How much should you offer for a house? Here’s the best advice I’ve heard

Making an offer on a home is a big, kinda scary step.

For one thing, while in Massachusetts an Offer to Purchase leaves you with some wiggle room and doesn’t carry the weight of the full Purchase & Sale agreement, it’s still a legally binding document. If the seller accepts your offer, the proverbial ball starts rolling (with your deposit along for the ride), and it’ll take some real effort to stop it.

At the same time, making an offer on a home can leave you emotionally vulnerable, too. If the seller doesn’t accept your bid, you’ve likely just spent considerable time and mental energy convincing yourself that you’re ready to invest your life’s fortune in THIS particular home — this is the one! — only to have that dream yanked from underneath you. A rejected offer can be devastating, especially to first-time homebuyers.

Finally, there’s the cold calculation involved: How much should you offer on a house?

About half of homes in the Boston area are still receiving multiple offers, even now, and you want your offer to win out. At the same time, you don’t want to overpay — everybody wants a good deal, or at least a fair one. And even if you don’t overpay for the home, you don’t want to overextend yourself, either, sentencing you and your family to years of financial stress.

Your realtor and mortgage broker can help with the numbers — which themselves are subject to swings and can change daily. But figuring out how much to offer on a home isn’t just a mathematical exercise— there’s some psychology involved, too.

How much to offer on a home

So how do you decide how much to offer on a house? The best advice I’ve heard on the subject came from Al Norton, a Realtor and rental manager at Unlimited Sotheby’s International Realty in Brookline, when we spoke the other day.

In an environment like this one, where bidding wars are commonplace and it often takes several months of house hunting and three, four, or more tries to get an offer accepted, people understandably start to grow frustrated, tired, and desperate — and they bid like it, too.

“What becomes a factor the longer they look is, ‘How much are we willing to pay to stop doing this?‘” Norton says. “I tell buyers, your offer should be based on what you want to pay for this, not what you think someone else will pay. Because you don’t know what they’re willing to add in to stop doing this. You may be competing with someone who’s lost out on 10 places, and you don’t want to top them.”

So how do you arrive at that price and decide what to offer? “You want to bid a number where you’re happy if you get it at that price, and you’re happy if you don’t. That’s the trick.”

Our daughter has trouble making decisions sometimes, and Gina taught her what I think is a pretty great trick. Say the choice is whether to go down to the playground or stay home and watch a movie, and she can’t decide. Gina has her flip a coin to choose. Then, after the coin has made the decision for her, Gina asks, “Do you feel disappointed, or relieved?” It’s often one way or the other, and it helps her realize that she did have a preference all along.

So think to yourself: Would we be happy if we got that $519,000 house we loved for $540,000? Or relieved that they turned it down and we’re off the hook? It could be both. Try to find the spot where you can live with either outcome.