You’re shopping for a home and you’ve finally found the one! Yay! You’re going to submit an offer, but the first question is how much do you offer? How do you come up with an offer price? Should you start at the list price? Is the list price, the actual price of the home? Or asked another way, is the list price the actual value of the home? Great questions! Let’s find out what exactly is list price.
So, to help us understand this better, we need to break down what exactly is list price. As the name implies, it is the price at which the home is listed on the market by the seller. Got it, done. Not really, let’s go another layer deeper. How does the seller come up with their list price? Typically, a seller who is working with a listing agent will have their listing agent run comps on similar homes within a 1-mile radius that have sold recently. And then they will review the prices that those homes sold for, the original list price of the home compared to the sold price, and how many days did it take for that home to sell. In addition, they will review and compare the condition and finishes of the homes sold compared to the seller’s home. After all of this, the listing agent comes up with a recommended price and sale strategy for the seller. And then the seller either agrees with the listing agent’s price and plan or comes up with their own. So, since you as the buyer are working with your own buyer agent, hopefully right. To come up with a competitive offer price, you will want to ask your agent to run their own comps on the property so that your agent can double-check the work of the listing agent and the seller. Where does the seller’s list price fall within the recently sold similar comps? Now it should become clear to you if the list price of the home is priced right, too high, or too low compared to what the market is saying.
So, if the home is priced right, then that’s a good thing. The price that the home is listed for is accurate and starting at a minimum of the list price would make sense. If it is determined that the home is overpriced, then you may want to consider submitting an offer lower than the list price and have your agent explain to the listing agent why. If the list price is determined to be too low for the market. This could either be accurate because of the home’s condition if it requires a lot of repairs and remodeling. Or if this is not the case, then you as a buyer will need to proceed with caution. As sometimes, sellers and listing agents will use the strategy of intentionally pricing the home very low under market price, to draw in as much buyer traffic as possible. The hope is that this results in multiple offers and a bidding war ultimately bringing in the highest offer price possible for the seller. So don’t automatically think that the home’s list price is low because that’s where it’s going to sell and it will be a great deal. It’s priced low as a trick! So, you know what the home’s actual worth is and where your offer price needs to be in order to be competitive. For example, a home is listed at $40K below even the minimum recommended price range. Buyers will come out in droves to look at this awesome deal! When it comes time to submit offers, most buyers will only offer $10K-$20K over the list and think that’s competitive. The few who really like the home will offer at least $40K over the list to get the home back up to the low end of the market value. And then the buyer who really likes the home and understands the pricing game will be willing to overbid the list price by $50K, because again it’s $40K to get up the low end of market value, and then an additional $10K to get into the home’s avg recommended price level. And of course, those who understand the game being played and are willing to bid what is needed to win the home will be the winners. Now you may be thinking you’re overpaying because you’re offering much more than the list price. Fear not, the appraiser will also verify the purchase price and as long as the appraised value comes in at least equal to your offer price, you are NOT overpaying.
Now there are homes where the list price is outrageously way too high. And those are basically the bridezilla-type home sellers who believe they have the best home on the block. They are not highly motivated and just fishing for offers. Testing the market to see if there are any takers. Do not waste your time with these types of sellers, as most likely they will not accept or negotiate anything too much lower than their list price.
Now keep in mind you also have to factor in buyer competition in the market. If homes are flying off the shelf with multiple offers and every buyer is offering significantly above the list price, then you will have to follow and compete similarly or you won’t stand much of a chance. On the other hand, if the market is a buyers’ market, homes are sitting on the market for long days on market. And sellers are feeling the pressure and getting desperate. Now you can actually offer less than the list price and even negotiate things like home warranty and seller credits. So that is how a list price is set and what you need to understand when coming up with your offer price. If you have any questions, please send me a message or leave a comment.