The previous posts offer some great information so I will just add my 4 cents to fill out some things I think are important to the discussion.
I have said the following to my clients over and over:
You've no doubt heard that the key in real estate is Location Location Location! Well...REAL ESTATE VALUE IS A LOCAL PHENOMENA. It can be so local as to vary substantially within several blocks as Kathy's post illustrates very well.
Some areas of Colorado Springs are experiencing declining prices, some are stable and some have even experienced a very modest 1% or so appreciation over the last year. In the Old North End home values have remained relatively stable the last 5 to 6 months or so because it is a very desirable area of town while the Westside, which is undergoing a revitalization, has seen minor declines in values as there is an overabundance of properties available...especially along W. Colorado Ave.
In addition to this, some Realtors are desperate and starving and desperation breeds some bad behaviors. Until fairly recently, for the last 15 or so years it really didn't take much hard work or talent to sell homes...all you had to do was put a sign in the yard and throw it on the MLS. As the result, every Tom, Jane and soccer mom got a real estate license and called themselves an agent. It got so bad that there were even a bunch of "Part Time agents"...can you imagine, trusting what is for 95% of Americans their largest investment to someone who only works part time?
Unfortunately, the gravy train over the last decade or so lead to a lot of sloppy real estate practices. Not the least of these was that the vast majority of agents never invested in their professional real estate education and continuing development beyond the classes that taught them how to get their license. This lead to the slop CMA (Comparative Market Analysis). While Realtors and Real Estate agents (Yes, there is a difference) are usually not appraisers, it's important to have a Realtor who understands how to properly assist and advise a seller in determining reasonable market value and quite honestly...there are many agents who don't know how to do this properly.
Some will give an overinflated valuation in order to get the listing when competing against other agents. This of course does neither the agent or the seller any good because the property languishes on the market becoming stale as the agent has to continually waste more of the sellers time by asking for price reductions. Even worse are the agents that just don't understand how to do a proper CMA for home valuation. They just don't know what criteria to use to get as accurate a valuation as possible.
When it comes down to it, a CMA and appraisals are just educated professional guesses based on the market information available regarding a specific property along with some number crunching. In the end...all the other stuff aside...a property is only worth what an educated buyer is willing to buy it for and an educated seller is willing to sell it for. If a seller is insulted by an offer so much that they don't counter, they aren't being smart...all emotion aside...the property is an investment and its their agents job to advise them to think of it as such. In a challenging buyers market, no seller who really wants to sell can afford to turn a willing buyer away without at least attempting to negotiate a mutually agreeable agreement.
Second, and I'm a broken record on this topic, don't worry about offending sellers. Don't worry about how they'll react to your offer--low or otherwise. Don't try to be a mindreader, anticipating their emotional response. Yes, some sellers get mad, whether or not your offer is supported by comps. Some get made if you offer a penny less. On the other hand, some don't get mad even if you offer 10%, 20% or more under their listing price. Just don't worry about it. Use the comps to establish the upper limit to your offer. Then factor in what you can afford to pay. Take the lower of those two figures (the comps, and what you can afford). That must be the most you will pay. How much under that you wish to go is your decision. But if you may have to sell in 3-4 years, you'll want to go measurably under that.
Next, ignore tax assessment. Ignore Zestimate. (Hey, Myke--he's another poster here--this is what I'm talking about with reference to questions about Zillow.) A Zestimate is fun, but is seldom accurate. It's like what they say about a broken clock: Even a stopped clock is right twice a day. And a tax assessment is even less reliable.
Finally, you say you just want to buy the house at a fair price. Good enough. But fairness, like beauty, is in the eye of the beholder. As I said above, offering one penny below a list price may offend some sellers. As you've noted, some houses may be overpriced by 35% or more. Look: What's fair to you? My advice is some number below what the comps suggest...measurably below since you may sell in 3 years. (Some agents and buyers here will probably suggest you don't even consider buying in that short of a time frame. They may be right.)
So, listen to your agent, get the comps. Know what you can and are able to afford. Factor in the possibility that you may have to sell in 3 years. Then make an offer that works for you. The only way you'll know whether the seller considers it "fair" is by his/her response.
Hope that helps.
You don't get what you don't ask for. What the market actually bears and the public perception are ofter very different. Sellers always think their home is worth more beacuse they have personal ties to it. You are making an offer without any emotional ties; you have a chance of offending someone. Regardless, the selling agent needs to educate their seller BEFORE they list the property. What are the trends of their local market? What is the average DOM? Hopefully they are pricing the home to sell and pricing is negotiable. Opinion is just that, opinion. Again, if you don't make an offer you will never know.
Your realtor should be able to guide you to parts of the Central part of city that are in your price range. If you buy in the central part of the city, you should be fine to sell again in 3 to 4 years. Those areas hold their value well and there is always a strong demand for these areas.
Best of luck to you.
1) Assessed property values (taxable value) has ZERO impact on property values. The two aren't even closely related. Property is assessed once every 5-20 years - depending on where you live. In between assessments typically a 1.5-3% (depending on where you live) appreciation rate is factored in. This is far more conservative then even normal market conditions. In some areas property is deliberately not re-assessed for political reasons. Politicians know property tax is a huge issue in some areas, and reassessing property would cause those taxes to increase considerably - so they just let it slide.
Second - Zestimates are basically educated guesses. It's just saying based on sales history and average price of the area (zip code) as a whole, factoring in market indexes - this is the adjusted estimated value. Good to get an idea of asking price in relation to market conditions, and averages within the area as a whole - but not really good for trying to nail down a specific price on a specific property.
Another issue that you will see quite a bit.
Seller's base prices around what they owe on the property. If you have someone that bought a house a couple years ago, way above reasonable value - guess what, they're not gonna take a bath on it now. You might think a house is only worth 275, and all market conditions and even appraisals might be in that area - but if the seller owes 290 - good luck gettin it for 275.
As far as sellers getting mad at low offers - that's just a nasty side effect of life. If you're deliberately trying to low ball somebody just because you can, that might be justified. If you're making a reasonable offer and can back it up with hard data - and they still get mad - that's thier problem. Some will be reasonable and understand this isn't 2006, and they're not going to get 2006 prices for thier homes. Some will not take that so well. Not your problem.
Personally - i think it sounds like right now may not be the greatest time for you to buy if you don't *have* to. Right now can be a great time if you have the luxury of holding out until conditions improve. If you're an investor and you pick up a property that can be rented if the market gets worse, or if you'r ebuying a home you plan to be in for a long time - it can be great. Short-lived holdings are pretty sketchy though. Who knows what will happen in the next 3-4 years.
All of these answers are very good and give you a great deal of valuable information. I am slightly concerned that your agent hasn't adequately answered these questions for you. I encourage you to ask if you aren't getting satisfying answers then look for an agent that does.
I am also mystified that no one is discussing short sales. Every seller CAN sell their home no matter what they owe if it is indeed necessary. There seems to be limited knowledge of the process and the impact it has on the sellers. Many in Colorado Springs are having to resort to those measures in all price ranges. I feel that it is beneficial to be certain that your agent is very knowledgable on the subject in this market. It is likely to be a factor.
If the seller is over pricing his home, he may not have the guidance available to make sure he understands what options are available. It isn't just the lower end homes that are running into problems. If your agent understands the market they will help you get a home at a price that will work for you in the long run. You do need to be aware of how long you will be wanting to live in the home. If it is 4 years or less, I encourage you to think more like an investor rather then a home owner. You will want to factor that into the price you are willing to pay. There are a lot of variables to consider in the current housing market, but these are also the markets that can produce the greatest profits too. There are many exceptional deals being made right now. It is truly a buyers market. Settle for nothing less then what works for you. There are too many choices available.
>>>... all you had to do was put a sign in the yard and throw it on the MLS. As the result, every Tom, Jane and soccer mom got a real estate license and called themselves an agent. It got so bad that there were even a bunch of "Part Time agents"..>>>
..sounds like Florida.......