Over on Trulia Voices it was recently asked by a buyer seeking a home in Mesa if his past failed offers seemed reasonable. His scenario involved attempting to purchase homes in the $800K range for 10-13% below the current asking price. He hadn’t had any success to this point, and so he asked the community if they felt he was being unreasonable with his offer prices.
Personally, I’ve always subscribed to the 5% rule. This rule applies to both buyers and sellers. For Sellers, it means that the current asking price must be within 5% of the property’s true market value. Sellers always want “room for negotiation”, something that right now we are trying hard to minimize, but if a property is over-priced it has very little chance of selling, especially in this strong buyer’s market.
For buyers, even though this is a strong buyer’s market, I still advise my clients to make an offer within 5% of the asking price. After doing a thorough comparable market analysis (CMA), if we think the fair price is outside the 5% rule, then I know I have an uphill battle in negotiating a successful deal.
On the few occassions I’ve been involved in negotiations that are at or near a 10% difference, the usual response from the seller is very emotional, often involving anger. The seller is offended by the offer and almost always responds with a “final offer” type of counter-offer that is actually higher than their true final offer might have been, if negotiations had started more realistically.
As I noted, my 5% guideline assumes that the asking price is indeed within 5% of the property’s true market value. However, it should be noted that if a property is priced below the market, then even an offer 4-5% below this asking price may have trouble in negotiations. Aggressive sellers that are “pricing to sell” expect an offer very close to their current asking price.
As you can see, while I have a guildeline to stay within 5%, there are many factors that will cause me to advise tigthening or loosening this guideline.
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