Buyer Considerations – What To Offer A Seller
Many homeowners continue to be resistant to selling their property at a price they believe is too low, while buyers want to buy at the bottom of the market, at the best possible price. These are two diverging views. The last thing a buyer wants to do is purchase real estate that subsequently depreciates in value. It doesn’t make sense for a buyer to assume the risk the seller has, so they minimize that risk with lowball offers. After all, a buyer is in the driver’s seat because they can do nothing and the seller is stuck riding out real estate market price swings.
The only way to really determine when the bottom of the market is reached is after it has occurred. For the past few years, buyers have had the luxury of choosing highly desirable properties in pristine condition for great prices. If a buyer misses the bottom, they will be paying more money for properties in less desirable condition. In other words, a buyer can quickly go from a win, win, to a lose, lose.
Tracking market activity is one great way for buyers to determine if the Real Estate Market is at or near the bottom is to track the 4 key market indicators. An agent can help research all 4. They are:
Supply- The number of active listings on the market today within the buyers area of interest.
Demand – This number should compare the total number of sales year-to-date, with the total number of sales during the same period last year.
If the number of sales is less this year, we may not be at the bottom yet. If the number is higher this year, buyer beware!
Month’s Supply of Homes For Sale– This number can be determined in 3 steps:
- Add the total number of sales last year in the area of interest and divide it by 12 months to find the monthly sales average.
- Divide the total number of active listings today in that market, by the monthly sales average in step 1.
- If the number is greater than 6, we may not be at the bottom, if it’s less, buyer beware. The bottom may have passed.
Average Sales Price– This is a little more difficult to calculate.
- Look at all of the sales so far this year, add up the total dollar volume of sales, and the total number of sales.
- Divide the total volume by the total number of sales to determine the average sales price.
- Now take the same steps for the same period last year to get the average sales price for the prior year.
- Compare the average price this year with the average price last year. If it is more, buyer beware, prices may be going up.
By tracking each of the indicators above, a buyer should have a better feel for where the market is in relation to the bottom. If the bottom hasn’t been reached yet, the buyer can still minimize their risk by making an offer that factors in the drop in average sales price. For example, if the average price has dropped $5,000.00 year-over-year above, a buyer could hedge a loss by offering to buy the home they like at a priced reduced by another $5,000.00. On the other hand, if the indicators above point to an upswing in the market, without considering personal factors, a buyer may be foolish to stay on the sidelines.