As a broker, I encounter many buyers that choose to make low price offers on listed properties.  What I have found is that many buyers choose to focus on asking price rather than value.  Many buyers have lost homes that they were truly in love with because they focused on the asking price rather than the value of the home that they were choosing to purchase.  At the same time, many buyers have overpaid for properties that were overpriced in the market (the best example being new construction).

Imagine that there is a home listed on the market that you as a buyer are truly in love with.  The home may be listed at $220,000, $200,000, or $180,000. At $220,000 the home is overpriced.  At $200,000, the home is priced to market.  At $180,000 the home is truly a deal. As a buyer, under the three above scenarios, what offer do you choose to make in each scenario?

The psychology of most buyers is to make an asking price based offer and not a value based offer.  If the home was listed at $220,000, many buyers would feel comfortable making an initial offer of $200,000. The buyer is excited when they find the seller has accepted their offer of $20,000 below the asking price. Wow, what a great deal they say!  But in fact, the buyer has paid full market value for the property and in some cases may have even overpaid for the property!

Fact:  On average, buyers pay full market value for their home!  After all, this is the definition of true market value.

Then, you have the other situation.  The home is already heavily discounted.  What offer do most buyers make then?  Again, most buyers choose to make an offer based on the listing price and not the value.  They may choose to offer $160,000 when in fact the home is currently well underpriced at $180,000.  What usually ends up happening in this situation is that the seller flat out rejects the offer and the home sells rather quickly to another buyer for the full asking price.

Are You Buying a Home or an Investment?

Another question Buyers should ask themselves is “Am I buying a home or an investment?”  Given the market, only a limited number of homes are priced well below market value.  Buyers who choose to purchase underpriced homes limit themselves in their selection of homes. Buyers may sacrifice in terms of features, location, and condition when purchasing underpriced homes.  Therefore, many buyers are not as happy as they could have been with their new home purchase, even though it was of great financial benefit.  In other words,  the question for home owners should be asking is “what is the value of this property to me?”  Investors, however, should take a different approach and only ask value questions in strictly financial terms as personal preferences can be ignored.

As a broker, my advice to Buyers purchasing a home (as opposed to an investment) is to view lots of homes that meet their requirements in terms of price range, features, location, and condition.  It is not until buyers shop the market,  that buyers can gain a real indication of value in their mind.  Value for a buyer choosing to purchase a home (as opposed to an investment) is unique to every buyer.  For example, If the house you are choosing to make an offer on is next door to a friend or relative, you may be willing to pay a little more than if the home is located across town. 

Only after locating several properties that you are interested in purchasing, do you begin making offers. Use the properties that are listed below market value as a springboard for making offers on homes that you are truly in love with.   Do not make asking price based offers on those properties.  Only make value based offers based on the benefits associated with each property.  Each property will not have the same offering price as the value of each property is different.   Do not be afraid to make a value based offer (even what might seem to be a low ball offer) if the home you are in love with is overpriced.  See, overpriced properties rarely receive offers.  Also, do not be afraid to make a full price offer if the property is listed well below market value.