If you're looking to purchase a home in one of the few remaining buyers' markets across the country, you should talk with your Realtor to see how far below listing price your initial offer should be. He/she will be able to pull comps for your market to determine how low of an offer you can negotiate.
However, most markets in the United States have done a full pendulum swing from the 2008 to 2012 downturn and are now very strong sellers' markets. Charleston South Carolina is a great example for discussion. In real estate markets like Charleston, the best listings are going under contract within 24 or 48 hours of being listed. In higher price points or less demanded suburbs, this can take up to a week or two.
When sellers' markets see such a low inventory of listings, many buyers have visited every listing that matches their search - so they're simply waiting on a new listing to hit the market. These buyers usually have already gotten a pre-approval letter from their lender so they can submit this letter with their offer (which helps their negotiating power). These buyers generally have a good idea of what they can get for the money in their market and perhaps have been waiting for several weeks or even months to find the next new listing and pull the trigger. Many of these buyers have already lost out on homes because they didn't understand the urgency (meaning the home already had an offer on it by the time they made a showing appointment), they made an offer that was too low and was flat out rejected, or they were in a multiple offer situation where another offer was chosen.
It's important for buyers to understand this type of pent up energy we're seeing in markets where the inventory of homes for sale is so low (meaning 2-3 months' supply or less). Many buyers - especially if they're relocating from a part of the country where the housing market hasn't recovered as well - have to learn the hard way that well priced listings go quickly. When we represent sellers and receive a low offer, we advise them to hold out. Another few days or even a week could make them thousands of dollars more in their sale - the high demand from buyers gives sellers the luxury of making substantially more money simply by waiting a little longer.
As buyers' agents, it can be frustrating when our clients want to submit low ball offers because we know from experience this is a waste of everyone's time. Most sellers and their listing agents won't even bother with making a counter offer if the price is too far below list price. They'll simply reject it and wait for the next offer.
If you're a buyer, don't get offended or put off by a sellers' market. There's still room for negotiating when it comes to list price, earnest money, closing costs, and other factors. Depending on the market and the amount of time the home has been listed, you could still get 1-3% off list price. However, asking your agent some of these questions below can save you both a lot of frustration:
- Right now, how much are buyers able to negotiate off list price?
- What is the Days on Market (DOM) for most homes right now?
- Based on comps, what is a realistic offer to make on this home? Do you think we could get [dollar amount] off?
- What makes this specific market so strong? Is there a different area that you'd recommend considering? [You might find that being willing to drive an extra 15 minutes out could save money.]
If you're reading this blog, then you're clearly getting a good start on educating yourself as a buyer. By learning the current trends of your market and asking the right questions, you'll be in a much better position for negotiating and you'll make a much smoother purchasing process!