First, let me state the obvious:
The Atlanta Metro Real Estate market is currently at low inventory levels. Fairly priced and affordable properties in good condition and in sought-after areas are often under contract within 24-48 hours.
We all want the deal of the century, right?
Nobody faults you for that. If you are dead-set on submitting a low-ball offer on a sought-after property in this environment, you must also be willing to walk away from the property if and when your bid is not successful. If you fell in love with the home and just assumed that you’d start low and come up if the seller didn’t bite on your first offer, you may be blindsided when they decline to counter and take an offer from another client while you are stuck considering your next move.
Hypothetically, let’s say you were trying to buy a well-appointed two bedroom condo in Midtown that just listed today for $350,000. No savvy negotiator pays full ask, right? Conventional wisdom and tradition tells us that list price is the starting negotiation point. So, you decide to open with an offer of $335,000 and see if they bite. Closing costs are expensive as well, so lets ask the seller to cover $6,500 of that and just see what they say. You’ve essentially made an offer that nets the seller $328,500. In a slower market, or maybe if the property has been sitting for a month or so, I wouldn’t necessarily advise against this strategy. In this example, that just isn’t the case.
Many times, this is what actually happens:
Another buyer looking at the same limited inventory in your price band and location goes in to view the property a couple of hours after you. They are also interested and have been looking at properties for weeks. They, unbeknownst to you, have the benefit of experience on their side. They have already lost out on two homes they loved because they were crowded out by stronger offers. They have impeccable taste, just like you, and also decide the property is suitable and decide to make an offer. Their agent calls the listing agent, who communicates that the seller is currently considering another offer on the property. Not wanting to lose out and waste more time searching, they submit an offer at $348,000 and ask for no concessions for closing costs.
Many sellers choose not to start a round of multiple offer/highest and best bidding in this situation. The reality is, the seller has two offers in hand and are quickly burning through their valuable first days on the market. Your offer is currently $19,500 lower than the other buyer’s. The seller does not want to risk alienating or scaring away the stronger offer with additional negotiation on the off-chance that you’ll increase your offer $20,000 just to compete. They accept the other buyer’s offer, and bid you adieu.
Fine, right? You win some, you lose some. We’ll try again on the next property…
Here is where I am going to get a little “meta”: Are you now chasing the market up?
Lets say this condo is in a high-rise development. You love the amenities (Hnnng…that pool is sexy, right?) and location and you really want to get a unit in this building. The neighbor down the hall from the one you lost out on owns a unit with the same floor plan. They noticed the unit listed for $350,000 and decide its time to sell. Just like you want the deal of the century, owners want the highest price for their property the market will support. They decide to list their home at $360,000… Assuming that this property is comparable to the original one, what do you think you would decide to offer? You’ve now placed yourself in a situation where you may be “chasing the market up”. You get the idea? Starting to feel a little like Bill Murray in Groundhog Day?
If you are home shopping in a highly competitive environment and think you have found “the one”, my advice is to make the strongest offer you are comfortable with and willing to commit to as soon as possible.