Where do you start when making an offer?

• You're ready to buy.
  
• Your finance is pre-approved.
  
• You know what you want.
  
• You're hunting for property.
  
• You're poised to make an offer.
  

You notice a house for sale - list price is $550,000.  It meets your needs and you're about to make an offer. What should your offer be?

Firstly, let's cast aside any emotional attachment to the property.  You've heard the saying, "Love the numbers, learn to like the property".  It's time to talk numbers - which ones to pay attention to and which ones to ignore.

So many buyers confuse the $550,000 list price to be the "market value" and any reduction in price to be savings they made on the deal. For example, if someone bought the property for $500,000, they'd tell all their friends they saved $50,000.  This sounds reasonable, but it isn't necessarily the case.

To place an offer with confidence, we need to better understand theMarket Value first (what the market would be willing to pay for the property).  Remember, the $550,000 is the 'List Price' or 'Asking Price'. It is only a (often hopeful) suggestion by the person selling the property. List prices can be higher, lower or roughly the same as market price, so this isn't the only bit of information we're after.

To understand market value, we need to look at the important information about the property (land size, location, building, etc). We then compare this information to other comparable properties and check to see what they sold for.  The more recent and similar, the better. This process is often referred to as a 'Comparative Market Analysis' or CMA.

Here are two case examples, where the market value has been calculated to be $495,000:

Deal A

House - 700m2, 3 Bed, 2 Bath, 1 x LUG

List Price - $485,000

Market Value - $495,000

Sale Price - $470,000

The buyer can boast a $15,000 reduction from List Price to Sale Price ($485k - $470k)

Deal B

House - 700m2, 3 Bed, 2 Bath, 1 x LUG

List Price - $550,000

Market Value - $495,000

Sale Price - $505,000

The buyer can boast a $45,000 reduction from List Price to Sale Price ($550k-$505k)

Which property is the better deal?

It certainly sounds like the buyer involved in Deal B has bragging rights around the BBQ for many years to come, as his reduction from the list price is $30,000 better than the other buyer.

However, both of these properties have the same market value at $495,000, so the real winner is the buyer in Deal A who bought for $470k, or $25k under market value.  Ironically, the buyer in Deal B who paid $10k over market value will probably still brag around the BBQ. We cringe a little whenever we hear these stories, but unfortunately, we hear them ALL the time.

Question: "Where do you start when making an offer?"

Answer: Determine the Market Value first!!!

Contact your Buyer's Agent on 1300 727 586 and get the re-assurance you're buying great value, not just a good 'discount' off the list price.

Yours in property!