So you’ve found the condo of your dreams. You’ve visited a couple of times, you’ve checked out the Association and you’re sure: this is the one you want. It’s time to put down an offer. While the process is straightforward, deciding the amount you want to offer can be a bit more complex.
Have a pre-determined ceiling. Before you start the process, figure out how much you can afford to pay and don’t go above that amount. And keep in mind that your first offer is almost never the amount you end up paying – your first offer is a starting point, from which you’ll negotiate up.
Consult with your realtor. Your agent has been in the business longer than you and can give you a lot of good advice, including answering questions about comparable properties, the market, the list price and (sometimes) if there are other bidders on the property. When you make an offer, go through your realtor.
Your credit rating counts. Being pre-approved and having good credit can be the difference in getting a place and not getting it. Why? The seller wants to be sure that the deal won’t fall through – and if you have bad credit or are unable to put down twenty percent, you’re at larger risk of being unable to secure a proper loan. So, sellers look for reliable buyers and, if someone is able to pay for the entire condo in cash – that person will get the deal.
What did comparable properties sell for? This is of paramount importance. Your realtor will pull up comparable properties (comps) in the neighborhood that sold within the last three months or so. What prices were they selling for? Is there a trend? If you were told you were buying a random decent-quality condo in the neighborhood, what would you say would be a fair price?
Now, consider the listing price on the property you want. Compared to recent sales (and current listings) in the neighborhood, does the listing price for the property you want seem high, low or about right? (Keep in mind that it’s customary for the listing price to be a bit higher than the final sale price.) If the listing price is higher or lower than you’d expect, is there a reason?
Often, the listing price reflects the seller’s personality. Sometimes a seller just wants to sell and doesn’t like to negotiate. In such a case, the listing price will likely be what you’d expect to pay for the final price. In this case, don’t expect much negotiation, and make an offer near to the listing price. On the flip side, some sellers want to see how much they can get – and so they significantly overprice their property, expecting to slowly negotiate down from lofty heights. In such a situation, you need to make an offer much lower (within reason) than the listing price.
Consider the market broadly. How quickly are condos selling in this neighborhood and town? Have prices been going up or down? In a tight market, where prices are rising and units are only on the market for a week at a time, you’ll want to make an offer much closer to listing price than a slow market, where units take months to sell. It’s simple supply and demand: if other people are ready to snap up what you don’t get, you’re going to need to be more aggressive.
How long has this specific unit been on the market? Has it been on the market for two months or two days? If it’s been on the market for two months, either the unit is mispriced, the seller is incredibly hesitant or the broader market is very slack. Figure out which it is, and act accordingly.
Are there other bidders? Often, your realtor will speak to the listing agent and tell him or her that you are going to put down a serious offer soon. At this time, the listing agent will usually tell your realtor whether there are other bidders or not. With other bidders, you need to consider putting in an offer that’s close (but still below) the listing price. You don’t want to get outbid, and the bidding process is secret.
Put together an informed offer. Don’t lowball someone just to lowball them – if you’re serious, you’ll put down a serious offer. Your realtor should make a packet that includes the prices of comparable units and offers your reasoning for why your offer is a fair price. You can certainly make an offer far lower than listing price – but you need to have concrete reasons why you did so.
Get ready to negotiate. It’s rare that an offer is accepted without a little bit of dickering. Usually, your first offer will be met with a counteroffer. This is normal. With the counteroffer in hand, talk to your realtor and come up with a price that you think is fair. Usually, the amount that the seller comes down on the counteroffer is a good guide to how willing they are to lower their price. Consider this when you make your next offer.
Beware a bidding war. If there is another person or persons interested in the property, the seller will try to get the two of you to bid off of each other. For obvious reasons, this is great for the seller and not so great for you. While there’s nothing inherently wrong with a bidding war, don’t let yourself get carried away. In other words, stick to your pre-determined price ceiling and beware the Winner’s Curse, which can lead to the associated Buyer’s Remorse.
Remember, there will always be more properties. If you lose out on a property for whatever reason, don’t despair. It’s far more important to pay the right price for a good place than to get a place right now. The real estate market is constantly churning and, with some patience and dogged searching, you’ll find your place, even if it does take a little more time.
Because the co-op board has the final say on whether you get the apartment or not, you also need to be tuned into their usual practices. Ask your broker’s opinion about your offer, in order to make sure it will not only get approved by the seller but also by the board. Some boards will not approve a sale at a real lowball price because it depresses the building’s comps for other shareholders.