If you’re out to buy a Silicon Valley home this year, you may be tempted to look at real estate priced far above your ability to pay and hope that you can write a low offer that the seller will accept.

Don’t count on it.

Lowball offers are contracts written substantially below the list price (and often well below market price).  How low is too low? It really depends on the micro-market of the home you’re interested in (the neighborhood, price range, school district, etc.).  In most of Silicon Valley, houses, condos and townhouses sell within 5% of list price most of the time. The average list price to sales price ratio is usually closer to 1 – 3% of list price. 

My usuall advice to buyers is this: if you don’t think that the home is worth within 5% of list price, then keep looking until you find a home that is.  Most of the time, sellers aren’t prepared to come down more than a few percent. 

Once in awhile, of course, a million dollar home will sell for nine hundred thousand. But it is very rare that a home will go for 10% or more off of list price.  Most often, in fact, the seller will be angry about an offer that far off the mark and will simply write a high priced counter offer.  For example, let’s say a home’s listed at 1 million dollars (to use round numbers) and a buyer writes an offer for eight hundred ninety thousand dollars.  Most likely, the seller will volley back at something like nine hundred eighty thousand.    The best listing agents will tell the seller, “rather than take an offer more than 10% below list, let’s reduce your home’s price 4-6% and see if we cannot sell it for more than that”.  And usually, they can.

Buyers: if your budget is appx $500,000 or less, please don’t waste everyone’s time by looking at homes priced at $600,000.  Look at $500,000 or less – maybe a tad higher than five hundred, but not much.  Look within 5% over your budget, tops.

Sellers: if you are getting lowball offers but no “close” offers, the buyers are telling you something about the market conditions. Consider reducing your price so that your sales price can be reasonably close to list price.  Ask your agent for his or her unbiased opinion of your home’s probable sales price. (Some sellers browbeat their agents on price, feeling that if they can convince the agent the home is worth more, it will sell for more.  Give your agent the permission to be honest with you – that will be your best help.)

Tags: buy a home, list price to sales price ratio, lowball, offer, sell a home

This entry was posted on Sunday, January 3rd, 2010 at 8:49 pm and is filed under Buying Tips, Finance Information, First time homebuyers, Selling Tips. You can follow any responses to this entry through the RSS 2.0 feed. You can skip to the end and leave a response. Pinging is currently not allowed.