If you ask people involved in selling real estate, whether agents or investors, you will hear this consistently, “your first offer is your best offer”. I know when I heard this for the first time I said to my self “give me a break” and did not think much more about it. As I was involved in more and more transactions however it became very clear that on average this is true!
I call it “Market Fresh”, the fact that real estate sells better when it’s fresh on the market. Will you pay more for a fresh vegetable that was just put out over the one that’s even a few hours old? Will you drive past the grocery to the farmer’s market to get it direct from the source? A similar paradigm exists in real estate and property sales and there are several reasons this make sense. I will make a few of the most common observations here but you will need to judge for yourself and at some point take it on faith that your first offer on a “Market Fresh” property may be your best overall!
I can tell you story after story about the first offer that was turned down and then 6 months to a year later the property sells for less than that original offer. The MLS is full of houses and condos that are now listed below what they had offers for just months ago. I have experienced this with my clients numerous times and have seen it personally. In fact, I saw a house I made and offer on last year just sell for significantly less then I had offered them.
The buyers that are well qualified, are making a legitimate offer and are ready to buy are already well into their search.
The general life cycle of a buyer is to start driving around neighborhoods they like and searching on the internet. They are not serious or ready to make an offer. The next stage is when they are contacting the agents with the listings they are seeing and asking for more information. They make take a look inside a few houses at this point. Next are the committed buyers, they have asked a Realtor to help them locate properties and get inside. They are now getting to know that market and research properties to see what they can expect to pay. This goes naturally into the next stage where they are ready to start making offers and have been pre-approved with a lender.
As you can see, at this point the buyer has a good bit of market research behind them and they are educated on the market. They are now waiting for that right house to come up and are well prepared for it when it does. Assuming you are priced in a realistic range, you will get your first offer from one of these buyers. Even through they are not offering full price you need to consider that they are serious and know the market.
I am not saying take the offer but I am saying to work it! Even the best potential buyer will still have the need to shoot low initially just to see where you are at and to feel like they are not over paying in the end. Don’t be insulted, buyer’s want to feel like they at least tried for the low price so stay in the game, be patient. If you work out a deal they will not have as much buyer’s remorse over the price if they started low at first.
The offers that may come weeks or months later will be the newcomers to the market, the ones just starting out who will be afraid to pay too much and are still nervous about the buying commitment. They are new to house hunting, less educated about the market and will err on the side of caution. Their offers will typically be lower.
There may be other offers as well from bottom feeders or investors that having seen you on the market for some time are “going fishing” for a deal. These may be lower yet. It’s not their fault, they are assuming there is a good chance you are flexible (desperate?) because you have not sold yet. What would you think?
About now you as the seller are starting to look back at that first offer you got?
You will want to consider many factors in determining what price to sell for. A careful consideration of the terms is essential as well as the value of a “bird in the hand”. You need also consider the value of your time, the trouble of showing your house, keeping it clean, paying taxes and maintenance, etc.
Will you be loosing other properties you would like to buy? Are you relocating and risking leaving an unoccupied house on the market? These things all can be assigned a dollar value and it is recommended that you consider all of these BEFORE you get that first offer.
Also working against you is the stigma of time on the market, after a few months your house is getting stale. There is a presumption by Realtors and buyers that if it’s still on the market something must be wrong. I can’t tell you how many times I have had buyers that in preparation to make an initial offer see that it’s been on the market for a while and reduce their offer. Literally, their eyes get big, they get a grin on their face and say, “Really, hmmm, let’s offer lower then”. Once they see it’s been listed multiple times the offers get much worse and it will cost you tens of thousands of dollars.
The easiest way to avoid these pitfalls for real estate are to put yourself in a buyers shoes to determine the market value before you list. Get in the car with your agent and look at the competition, that’s what I do with my clients. Know what your time and aggravation are worth. Have your house prepared for sale, don’t put it on the market and then start staging, cleaning and repairing, It needs to be a showpiece the day it goes for sale. Those same serious and market aware buyers will pay you for your preparation. These first buyers are not looking just for a deal, they are looking for the “right” deal, the value proposition.
Another paradigm in real estate is that the investment you make in preparing your home for sale will pay for itself in both real dollars and in time but that’s another article for another time!
Tom Schroth, is a career agent with over 20 years helping people buy and sell their homes and has owned over a dozen homes personally including rentals, investment properties, flips and rehabs. He practices what he preaches by making real estate not just a place you call home but a wealth building investment. Tom runs the Schroth Realty Group, schrothrealtygroup.com, a team of professionals dedicated to providing real estate buyers and sellers in the metro Atlanta area an exceptional experience. His resume included hundreds of real estate transactions, a broker’s license in both Georgia and Ohio, founding a real estate company, and managing and office of one of the largest real estate networks in Atlanta. Tom Schroth also runs Whiteboard Group, a business development consultancy and coaches business owners and individuals to help them get clear on their goals and take steps to achieve them and “Perform at Their Highest Level” see: wboardgroup.com and Tom’s other blog, “Business Yoda” businessyoda.com.
Do you have house to sell? Are looking to purchase real estate? Contact Tom’s team at 888-724-7864