I was recently quoted in an article on stuff by Susan Edmunds, titled: Properties typically sell between 2% – 5% of asking price. One of the questions asked was, “Do you risk offending an owner if you make an offer below asking price?”
I’ll share my answer further down, but first…
A few thoughts on the sale-price accuracy question:
The “asking price to selling price” comparison can be a bit misleading as this will include properties marketed as ‘Buyer enquiry over $495k’ and ‘Asking price $495k’. In the stats, the asking price is the same but the first property may be a bit superior and might sell for $520k and the second for $485k. This can skew those stats, creating a situation where results like this cancel each other out and make it look like agents are experts at pricing property and/or properties are selling for darn close to what the owners are asking for. When the actual variation can be much bigger from property to property.
Agents often have some intuition on value, based on their experience. Most find it extremely hard to price properties accurately though. It really is a difficult job. Any agent who tells you they can accurately predict the value of your home (to within a $10k range, for example) is probably to be avoided. This is another topic all in itself, but you really can’t value a home that precisely until you have exposed it to all potential buyers in the marketplace at that time. Value can also change week to week as more competing properties come to market, or if a similar property down the road sells for a big price – thereby potentially upping the value of yours.
In saying that, many properties don’t sell at Tender or Auction and are then marketed with a price. That price is usually based on a mix of the agent’s appraisal range, the owner’s expectations and buyer feedback throughout the campaign so far.
Will you offend an owner with a low offer? (below asking price)
Every owner who is on the market should be excited to receive an offer. If it is lower than what you want or expected then you can politely decline it. Anyone who has owned a home that has taken a while to sell will attest that it is far better to have offers that you turn down than to have no offers coming in at all.
A written offer (even a low one) can encourage other buyers to take action and make their offer at the same time. The resulting competitive / multi-offer situation usually works out well for the owner in question.
Let’s say you offer $400k on a property with an asking price of $475k (this happens all the time, by the way, it just doesn’t show in the stats). Now in most circumstances, the owner would likely turn that offer down. They may even feel a little aggrieved / offended.
But imagine a week later, the buyer comes back and offers $465k. Is the owner going to work with it? Usually, they would. I have never met an owner who turned down a good offer because that same buyer offered a really low amount previously. They might be offended at first but that all fades into distant memory and all is forgiven if the buyer comes back at a more realistic price.
So the message would be, there is no wrong offer amount. Offer what you think the property is worth. You are doing the owners a favour by making an offer, whether it is accepted or not. Don’t let anyone ever tell you otherwise.