and seen as a low risk to underwriting.

Summary

Now as an educated buyer you can feel more comfortable when going up against the asking price with your bid price on a home. Put some time aside to do your homework and research the market trend for the neighborhoods you are interested purchasing your future home in. Speak with your broker about the best method for you and your purchasing power if over bidding may arise.

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