There is no set equation to determine how you’ll reach an offer price. Rather, the process involves a range of research and comparison that will vary with each situation. You’ll need to look at sales of comparable properties, and factor in additional data such as the condition of the property, the current market, and seller circumstances. With this information in hand, you will be able to determine a fair price range and, from there, establish the price you’re willing to offer. Concentrate on the following areas to help you determine an offer price:
Comparable Sales
Compare prices of homes that are similar to the property you’re considering in the following areas: number of bedrooms and bathrooms, square footage, lot size, type of construction, and garage space.
The most comprehensive and in-depth information can be accessed through the Multiple Listing Service (MLS). Your REALTOR®, who will be working closely with you to set your offer price, can help you navigate this service.
Property Condition
Observe how the property compares to the rest of the neighbourhood. Is it average, above average, or below average?
Look at structural condition: walls, ceilings, windows, floors, doors.
Pay close attention to: bathrooms, bedrooms, condition of plumbing and electricity.
Also check the fixtures: light switches, doorknobs, drawer handles, etc.
What is the condition of the front and back yards?
Home Improvements
Cosmetic changes can be largely ignored, but any major improvements should be taken into account.
Take special note of: room additions (especially bedrooms and bathrooms).
Items such as swimming pools may be taken into account, but usually won’t affect your offer. Your REALTOR® can offer you guidance in these matters.
Also check the fixtures: light switches, doorknobs, drawer handles, etc.
What is the condition of the front and back yards?
Market Conditions
Seller’s Market
A seller’s market is considered a “hot” market. It happens when demand exceeds supply—more buyers than available homes.
Homes typically sell quickly, with multiple offers.
Many homes sell above the asking price.
Buyer’s Market
Occurs when supply is greater than demand—more homes than buyers.
Homes may stay on the market longer, with fewer and less frequent offers.
Prices may decline, and buyers have more flexibility to negotiate lower prices.
Sellers are more likely to respond with counter-offers if initial offers are low.
Balanced Market
Supply and demand are roughly equal.
Prices remain stable, and homes sell within a reasonable timeframe.
Buyers have several options, and sellers may or may not face competition for offers.
Comparable sales information helps you establish a price range for the home you’re interested in. Adding in the additional factors mentioned above will guide your decision of whether you consider a “fair” price to be near the upper, lower, or middle limit of that range.
Keep in mind, this price should be one you’d be satisfied with once all negotiations are complete. The price you decide to begin with depends on your particular style of negotiation. Most buyers start negotiations with an offer lower than the “fair” price they’ve determined.