Updated: Sep 12
Should You Never Pay "Full" Price for a Home?
Those who have bought homes before, if most or all of their experiences have been purchases in buyers' markets (especially in rural areas), are often used to getting homes below their asking price. Sometimes they won't buy a home unless they get it below asking price. I generally recommend avoiding that philosophy, since a home can be listed for far below the actual value, and a buyer can be shooting themself in the foot if they will only go below no matter the actual value.
When to Be Picky & When to Be Expeditious on Offers
While there are many other factors than just looking at market and interest rates, it's generally best to be picky if the market is going down in price &/or the interest rates are projected to go down, while it's best to be expeditious if rates (if you're using a mortgage) and prices are projected to go up.
Different Offer Examples of Mine Getting $49k Below Asking vs Winning 8 Offer Scenario
Sometimes buyers will be able to get below asking price contracts through, and I've helped buyers to get as much as $49k below asking price on 1 occasion and as high as 4.5% closing cost assistance on another occasion. That said, I've also helped buyers win in an 8-offer scenario in part by going above asking price for a home that they would have never gotten if they had gone below asking price.
Increased Probability of Below Asking Price
Increased Probability of Above Asking Price
Long market time
Short market time
a long time [i.e. >30 days] since the last substantive [i.e. 3%] price reduction
a short time [i.e. <3 days] since the last substantive [i.e. 3%] price reduction
a long time since it's went back on market or with substantial issues uncovered during last contract or the listing agent not wanting to talk about it
a short time since it's went back on market with minimal issues discovered & transparency from the listing agent (especially if inspections are available)
Lower population density
Higher Population density
Comparable sales don't substantiate list price
Comparable sales easily substantiate list price or more
Excellent marketing (i.e. professional photos, aerials, virtual tour, highly detailed listing, placement in >99% MLS, etc.)
Low (i.e. <100%) average % contract price vs list price for area
High (i.e. >100%) average % contract price vs list price for area
Listing agent has typically below asking price sales
Listing agent has typically above asking price sales
To help illustrate the importance of market time, the time since the last substantive price reduction, and the time since the property has been back on the market, note the following differences in the same SE VA city, Suffolk, between a 0-1 day market time and a 60+ day market time, without even factoring in price reductions or properties that previously went under contract.
Here's the figures with 60+ day market time at the bottom 10% of the total #s:
With the top 10% of those #s, they don't mean as much as they would otherwise because they don't factor in price reductions and properties coming recently back on the market.
Let's compare the above with the bottom 10% of properties with a 0-1 day market time in the same time range and place:
As you can see above, the very bottom of the pack was a larger % vs list price versus the long market time numbers, and the bottom 10% even included properties that went at list price.
Real estate is seasonal, so keep in mind too that % sales price vs list price will tend to be lower in the Winter and higher in the late Spring/Early Summer:
Keep in mind with the graph above that time of contract is typically 1 month from closing, so January lows are typically from December contracts.
Tips on Below Asking Price Offers
Whenever you are trying to go far below asking price, any significant concession (i.e. closing costs or a newer washer and dryer in great shape that the sellers stated that they didn't want to convey) doesn’t just have an impact on the seller’s net proceeds, but also has an emotional impact on the seller’s perception of your attitude about the purchase. If they get the perception that you’re trying to “nickle and dime” them, they may not engage your offer at all or be more apt to not tell you about another offer that comes on the table after yours before accepting that other offer. When I make offers far below asking, I generally try to isolate that significant concession rather than it being 1 of multiple concessions requested.
Concession for Concession Example:
If, in addition to going far below asking, you were to include a request for a newer washer and dryer in place of rent in a scenario where the seller has requested a rent back, the seller may see it as a concession and may be ok with foregoing on their washer/dryer, but it’s also possible that their listing agent didn’t prepare them for needing to actually pay anything for the privilege of remaining in the property after closing.
For something like the washer/dryer, if you really wanted it, I would suggest waiting to ask about it until after the home inspection contingency has been removed after you’re under contract. At that point, they may be willing to give it away freely, or more likely, not willing to give it or willing for it to convey for a price (i.e. $ you pay). In REIN (Hampton Roads) offers, the listing states what is conveying, and when someone puts “washer hookup” without also saying “washer”, they are saying that it has a hookup, but that the washer itself isn’t conveying. I have seen at least 1 occasion where the seller still intended to have the washer/dryer convey and the listing agent input the information erroneously though.
Escalation Clauses on Below or Above Asking Price Offers
Whether you're going below or above asking price, escalation clauses can be very helpful if you really want the home but don't want to pay more than you need to. That said, they're not always going to be an option, such as with HUD homes or VA foreclosures. With the property I helped buyers to get for $49k below asking, we actually used an escalation clause because it was a 2-offer scenario we were told. In that scenario, we got them down further than the initial contract when significant issues that weren't easy to tell about were uncovered in the home inspection. In a single offer scenario, an escalation clause is more risky of a buyer paying more than they would otherwise by showing the buyer's cards to the seller, but it adds the benefit of protection in the event of another offer coming in soon after. I've helped buyers to win before on at least one occasion in a 2-offer scenario where the 1st buyer lowballed and my buyers came in with a strong offer with the seller not giving the 1st buyers a 2nd chance but going straight into negotiations with us.
More Tips On Below Or Above Asking Price Offers
In a competitive offer situation going above asking, or even when going below asking it's important to put your best foot forward, doing so in each area of an offer that you can as long as it makes sense. Some of these don't actually cost you anything, while others may be costly or high risk. Examples include:
Not asking for closing cost assistance
Guarantees above appraisal (typically only if going above asking)
A short inspection window or no home inspection (beware if not doing a home inspection, especially in a buyer beware state like VA; if not doing a home inspection, be sure to go to places of the home that a home inspector would typically go to, i.e. crawling around within crawlspaces and getting a good view close up to the roof such as with a pole camera like I have or a drone like I have if you have permission to use one on property; sellers/listing agents are more likely to be wary about buyers/buyer's agents going on top of a roof pre-offer)
A short time prior to closing on a vacant property & closing date flexibility on occupied property
More ideas including what is important in an offer here
Importance of Buyer Brokerage Agreement Before Specific Offer Advice in VA
While state law varies, and I am not an attorney, in VA, when a buyer asks an agent what they feel a home is worth that they are considering purchasing, or when a buyer asks an agent what they believe an offer should be, the agent should not respond directly to that question without first establishing a written buyer brokerage agreement with that buyer.
Competing Offer Spreadsheet (including elements beyond the price that make up a "good" offer)