Can you offer 30% less on a home? The answer is of course you can! But that, my friend, is not the question a savvy home buyer should be asking. The question you should be asking is "Should I offer 30% less on a home." Your REALTOR® is your most valuable asset when dealing with real estate. Among may other services, she is your Chief Negotiator. Use her! Her job is to understand your goals, study the market and "negotiate like a boss", as we say at Rockstar. Your Agent will give you her advice based on her research and expertise. She uses a specific formula to advise you on what you should offer on a home.
This formula is gold and takes training, experience, and skill to do well. Professional real estate advice isn't given haphazardly. Your REALTOR® will advise you to submit an offer that she believes will be acceptable, given the current market conditions and the property's position on the market. She is never trying to negotiate with you. She is negotiating for you, so listen to what she says, ask questions until you feel comfortable, and then trust that she is giving you advice to get you the home you want, not to push you into a sale. (Trust me, she doesn't want to waste her time and energy doing anything like that.)
The Formula:
The market
Often, a home buyer will see his or her own real estate goals as the sole determining factor in submitting an offer, yet the market doesn't take a buyer's goals into consideration when it makes a determination, and the market is King- not always the King you want, yet King nonetheless. When your goals aren't in alignment with the market, the likelihood of you achieving your real estate goals is slim. The real estate market is fairly stable. It doesn't fluctuate daily, like a stock market, (with the exception of an extreme act of God.) It steadily increases or decreases over time. We study it and we can anticipate it. The numbers tell a story.
We determine the market value of a home, based on similar properties that have sold in the last six months in the surrounding area. Every home buyer who is utilizing mortgage financing to purchase a home will need an appraisal in order to close. An appraisal is an expert assessment of value, provided by a real estate appraiser. That real estate appraiser is a third party who the mortgage company hires to essentially tell the bank if the home is worth at least as much as the buyer is agreeing to purchase it for.
If the property is not worth as much as you are purchasing it for, they simply will not give you the mortgage, and the sale will fall through. Depending on the type of loan you have, the bank may allow you to proceed with the sale if you choose, but you will need to cough up the additional cash, because ... the bank's mama didn't raise no fool! The bank won't overpay for a home... and neither should you.
Want to know what an appraisal form looks like? Here's a Free Download!
What Sort of Things Do You Look At When Comparing Properties?
sold in the last 6 months
location (the closer, the better)
style (i.e. rancher, 2 story, townhome, condo, split level, etc.)
number of bedrooms
number of bathrooms
condition
pool
basement
garage
lot size
other amenities and specialty items
The appraisal won't happen until after you are under contract, so your Rockstar Agent will conduct similar research. Before your real estate agent advises you on what to offer, she will do her own research and comparative market analysis. At Rockstar, we make our Agents pull comparable properties for every offer, as well as market statistics. They assess the supply and demand. We specifically have them research the "average days on market" and the "list to sales price ratio" for the price range and area. Those two pieces of data tell your agent how long properties in that price range typically remain on the market, before being sold as well as what percentage of the list price buyers are currently paying for a home in that price range.
If the list to sales price ratio of comparable home is 98% and you offer 70% (that would be 30% off of the list price), would that seem realistic to you? If every other buyer is getting a home in that price range at 98%, what makes you think you'll get it for significantly less? Are you magic? Are you a genie? If so, please email me, because I have a LOT of wishes! It is possible that list to sales price ratio could be lower, but that is why it is essential that you work with a Rockstar Agent who will review the data in depth for you.
As I said, numbers tell the real story. Nothing else matters. It doesn't matter what if Seller purchased it as a foreclosure, a flip, a short sale, or inherited from a deceased loved one. What they paid has little to no bearing on what you are paying. Thats the beauty of real estate! I once purchased a property for $340,560 and put it under contract in 24 hours for $393,000 18 months after purchasing it. I put no money into it. Another time, I purchased a home for $125,000 and sold it for over $200,000 two years later. Another, I purchased for $225,000 and sold for $290,000 two years later. These were not flips. They were primary residences. I didn't do much, except make them trendy and I made money, because the market is King. The market dictates the value and luckily, your Agent is the market expert! The pieces of data in conjunction with your agent's expert analysis of value place your finger directly on the pulse of the market. They show us if we are in a buyer's market, a seller's market, or a balanced market and help us determine what the offer price should be. Armed with the market data and information from your Rockstar Agent, it's time to revisit your goals from your initial consultation.
Your Goals
It is essential to gain clarity around your real estate goals before even searching for a home. Until this is done, you should not be looking for a home. What you might think is your goal may not truly be your goal, when we dig deep. This can lead to you purchasing a home you're not happy with. In addition, your goals may or may not be realistic, based on market conditions, interest rates, taxes, etc. For this reason, we provide our Rockstar Buyer Consultations before working with you to purchase a home. We want to help you gain clarity about what it is you really want and why you want it. Each buyer has different goals, yet every goal should be time-bound in some way. BY WHEN must you achieve this goal? in a month? 2 months? Next year? By when? I'll list a ten examples of common goals I've seen, yet there are many more!
To be settled in X area by X date
To upsize
To downsize
To find a home in X school system
To make a safe long-term investment
To make a safe short-term investment
To get more outdoor space
To live closer to work
To move into my dream neighborhood
To have more storage space
Once you align your goals with the market, then the question no longer becomes "Can I offer 30% less than asking price". The question becomes "Should I even ask that question?" Your Agent will advise you on precisely what you should offer, based on her research and expertise. She will always provide the data to you for review, if you prefer. Sometimes, it helps to see visuals! If the offer amount she gives you is nowhere near 30% , then the answer is probably hell to the no, friend.
Testing the Market
When you work with top professionals who spend 40+ hours per week studying the real estate market and working with buyers, sellers, and investors, there is no such thing as "testing the market". "Testing the market" is an amateur term in real estate. Professionals don't test the market. We study it's movement every day. We predict it's movement based on solid data that we track and measure.
Could 30% less happen? In some markets, yes. Are there outliers? Yes of course. A REALTOR® may grossly over price a home, you could come in the off season and offer cash for a property which has been on the market for a long time. Outliers exist in every market, and your Agent performs this research to determine if there is a deal to be had. Every time.
Getting a spectacular deal makes her heart beat faster and makes her come alive. If it can be done, she will get it done for you as well as for her own thrill. (I'm only able to speak for Rockstar, because my Agents are highly trained and coached on these very things.) So be informed and empowered in your real estate ventures and remember, if you're in the right hands, you have NOTHING to worry about! Until next time, Rockstar Community, I'm sending you piece, love, and good vibes, from my home to your's!