What does the advertised, or "list," price of a house really mean with regard to how much you should offer? It's certainly a clue to how much the seller wants for the home -- but it's never the last word on the matter. Both the market and the individual sellers' predilections make a difference in whether the seller expects (or should expect) the eventual sales price to go up or down from the list price.
Don't believe the price tag. In the end, it's the market -- that is, the level of other buyers' interest in the house, and their view of how it compares to other available houses -- that rules. Market forces can and often do operate to change a home's price between listing and closing.
Common Price Listing Strategies
In a hot market, sellers commonly list their houses at an artificially low price in order to make sure the maximum number of buyers come in to take a look, so that a bidding war ensues and the price goes sky high. Of course, others may set a more realistic, or even optimistic, price.
In a cold market, it's more common for sellers to set the list price that's meant to be "just right," so as to neither scare away potential buyers nor feel stuck if only one offer comes in at list price. Nevertheless, some sellers also set the price on the low side, just trying to get potential buyers to come in and take a look -- figuring that if the place really is a bargain, more than one person will bid, and the price will eventually get moved upward anyway.
Then there are the sellers who set their house list prices on the high side, either wanting to set a starting point in negotiations (not a good idea), or because they're blind to what their house is worth. In the post-real-estate-bubble world, a number of sellers simply can't believe that their house dropped in value as much as it did. Or they may be hoping against hope to recoup some of their losses.
Sometimes the fault for overpricing a home lies with an inexperienced or unscrupulous real estate agent, who "bought the listing" -- that is, convinced the seller that he or she could get a higher amount for the house despite what other agents were saying about how the place compared to other properties.
What's the House Worth to You?
In the end, it's up to you (with the help of your buyer's agent) to decide how much a house that you like is really worth -- and how much you're willing to offer for it. Base your offer price on such factors as:
- the amount that comparable houses have sold for recently in the same area
- the house's aesthetic or wow appeal to the average buyer
- whether the local real estate market is hot (demand for houses is high, and prices are going up, with you perhaps competing against other bidders) or cold (prices are dropping or stagnant, and houses are staying on the market for a longer time)
- the seller's personal needs -- such as the desire to move quickly, to unload a house that's been on the market for several weeks or months
- the house's physical condition (which you may not find out much about until you do an inspection -- something you could actually arrange to do before making an offer, though most buyers wait until they're in contract)
- whether the house is uniquely valuable to you (if you need an in-law unit or art studio, for example), and
- what you can afford, after a careful examination of your budget.
Putting it all together, you'll be able to arrive at a number that's high enough to get the seller's attention, but low enough that you won't feel buyer's remorse for having overpaid.
A final hint: although many homebuyers tend to think in multiples of five, that is, of offering either $350,000, $355,000, or $360,000, there's no rule that says you have to do this. If, for example, you know that another buyer is interested in the same property as you, and you think that person is likely to bid $360,000, you could always bid $363,000, just to set yourself apart.
For more information on getting to know your local real estate market, looking carefully at houses, finding the house that's best for you, and making an offer, see Nolo's Essential Guide to Buying Your First Home, by Ilona Bray, Alayna Schroeder, and Marcia Stewart.