How much is too much?

"How much should we offer?" exclaimed my client as we enjoyed our vanilla lattes at the Coffee Bean.

It is an interesting question. It implies that the bank will accept less than the listing price. Also, most buyers are under the misconception that banks "always" counter-offer. I am not sure where this myth has come from... It also implies that the bank will accept "less" than the listing price. I say this because I hardly hear, "I know they are asking $300,000, but I think it is worth $350,000, therefore offer that."

I have a couple of clients looking in the same area of Corona. So, I thought I would go back and look at the homes that we have made offers on (and not gotten accepted). All of the offers were written between 30-60 days ago...and most of the homes closed escrow in the past 10 days.

The statistics are a little surprising. On average homes sold for 5% ABOVE list price - please remember these are closed statistics on homes that I have written offers on. The lowest below the average was 1.1% below the asking price. This was on the second highest priced home in the data. The highest above was 7.9% above the asking price. This was the highest priced home in the data.

As we continue to look at this numbers we see that a total of 10 homes were in the field and only 2 of them sold for less than the asking price. And as we saw above...this was not that far below asking price it was just over 1% below asking price. Last bit of information of the 10 homes, 9 were REOs and 1 was a short sale...there was NO resales in the data.

A couple of suggestions for why this is: 1.) the listing agents have lowered the prices to make "virtual auction". By lower the price below market value, they get people to perceive it as a "bargain". 2.) the buyers are frustrated at writing low offers and not getting a home so they reverse course and begin to offer MORE than asking to "just get a home."

How then do we go forward?

We base our offers on the "market value" of the property. We don't decide before we walk through the doors how much we want to pay for the home.

My usual response to the question I got that morning at the Coffee Bean - "I think they will accept 10% below market value" - just isn't accurate anymore. My boss always says, "I know they will accept the listing price" - this might not be the case either!