BiggerPockets

Determining Property Value Part 4 Calculate Your Offer

Fair market values is only part of determining how much your willing to pay for the property. There are other costs you must take into consideration such as closing costs.

Closing Costs

Closing costs include escrow fees ($150 - $200), title searches and insurance (approx. 1% of the balance less downpayment), appraisals ($350 - $500), home inspection ($250 - $400) and real estate agent commission (3% - 10% of purchase price).

Some costs are negotiable but should always be included in your estimates.

Consider the Holding Costs

After you've purchased a property, you will be responsible to cover certain holding costs such as fire & hazard insurance, utilities, mortgage payments and real property taxes. Identify these costs before you purchase will help you set your budget realistically.

Know one can accurately predict how long you will have to hold on to the property after you make necessary improvements. Therefore, it is prudent to include for these costs for three to six months in your budget.

Calculate the Offer

Take the property's fair market value and subtract the following:
- repair costs
- closing costs
- holding costs
- real estate agent commission
- percentage of profit you desire (10% to 20%)

The remaining balance is your maximum offer amount for the property. Through negotiations you can pass some of the closing costs over to the seller, thereby lowering your overall costs and make more money.

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