Should we offer over list price?

November 20, 2017

Based on your description of the circumstances, consider a pause to get more information.

Reader Question: We have been combing the market for several months, but nothing has hit on all cylinders until a new house came up yesterday and it has everything we need and more. It’s pushing our price limit at an asking price of 449k. We met our agent to see it this morning, and it exceeded all expectations. I feel, and the agent said, that competition will probably be high for it. She suggested coming at them with our highest and best offer. We are underwritten for 456k and can’t go any higher than that. We do want the house, but I don’t want to offer more than the asking price if that is not a typical occurrence. Should we make the offer for $456k right out the gate?

Monty’s Answer: This is a question that will elicit different answers from most anyone you ask, and add confusion to the discussion. It is likely that you have already heard emotional answers in both directions. This situation calls for a pause.

Consider this thought

If you have to ask the question, you are not well prepared to buy this home or any home. Allow me to explain.

Revelations in your question

  • It has “everything we need and more.” This statement suggests that this home has additional features you have not seen. Does it contain more footage? Are there extra features or amenities? Is it in a slightly higher price range? If it is, it is likely all the homes in this range would exceed your expectations, and you should look at more of them.
  • You state you don’t want to pay over the list price,“ if that is not a typical occurrence.” The list price represents a number the seller has agreed to list the property for sale, or any amount the seller is willing to accept. How the price was established is anybody’s guess and is not a relevant benchmark in making such a crucial decision.
  • Like many homebuyers, you may be looking at homes by rote without knowledge of a critical technique necessary to prepare for the point in time you are now facing. Your number one job is to understand value. If you abdicate this function to anyone else, you are at considerable financial risk.
  • You have been “ combing the market ” for a few months. It is unclear what activities have taken place. As it stands now, here you are, months into the search, at a critical time, and you don’t know what to do. You would know what to do if you had the necessary information, and it is available for the asking.

No one is to blame

Your agent may not know this technique herself. Her suggestion about “coming at them with your best offer,” suggests she does not know. Even if she did know, many agents do not understand the technique’s importance. Did she analyze the house and the market before making that statement? If she did not investigate, It is possible she is thinking she has a lot of time invested in you and she wants you to buy that house.The real estate industry as a whole has neither the time nor the inclination to educate you.

You need the answer to these two questions

  1. How many homes have sold in the past six months that would be competing with this house if they were on the market today? Your agent has that information at her fingertips, get it. If there are 30 homes in direct competition and 3 that were competing that sold in the past six months, those statistics suggest it may not be necessary to “come at them with your best offer.” If there are 3 homes in direct competition and 30 sales, making your best offer is statistically supported.
  2. What is the “ range of value ” of this home? You must adjust the features of each sold home and net out the differences between them and the home you are considering. The individual MLS data sheets on the comparable sales describe the features of each house. Because each comparable has different features, the net adjustments on each property will result in a range-of-value when compared to the subject. This Dear Monty article shows you how. If you had been practicing this technique during your search, you would be proficient in establishing a range of value for this home, and you could answer your own question. Knowledge is power.