How much should we spend over asking price?

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To help my clients decide what to spend, I take market conditions into account by essentially performing a mini appraisal on the property before they submit an offer.

Dear David,

How much over asking do we spend in this crazy market? – LOOKING FOR CLUES

DEAR LOOKING: How much is enough, but not too much? This is the million-dollar question, and the answer is more complicated than plugging values into a formula.

The real estate market moves up and down in real time, similar to the stock market. Like stockbrokers, Realtors must watch for relevant patterns, in order to give their clients the best advice possible.

It’s important that agents immerse themselves in the market as full-time professionals, whether they are actively practicing or not. Conditions change quickly, and key indicators should be monitored at multiple points.  A snapshot glimpse at the numbers every now and then may not provide enough context to support a million-dollar decision, and agents who are not watching closely could be left in the dark if the market hits a wild streak.

To help my clients decide what to spend, I take market conditions into account by essentially performing a mini appraisal on the property before they submit an offer. I look at the last sale price and what the market has done since then. I compare the assessed value and current sale price ratios, as well as review the current sales in the area. Knowledge is power when it comes to making a sound strategic decision. A poor understanding of the market can leave a buyer vulnerable to losing an unnecessary number of offers, or wildly overpaying for a property.

Part of an agent’s role is to set realistic expectations for the offers they write. When I am the listing agent, I commonly see offers that are submitted with little chance of success – the “Let’s Give it a Try” offers. These tend to throw gas on the fire and can turn a buyer into their own worst enemy.  If a property receives ten offers and only five of them are serious, the strong buyers may be driven to their maximums in an attempt to outspend the competition. While the results are great for the seller, the offers that are testing the water may unintentionally be driving prices higher.

To combat this phenomenon, I encourage buyers to learn as much as they can about the market. Every house you see is a chance to educate yourself, so track the asking price and selling price of each property you visit, whether you are interested in buying it or not. This information can help you get your bearings in the marketplace and set you up to make knowledgeable decisions, with the help of your agent.

PRO TIP: When it comes to home values, forecasting in general terms can be dangerous. Anyone can pick a price and win an offer, but as a buyer, you need to focus on getting long term value for your money, even in a competitive market. It’s important to react to the changing market, but not overreact. #AskDavid #Advice

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