Home Buying in Plymouth>Question Details

Chris, Home Buyer in Madison, WI

What % off list value for an initial offer in this market?

Asked by Chris, Madison, WI Fri May 23, 2008

I've seen news that home prices are expected to drop by 10-15% nationwide by the end of 2009. I'm curious what percent below list price a buyers agent would typically suggest for an initial offer in this market for the western suburbs of Minneapolis? Thank you for your response!

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National forecasts and market statistics are worthless in a market that is all local. California could see price declines over 30% in some areas.. whereas parts of the country saw prices increase this year.

Even in the Twin Cities, each suburb, price point and type of home is demonstrating different fundamentals. What's also likely to happen in the next year is a significant increase in interest rates, meaning that even if the price falls 10% the increase in mortgage rates might make up for that and more.

Another important factor is that the current list price has absolutely nothing to do with what to offer. Some houses are priced so well that even today they are getting multiple offers and some houses are overpriced by 20%+ and sit for months (and years).

Further, most sellers are not going to accept the premise that since prices MIGHT fall another 10%-15% in the future that they must take it off the price now.

With all of this, making any broad statement on how much off to offer is too general to be worthwhile. What I do with my buyers to do is review the comparables for sale and the comparables that have sold and determine what it is worth today. We then discuss what they feel it is worth to them. We take the lower of the two numbers, subtract another 3%-5%, and start there with an offer.

If any of us could accurately forecast the future, we'd have all bought tankers full of gasoline last year, sold all our houses 2 years ago, cashed out of our stocks last November at their peak, and converted all of our US Currency to Euros a few years ago. Since we cannot, all we can do is work with the situation in front of us or avoid the situation completely.

I've been in my home for 7 years and am currently in negotiations for a move-up house for myself... I believe if you can secure a good house at a good price today and plan to be in it for more than a few years, any short-term downside still left in the market isn't a big concern as I'm locking in a historically low interest rate and the long-term benefits of owning real estate are clear. As someone in the business for 6 years, I'm confident in taking advantage of this market... as are most of my clients!
2 votes Thank Flag Link Fri May 23, 2008
Don't start by asking how much off asking you can go. Asking prices are not nessicarily any reflection of market value. Asking prices are based on "how much do i still owe the bank? how much do i need for a down payment on a new house? can i stretch it and pay off my car loan too? how about a trip to hawaii when all this is over?"

First thing you have to do is look at the market, and try to determine the fair market value of the property.
This is where either agents, or doing a lot of your own research comes in. Comparing your property you're interested in to similar properties on the market, and similar recently sold homes. Find out if you're in a declining market - and appraisers are automatically knocking a percentage off. Take that into consideration.
Once you get a number that you - and assumably your agent - feel is correct Now compare that to the
asking price. If they're in the same neighborhood, you're in business. If the asking price is much harder - things could get tricky. If the asking price is much lower, you'll probably be best to stay closer to asking.

All of this really depends on the property, and the cirumstances though. Needless to say - there is no golden rule of "X off of asking price is the way to go". Base your offer on the market value of the home, not the asking price.
2 votes Thank Flag Link Fri May 23, 2008
Chris the advice you are recieving is good. If you want more info you can go here http://www.mplsrealtor.com/downloads/the100/Golden-Valley.pdf. This is a great resorce. You can contact me directly at:
BradAnderson@kw.com
763-486-5338
http://www.BradAndersonHomes.com
1 vote Thank Flag Link Fri May 23, 2008
Hi Chris--It all depends on the home. Has it just listed or has it been on the market for awhile? Did you have a buyer's agent do a market analysis for the home? Try to have your agent find out if you are the only interested party as I have seen quite a few multiple offers in the north metro in the last few months.

If you are the only one writing an offer and the home is properly priced, I would suggest to most of my clients to consider writing an offer 5-10% less than asking. If it seems overpriced, write an offer closer to where it market analysis comes in and back up the offer with current comparable homes. If you have questions email or call me. You can find additional information by visiting my blog for a post on this exact subject below.

Good luck!
1 vote Thank Flag Link Fri May 23, 2008
Thank you both, Teri and Myke, for clarifying the difference between fair market value and list price. I do not have a buyers agent yet. The company that I will be joining will help set that up at a later point. I'm excited about moving to the twin cities and am getting ahead of myself. Excellent blog Teri, thanks again.
0 votes Thank Flag Link Fri May 23, 2008
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