What Should My Offer Be?

Many of my recent posts have addressed the data that most new listings are selling at or above the asking price if they go into escrow the first 30 days. The closer to the listing date an offer is accepted, the more likely it sells for over the asking price.

After 30 days all bets are off but the longer it is on the market the lower the sales price will be compared to the initial list price. All this falls into the category of list to sales ratio. So most buyers now "get it" that the list price is often quite arbitrary and in a low inventory environment with a lot of demand chasing too little supply it is incumbent on the buyer and the agent to try to make some sense out of all this.

For the sake of discussion let's assume that we are looking at properties priced to sell and not over priced listings. Here's my guidelines. If the new listing is priced comparable to the last similar sale, expect the property to sell at 3-5% over the asking price. If it is priced under, you may be looking at 5-7% over and if really low up to 10% over.

Where this gets a little dicey is when there is a comparable "priced to sell" sale that is in escrow and hasn't closed yet. If your agent can find out from the other agent where the offer wound up, then you have data. For properties priced at around the general market perceived value, most likely the next sale will be at around 1-3% of the list price.

Let me share some examples from some of my recent sales.I listed 1508 Carver for $819,000. I thought it would sell for around $850K. I actually wanted the seller to list at $799K but couldn't quite make that case. There was a comparable property in escrow at the for $845,000 (listed for $829,000). So our sales price of $850 was a little over 3%. We did get an offer for $862K which was just over 5% but that buyer did not work out.

Another example, my listing at 1811 Stanford also in the Redondo Beach Golden Hills. Let's start at the end: sold for $986,000. I priced it to create a feeding frenzy of offers at $899K so we wound up almost 10% over. Prior to getting people in to see it the market perception was probably somewhere around $950K. So we would up around 4% over the market perception price.

As a buyer if you understand these metrics you can get into escrow and stop chasing the market up.

The other part of this discussion the best strategy for initial offers.