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How to Determine The Right Offer Price

Finding the right home can be a difficult, time consuming  process. Once the buyer has found the right home deciding on the right price to offer is the next step. Finding a balance between getting the dream home, but not overpaying is a challenge. Further clouding the issues are the many myths and misconceptions about the offer and negotiating process.

The First Step: Using a Buyer’s Agent

A good buyer’s agent is very valuable in helping the buyer to determine a market correct offering price. A buyer’s agent does not set a specific price, but provides advice on recent sales, market conditions, and the pluses and minuses of the property.

Criteria for selecting a buyer’s agent includes:

The best buyer’s agents specialize in a specific geographic area, whether it is a town or neighborhood. Deep knowledge of real estate and the myriad other local issues that affect real estate are very valuable. Some agents also specialize in specific property types such as luxury homes, short sales, vacation homes, etc.

Negotiating skills
A good buyer’s agent understands the balance between helping the buyer acquire the home and paying the best price with the most favorable terms. The best negotiators are well prepared, understand the emotional component of negotiation and have a structured approach to the process.

Market knowledge
The buyer’s agent should know the inventory and market conditions. This knowledge is critical for being able to determine the market value of the property.

Myths and Misconceptions

Some buyers believe that offers should always be a fixed percentage (such as 10%) below asking price.

Some properties are over-priced, some are at market value, and a few are under-priced. Because of this a one size fits all approach to making offers does not work.

The seller will always counter-offer.

The seller has no obligation to counter-offer. We expand on this in the section about multiple offers.

The buyer and seller will meet in the middle (halfway between the asking price and the offer price).

Market conditions, terms of the offer, buyer and seller motivation and other factors will determine where the buyer and seller meet.

It is a buyer’s market in Cambridge and Somerville

Inventory is low and demand is high in Cambridge and Somerville. Many properties are getting multiple offers and are selling for over asking price.

Determining the Offering Price

The offering price is established several ways:

Buyer Motivation
Each buyer has a different level of motivation. Motivation can be caused by many factors including an emotional connection to the property, a lease ending, job relocation, a growing family, etc.<br><br>

Ability to Pay
The buyer’s liquidity and budget will determine the top amount that he/she can pay. The lender’s debt to income ratio and other underwriting criteria will determine the amount that the buyer can borrow.

Type of Buyer
Owner occupants may be willing to pay a different amount than an income investor or developer. Investors and developers have rate of return formulas that determine their offer versus the budget of an owner occupant.

Comparative Market Analysis
Since the asking price may be above, below, or at market value it is important to objectively determine the estimated market value. The best way to determine this is for the buyer’s agent to prepare a Comparative Market Analysis (CMA). A CMA is prepared by finding recent sales in the same neighborhood. Adjustments should be made for factors such as parking, central air, condition and age of the property, layout, views, street noise and a wide range of other factors. Some buyers use the Zillow Zestimate tool to help them determine an offering price. However since Zillow has not visited the property and has not adjusted for the many factors that affect value the Zestimate can be highly inaccurate. According to the Zillow website: “We encourage buyers, sellers, and homeowners to supplement Zillow’s information by doing other research such as getting a Comparative Market Analysis (CMA) from a real estate agent.” It is up to the buyer to decide if they want to offer more or less than the estimated market value.

Multiple Offer Situations

Low inventory in Cambridge and Somerville is leading to multiple offer situations for well priced properties. Making an offer in a multiple offer situation calls for a different strategy.

– When there are multiple offers it indicates that the asking price is close to or below market value. In our experience, multiple offers often result in a sale price close to or above asking price. Making an offer below asking price will not usually result in an accepted offer.

– The terms can equally important as the offered price. A cash offer or an offer without a financing or home inspection contingency will be stronger than an offer with a contingencies.

– A letter to the seller can personalize the offer.

– If all of the offers are close in price and terms the seller may ask all of the buyers for their best and final offer. However, one offer may be significantly stronger and the seller may accept it. For this reason it is important for the buyer to make their offer as strong as possible and to not count on an opportunity for a best and final offer.

43 Market Street, Cambridge, MA

We just listed this condo for $349,000 and it received an accepted offer in 4 days.

29 Boston Avenue, Unit 2, Medford, MA

We just sold this condo for $399,000.


Elisee La Brecque, Cambridge, MA Blog

Elisee La Brecque, Cambridge, MA Blog

Elisee La Brecque, Cambridge, MA

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Somerville, MA, First Half 2011, Market Summary

The volume of residential real estate market for the first half of 2011 in Somerville decreased from the first half of 2010. However, as in Cambridge, median and average sale prices actually increased.

The number of sales of residential property (condominiums, single families, and multi-families) in Somerville decreased 19% in the first half of 2011, compared to the first half of 2010. There were 259 sales in the first half of 2011 compared to 320 sales in the first half of 2010.

Total market volume decreased by 13.4%. The first half of 2011 total volume was $113,493,334 compared to the first half of 2010 volume of $131,098,032.

The average sale price increased by 7%. The average sale price in the first half of 2011 was $438,198 compared to $409,681 in first half of 2010.

The median sale price increased by 6.4%. The median sale price in the first half of 2011 was $399,000 compared to $375,000 in the first half of 2010.

The lowest sale price was $73,000. The highest sale price of an individual property was $1,001,000.

At the end of the first half of 2011 inventory was up 33% from the first half of 2010. On June 30, 2011 there were 356 units on the market. On June 30, 2010 there were 267 units on the market.

All statistics are from MLS Property Information Network.