Thinking about making a low-ball offer? Let's talk about the theory of supply and demand in real estate
Do you feel that you're in a buyer's market and the best strategy is to start low and "fish out" responses?
Or perhaps you want to delve into what a seller paid for a property in determining what your buyer wants to offer?
What a seller paid for a property HAS ABSOLUTELY NO BEARING on what the fair market value is for that property.
Let's say a property is listed for $300,000. It was purchased at a trustee sale for $195,000. The seller's purchase price has nothing to do with what the property is worth, and you cannot consider what [you think] their net profit will be in determining what the property is worth, nor what you should offer for that matter.
Let's do the reverse: What if the seller paid 3 dollars and 75 cents for the property? Or inherited the property for free? Does that mean you're justified in offering 5 dollars and 35 cents for a property that is listed for $300,000?
I don't think so. So let's just take that element of what the seller paid for the property and toss it into El Garbagio.
Determining what you feel should be a fair profit for the seller should not even be an element of the equation when determining an offer price.
Let's put one more spin on this, especially since a large percentage of the real estate market are short sales: What if the seller paid $450,000 for that same property listed for $300,000? Do you base your offer price on what the seller paid in this same case and offer, say...$425,000?
And of course, any buyer's answer would be "absolutely not, the property is not worth $425,000"
In this case, you would pull out the fair market value card and justify it then, wouldn't you?
But fair market value isn't a double standard where you can use it only when it's to your advantage. Fair market value is a solid, unwavering principle that applies to ANY product in a capitalistic economy. It's a constant that doesn't change.
It's a slave to the irrefutable economic principle of supply and demand that is as old as dirt!!
If a property shows well and is priced right, there will be multiple interest in purchasing that property, guaranteed, no matter WHAT kind of market you're in.
No matter what kind of market you're in, upward, downward or flat, there are always qualified buyers out there who are looking for homes.
You're not the only buyer out there. Interest rates are historically at an almost all-time low. And people are always looking for a place to live. Thus, the demand for move-in ready, affordable homes is out there.
Now what about the supply of move-in ready, affordable homes? Is it substantial? Well, I suppose that depends on your local area. That will vary from one city to the next, and that's where the help of a good, analytical, experienced real estate agent comes in.
In an ever-changing world of economic crisis, banking crisis, and, well, let's throw in mid-life crisis, you can always count on the age-old principle of supply and demand as your leverage of knowledge and tool for success!
