The New $64,000 Question: How Do Buyers Know What to Offer on a Property?

Yesterday: 24 Competing Offers & Profound Price Escalations

In the sellers’ market of yesteryear, the asking price was merely the “base” price on which offers then escalated. At least that’s the way it worked in our Greater Bethesda area market with most properties that were appropriately priced.

Today: Expectations, Percentages, & The “One Price Fits All” Theory

Today’s market is different. In the vast majority of cases, an asking price reflects the sellers’ hopes, but today’s buyers inwardly laugh at that price and try to decide how low they can go. It always interests me when buyers come into the process with preconceived ideas about what percentage of the asking price they should offer. The reason this “one size fits all” theory doesn’t work is because the asking price on one property may truly reflect it’s current “value”, while on another property the price may be still set in yesterday’s market. If you decide you’re going to offer 90% of the asking price of the first house, you may well get a good value. If you offer 90% of the asking price on the second home, you’ve just paid too much.

Finding The Right Price: It Starts w/ Education

So, how does a buyer know what price to start with? I always tell buyers that my job is to educate them so that they’ll know that house #1 is a good value and that house #2 is overpriced. This education process simply consists of buyers seeing enough properties so that they understand when they’re comparing apples to apples. If they then decide that house #1 is their choice, I would suggest that there is probably still negotiating room (unless there’s another offer) but that going in too low would probably be disadvantageous.

Real Estate Sometimes Just Pretends to Be Business

As their agent, I always want to help my clients get the best price, but I also feel compelled to remind them that an offer too low may change the emotional complexion of the negotiation. It’s the real estate version of first impressions. It’s safe to say sellers usually react negatively to “low ball” offers and become less apt to deal than they would if they felt that they were being treated fairly. This can be a real problem if house #2 becomes the choice. If a seller has overpriced his/her house, it’s usually because s/he has not been educated about the reality of the market. In this case, an educated buyer would have no choice but to come in with an offer that the seller may perceive to be a “low ball” (although the market may be saying otherwise). Sometimes all the buyer ends up doing is beginning the education process and it can be the next potential buyer that benefits from this if the seller takes a while to “get it.”

Listing History: Has The Seller Has Been Beat Up?

Buyers also need to be aware of a property’s “listing history” in deciding when and how much to offer. If a property has only been on the market for a week and there appears to be a lot of interest, then the price is obviously less negotiable than a house that has been languishing for 4 months. Likewise, buyers need to know if there has been a price adjustment (a gentle way of saying “reduction”) and, if possible, why the sellers are moving. The latter will speak to motivation. Are they leaving the area because of a job change? Or are they just contemplating a move and “testing” the market?

Econ 101: Keep It Simple

As simplistic as it may sound, a home is really worth what a purchaser will pay for it and what a seller will sell it for. Having said that, in this market, buyers should only deal with committed, serious sellers who understand that they are no longer in the drivers’ seat. Once that has been established, buyers should look at each individual situation to determine the best price to offer.

Contributing Blogger - Gretchen Koitz

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