You’ve come a long way in your journey to buy a Chicago condo. You’ve done months of research and found a knowledgeable, personable local real estate agent who is as committed to finding you the perfect condo as you are. You traveled from neighborhood to neighborhood, looked at unit after unit, and delved into the details of condo association after association. And, you’ve already spoken to your lender to get a pre-approval letter so that sellers will take your offer seriously.
No matter how prepared you are, making an offer big step that requires thoughtfulness, strategy, and a thorough understanding of the market, which is why a buyer’s agent is an invaluable resource. Your agent is there to provide guidance and insight on all these fronts so that you can make an offer with confidence and with the best odds of getting your dream Chicago condo at the right price.
Here are some things to consider before you make an offer and what to expect once you do so.
Understand Fair Market Value
Demand and inventory play a huge role in the market value of a home and, in Chicago, these factors vary considerably by neighborhood. Some Chicago neighborhoods are well established, while others are up-and-coming. Some have a glut of condo units, while condo stock may be scarce in others. At this point, you’ve probably already discussed the local market conditions of the Chicago neighborhoods that most interest you with your real estate agent.
Real estate agents and appraisers alike use something called “fair market value” to calculate how much the majority of buyers would pay for a home under the current market conditions. In order to determine the fair market value of a home, you need to first review comparable units in the same neighborhood that were sold in the last three to six months. This process is commonly called “running the comps.” The term “comps” means comparable sold homes. Listing agents will use this strategy to determine the list price, or asking price, before they list the home for sale.
That said, list price does not always equal fair market value, which is why your agent will also run the comps when it comes time to make an offer. Pricing can be subjective based on what comps the agent is using and how relevant they are to the condo at hand. It’s also possible that the seller is unwilling to list for less than a specific price despite what the market shows it’s worth. Once your buyer’s agent provides you with the dollar amount they think the home is worth, they will determine the best strategy for getting the home at, or ideally below, that value depending on demand.
In cases where you are the only buyer making an offer, you might start slightly below the fair market value to give you enough wiggle room for negotiation. In cases where there are multiple offers and the listing agent requests a “best and final” or “highest and best,” your initial offer is your last, so you’ll want to be as aggressive as possible without overpaying for the home or stretching yourself beyond your financial means.
Set a Max Offer Price
Not only will you discuss your initial offer price with your real estate agent, but you’ll also let them know the max dollar amount you’re willing to pay if negotiations continue past the initial offer. As a buyer, you’ll want to consider your max offer price thoughtfully.
The max offer price might not be the same as list price. Condos for sale in Chicago may sell for more than asking price if it was underpriced, or if there’s high demand and competing offers. On the other hand, if the condo is overpriced, your max offer price will likely fall below list price. So, it’s important to set a limit as to how much you are realistically willing to pay so your agent can negotiate accordingly.
Regardless of how large a loan you may be approved for, that doesn’t mean you need to, want to, or should max out that amount. It means higher mortgage payments as well as a diversion of funds that you may need for repairs and improvements on the unit. Not only do you risk overpaying and limiting your return on investment in the future, but you’ll also have a difficult time getting your mortgage approved if both parties agree to an offer that’s higher than the home’s appraised value.
Consider Closing Date, Earnest Money & Contingencies
While price is typically the most important for sellers, there are other elements of the offer that matter. Closing date, financing, earnest money and contingencies are other things you will discuss with your real estate agent when determining your offer. For instance, some sellers will value offers that can offer a quicker close if they are on a tight timeline, even if the offer is for a few thousand less than the other.
Earnest money is a deposit that essentially acts as your financial commitment to the home so offering too little can also worry the seller. If you only have a few hundred dollars on the line, what’s to stop you from canceling the contract solely based on cold feet? You’ll put down earnest money twice during the escrow process in Chicago, and these funds will eventually go toward your down payment. In Chicago, total earnest money deposits typically range between 3 to 10 percent of the purchase price.
Certain contingencies can also be a red flag to sellers. Home inspection and financing contingencies are standard, but a home sale contingency means that the condo sale is dependent on the buyer’s home selling first. If the buyer’s home doesn’t sell in time and the seller has to put their condo back on the market, the sellers lost valuable time and potentially weakened their listing’s reputation.
If you need your current home to sell in order to afford to buy, you may be able to eliminate a home sale contingency with a bridge loan. Bridge loans allow you free up your equity now so you can make the offer without the purchase being contingent on selling your current home. Compass Bridge Loan Services are unique in that you can get up to six months of your bridge loan payments fronted as long as you sell your home with a Compass agent, including the Z Chicago team.
Understand What the Seller Wants
As in any significant negotiation, neither side wants to show their cards or reveal anything that would weaken their bargaining position. As such, it may hard to tell where the seller’s head is at. If a seller is highly motivated and their condo has been listed on the market for more than a few months, they may be more amenable to a low offer than a seller of a newly listed Chicago condo who wants to get the maximum amount possible. Your agent will research the listing history and learn the seller’s priorities from the listing agent to calibrate your offer accordingly.
Prepare to Negotiate
Once you make your offer, be ready for a counteroffer. Unless your offer is at or above the listing price or is the highest of any other offer, it is unlikely that the initial response will be “Sold!” You might be in negotiations for a few days and depending on your level of commitment to the home, waiting for a response can be highly stressful.
Reputable real estate agents negotiate condo purchases and sales on a regular basis, so we can prioritize your needs without risking rapport with the seller and their agent. Ultimately, we want you to get the home for a good price, but we also don’t want to risk the deal by lowballing. It’s a delicate balance, but we have enough experience in the offer and negotiation stages to navigate this process successfully.
Making an offer can be an emotional process – no one wants to lose out on their dream condo. Just remember, if you don’t wind up with the winning offer, there are plenty of other wonderful Chicago condos for sale at any given time. It’s better to get a great place at great price than overpay for a home that will cause you unneeded financial stress in the future.