How much over asking price should I offer, on average?
This seems to be the number-one question. It is a terrible question based on terrible assumptions.
Don’t assume that asking prices are based on Fair Market Value. In reality, asking prices are a made-up number intended to get the highest number of offers, so that the seller has the best chance of getting their highest price and best terms. Seller’s agents are doing their job!
- Sometimes they underprice the property by $50,000 or more (based on their comparative market analysis). This gets a large number of people seeing the property and offering. Some offers will be below what it is worth. But, when buyers hear that there are five or ten or ninety-three offers, they start raising their offer prices and dumping their rights to home inspection and mortgage contingency.
- Sometimes they price the property based on Fair Market Value, but encourage buyers to assume that it is underpriced.
- This spring, buyers are now “trained” to expect to offer over asking based on the arbitrary asking price. Rumors fly that only offers with no contingencies are ever accepted.
Don’t assume any average would work. If there were an average, would it be the same across price ranges and towns? Just think about that one! Does +$10,000 have the same impact on a seller with a $999,999 property as a seller with a $399,000 property? Does 10% above asking have the same impact on those two sellers?
How can I buy a house based on a 15-minute showing and no home inspection?
In our housing stock, the value of the property varies greatly, based on condition. In a more normal market, buyers have a chance to get a good look and a property and get a professional home inspection to find big repair items.
Short deadlines are causing buyers to not pay attention to conditions in the house that would be found during a home inspection. They, instead panic-buy. This helps sellers move properties that have expensive repair items that they typical buyer would not find in a 15-minute tour.
Our opinion is that you should not buy without a home inspection. Some of our clients are getting pre-inspections. More on home inspections in 2021.
Why can’t I depend on automated valuations like Zillow and Redfin to know what to offer?
- Automated valuations use records for square footage that may not be reliable. They use this data for their average price per square foot.
- Automated valuations use averages across locations in towns. Neighborhood matters for value.
- Automated valuations do not account for condition.
What do 4 Buyers Real Estate exclusive buyer’s agents do that is different from an automated property valuation?
What we do is called a Comparative Market Analysis. We find recent sales that are similar to properties that our clients want to make an offer on. Unlike the automated algorithms, we use reliable interior square footage data that differentiates for finished space in basements and attics and other mistakes. We account for differences in value in different parts of town, including busy streets and eyesores nearby. We account for condition differences.
What is the inflation rate that is reasonable to build into Comparative Market Analyses?
During high-inflation markets like this, we need to account for how the market has changed since the comparable properties went under agreement.
After reading what real estate economists are saying about the price increases locally and nationally (locally matters more!), we came up with this:
Best practice for the duration: In the market study, add in either .5% per month or 1% per month, from the off-market date. In your explanation to the client, include the other figure. Example: “I added 1% per month — it came to +$50K. A more conservative estimate of inflation is .5%; that comes to +$25K.”
What is working to get our clients’ offers accepted?
- Our reputation helps our clients.
- This year, our company’s clients have had an inspection with every purchase.
- Agents who know us, know that our clients are well informed and are unlikely to withdraw from the transaction without cause. Since withdrawal rates are up, this matters.
- Agents who know us, know that if our lender says there will be no problems, there will be no problems.
- We have had 5% down buyers get accepted offers this year. This is working better in the cities than in the suburbs.
- Pre-inspection success rate?
Pre-inspections are no guaranty of an accepted offer. When we do them, we stress to the agent that the buyers are now well-informed, so there is less risk of cold feet. Sometimes it is working, sometimes not. However, we have also been able to retain the right to inspect after the offer is accepted in the vast majority of accepted offers this year.
- Transactions falling apart stories.
Buyers being pushed into fast offers are causing offers to fall apart a week later. We work to hear about this, so that you get a second chance at it. Because our reputation is that our buyers are well informed, we do well in these second-chance situations. We have two under agreement like that and have had about five more calls about failed transactions in the past month.
- Pre-listed properties
We are doing more listing referrals this year than ever before. Some of these sellers will let us show their property before putting it on the market; some prefer to have an agent represent them. This is giving two gains to our clients:
- Access to unlisted properties.
- Enhanced relationships with listing agents who are getting listing referrals from us.