This seems to be the number-one question. It is a terrible question based on terrible assumptions:

How much over asking price should I offer, on average?

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!

  1. 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.
  2. Sometimes sellers’ agents price the property based on Fair Market Value, but encourage buyers to assume that it is underpriced.
  3. After years of increasing prices, buyers now expect to offer over asking.

“On average”? 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?

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 the typical buyer would not find in a 15-minute tour.

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 inflation rate 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.”