Do things like how long the home as been on the market and the economy affect how much a home owner is willing to drop?
How long a home has been on the market?
If a home seller has had a difficult time selling, does this mean that they will accept lower offers? In general, our buyers agent’s study of about 10,000 home sales in the Boulder and Northern Denver are shows that most home sellers will hold out to get 2-5% of their asking price, regardless of how long their home has been on the market.
That said, the data does show that even though most sellers will wait to get within that range, more sellers appear to accept offers less than 5% if their home has been on the market longer. To be more specific, about 80-85% of home sellers sell their homes within that magic range of 2-5%. But, if a home has been on the market for 6 months or more, about 75% of these sellers sell for within the 5% range. Most of the sellers that sold for less than 5% accepted offers within 10%.
So, it seems to be more likely to negotiate below the 5% mark if the home has been on the market for longer than 6 months. Still, the vast majority of homes on the market for long periods of time sell for within the 5% range. Even if the seller has had a difficult time selling, it is rare to negotiate below 10%.
A strong market versus a weak market?
Most homes sell within the 2-5% range, whether the market is strong or weak. This may be somewhat counter intuitive at first.
One exclusive buyers agent that is a member of our association compared home sale data during a hot market (1998-2001), a flat market (2004-2007) and a weak market (2008-2010).
The data shows that in all 3 markets, 80-90% of homes sold within 5% of their asking price. It is important to remember that asking prices are set based on current market conditions. So, if the economy is booming, the homes current value is more than in a weaker market.
While most homes still follow the same pattern, there are some important differences worth noting. In a booming market, more homes were sold for at or more than their asking price than in a weak market. Also, in a weak market, more buyers are able to negotiate an additional 2% off asking price than in a hot market.
To understand why most homes sell for so close to the listing price, we can take a look at the home seller’s point of view.
A home seller is trying to get the highest amount possible during the home sale negotiations. They made an investment in purchasing the home, and of course, would like to see the greatest returns possible. Or, in a less happy tale, they are in a situation where they are upside down on their mortgage and can not afford to sell it for anything less than what they have listed. Either way, the average seller is motivated to get the best price possible. (There are exceptions. You will hear about “motivated sellers.” This generally refers to cases where selling the home quickly might be more important to the seller than waiting additional time to get a better offer. For example, they need to move right away, etc.)
How the listing price is set
When a home seller puts their home on the market, they are also getting expert advice from a professional. Their agent will run comparables of similar, recent home sales. This provides a realistic idea of how much the home is worth now and how much people are willing to pay for similar homes. Sadly, for many home sellers, this number may be less than they were hoping since right now our market is experiencing an inventory that exceeds demand.
In other words, before the home was even listed, the home seller has likely gone through their own reality check. It is even possible that the home is listed for less than they were originally hoping. Their listing price represents their expectations and desires for the return, and receiving offers significantly lower will likely not be accepted. Instead, most sellers will decrease their asking price by $5,000 to $10,000, and hope to receive an offer closer to that price.
But what if the home owner listed their home at an unrealistically high price?
Imagine a home seller who was advised by their agent to list their home at a price lower than they were hoping. Instead of accepting this sad fate, they decide to list their home at a higher price than advised, maybe a higher price than is realistic in this market. Is this seller a good chance for a record negotiation? Probably not. More likely, if they receive no offers or interest in the home, or receive offers lower than they expected, they may drop the list price a few percent, and wait and see if this attracts more potential buyers.
Seller behavior explains why most homes sell for 2-5% of asking price.
Once the current market value is established by comparing to recent and similar sales, the listing price is set. If they have not received an offer they are happy with, most sellers will adjust their asking price within 2 weeks to 2 months. Usually, they will drop the asking price by $5,000 to $10,000 and wait, hoping for a better offer or additional interest in the home. This seller behavior helps explain why the majority of homes are sold within 2-5% of the asking price. If they don’t receive an offer within that range, they’ll try other tactics rather than accept an unusually low offer.
The real estate market has been struggling, so I should expect home sellers to accept really low offers, right?
Wrong!
These days, it is easy for home buyers to dream of getting the deal of a lifetime for their next home purchase. Stories in the news might make us think that sellers will accept just about anything. Desperate times call for desperate measures, we think. Home sale data does not show this to be the case.
With our market experiencing an inventory that exceeds demand, purchase prices are falling.
This creates a situation for buyers to get a great value, maybe even the deal of a lifetime. But, it probably won’t be because someone sells their home to you for a significant amount less than their asking price.
Let’s take a look at actual home sale data from our experienced Colorado Exclusive Buyer’s Agents. It you can help you set realistic expectations about what to expect during your negotiations. Realistic expectations can help save time and effort by avoiding submitting offers that will probably be rejected, looking in appropriate price ranges, and, ensure that you don’t miss out on your dream home by being outbid by another buyer.
The overwhelming majority of homes sells 2-5% below the asking price.
In fact, according to one of our exclusive buyer’s agents study of 21,000 homes in the Boulder County and Northern Denver metro, about 80 to 85% of homes sell for about 2-5% under the asking price About 10% to 15% of homes sells for between 6-10% of the asking price, with most of those in the 6-7% range. This pattern is consistent whether you are looking for a $200,000 home or a $600,000. Interestingly, this pattern is consistent in different economies as well. Our exclusive buyers agents compared the data for the boom economy and the bust economy.
That’s not to say that those two economies are the same, because of course they are not. Current market values are decreased in a bust economy which is what really allows you to get more for your money, rather than seller’s accepting significantly less than their asking price. Additionally, you will see differences like more homes selling for at or above the list price in a booming economy than you would in a slower one.
The bottom line? Most homes sell for within 2-5% of their asking price. Most people can expect to purchase a home within this range of its list price.
Remember, this is still a significant amount less than the listing price. For a home that in the $200,000 range, this is about $4,000 to $10,000.
Your buyer’s agent will be able to provide expert advice on a case by case basis so that you will get the most out of your negotiations.
They will be able to leverage their local knowledge of the area and the current market, plus anything found in the home inspection to ensure that you get the best possible deal.
We get many questions from home buyers about the negotiating process. We are starting a series about what to expect during negotiations to give buyers a realistic picture of what it will be like.
For example, is it realistic for you to plan to purchase a home for 20% less than the listing price? Can you expect to negotiate more off the list price during a weak market?
Overall, most homes sell for within 2-5% of their asking price. In other words, most home buyers can expect to negotiate about 2-5% off the listing price of a home. Over the next few weeks, we’ll take a look at some really interesting data compiled by one of the Colorado Exclusive Buyer’s Agents Associations buyers agents to understand more about this pattern, and address some of home buyers common questions like:
1) The real estate market has been struggling, so I should expect home sellers to accept really low offers, right?
2) Why do most homes sell for so close to the list price?
3) How do things like how long the home as been on the market and the economy affect negotiating real estate?
4) What are potential pitfalls of low offers?
And finally, for our beginner investors:
4) What to expect during fix and flips?
The goal of our buyers agents is to help you find and purchase the perfect home for you, at the best price possible. An important part of this is providing expert advice to you through the negotiation process ensuring that you get the best deal for you. Equally important, our agents are able to help you set realistic goals and expectations throughout the home buying process. This will not only help you save time and headache, but it ensures that you understand what kind of investment you are making & what kind of deal you are getting.
2012 is proving to be promising for the Denver Metro housing market. In fact, economists are reporting a 13.2 percent increase in home sales so far in 2012. This shows that the Denver Metro real estate market seems to be on the road to recovery. While homes are not yet experiencing appreciation, things seem to be moving in that right direction as the number of sales increases and inventory levels overall are down.
Real estate experts are citing an increase in the number of first time home buyers as a boost in the Denver Metro real estate market, leaving the inventory down 41.9 percent from February 2011.
We are also seeing an increase in the number of buyers that are moving up from their first home and purchasing homes in the $200,000 range. Additionally, people who are selling their homes to these first time buyers, and “move up” buyers in this price range are purchasing more expensive homes.
The result? The real estate market in Denver Metro is really starting to move!
With the suffering real estate market affecting so many for so long, it is exciting to read a different story in the news than we have been reading for the last few years. Now, we are reading a promising story of families purchasing their first homes. Or, families growing and moving in to bigger homes.
If you are getting ready to make your next (or first!) real estate purchase, make an informed decision with the help of a buyers agent. Contact us to begin interviewing agents today!
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