How Low Can We Go?
A common misconception I often come across are buyers and sellers not knowing how to gauge values correctly. Whether it be buyers deciding what a property is worth and what price to offer, or sellers deciding what price to list their home for sale at. A large factor of the current San Diego market are distressed properties; Short sales, & foreclosures. Many buyers new to the scene have the perception that they can get amazing deals on these distressed properties, and that they sell for tens of thousands less than what they’re currently worth, or that you should always offer lower than asking price.
Don’t get me wrong, sometimes ‘amazing’ astounding deals happen, but I often come across buyers asking how low they can offer on a property; “what percent lower is the norm to come in at?”
I’m compiling a quick list of what to expect when offering on properties in the ‘competitive’ price ranges:
- As a general rule of thumb, realize that every property and sale is unique and different and there is no- at least not in San Diego- percentage amount that you should offer less than a seller’s asking price. The best way to determine value is by looking at the recent sales either in the complex(condos), neighborhood, or zip code. Base your research on comparable size, condition and features the property has to offer.
- The list price or asking price is just that- the asking price. Often with distressed properties sellers price the properties lower than they’re actually worth to stimulate demand and activity for the property, which in turn creates a multiple offer bidding war, and the property ultimately sells for higher than the asking price. When approaching a situation such as this one, gauge your offer on the recent sales in the neighborhood. For example: House #1 is a foreclosure with 4bds/2.5baths, average condition- sold three weeks ago at $360k. House#2 is a short sale, just listed, identical floorplan as House#1, also in average condition, seller prices it at $304k. Do you really think $304k is realistic when the model match JUST closed for $360k? This is a prime example of when a short sale seller lists the home lower than it’s worth to stimulate activity, and I can almost guarantee there will be multiple offers on this House #2 that go much higher than it’s asking price of $304k. I know, it’s hard to grasp about paying higher than what someone is offering something at. You have to change the way you look at the situation and realize that is a seller strategy, and by offering more in this scenario- you’re not over paying, you’re paying what it’s worth.
- Now on the flip side: distressed sales do effect traditional sales. Often sellers refuse to consider distressed sales as adequate comparables. The bottom line is that if the distressed property is comparable to the subject property, even though it’s a distressed sale, it will effect surrounding values in the neighborhood.
- Supply & Demand: This one may be the most simple, it’s as easy as Economics 101– if there are a ton of similar properties for sale/on the market in one area, expect prices to decrease. If there are hardly any properties for sale in the area, usually the demand and value increases.
- Market Time: Has the property been on the market 1 week or 4 months? Typically sellers are more anxious to negotiate the longer the length on the market.
- Lastly, don’t always believe what you read on Zillow.com or Trulia.com regarding a property’s specific value. These are computerized estimates, or as Zillow says, “Zestimates”. They base values off of size and proximity. They don’t differentiate communities, condition, etc. Many factors are left out during these computerized valuations.
The bottom line, as mentioned above; is that all properties and circumstances are different. Ask your Realtor for the current market value of your home when selling, or if you’re considering writing an offer. It is easy to get distracted by the media, what your friends and family told you, but if you are buying or selling now, the numbers don’t lie :).