There is no general rule of thumb that says you should always start with an offer of X percentage off of asking price. Your primary goal should be to obtain a home or investment property at market value or even under market value if the opportunity arises. The fair market value of a home or property is not always in sync with the list price the seller is asking. There can be a wide range of reasons or motivations a seller is selling, and that will heavily influence how fairly they price their real estate asset. People mistakenly expect sellers to be reasonable and fair in what they list their property for, which leads some buyers to think they can apply the same “offer 10% off asking price” strategy for every piece of real estate they come across.
If your ultimate goal is to not pay over fair market value, then how much you offer in relation to the asking price will be on a case by case basis, changing your strategy to reach that goal with each home you come across. Some people have the mentality that if they pay full asking price, they aren’t getting a deal and they are paying too much. It all depends on how well or poorly the asking price is set by the seller in relation to market value.
Let’s look at a a scenario where a group of 3 friends are buying 3 separate homes, and see how good of a deal each one got.
Buyer 1 paid $20,000 under what the seller was asking.
Buyer 2 paid full asking price.
Buyer 3 paid $10,000 over asking price.
Who got the best deal? Again, whether or not someone pays full asking price, below, or above isn’t as important as how their price fits in relation to fair market value. All 3 homes are identical, on the same street in the same neighborhood, and fair market value for each is $200,000…yet each were priced differently due to varying situations or motivations with the seller.
House 1 is priced at $240,000. Buyer pays $220,000 and feels good because they got $20,000 of asking price, but in reality they still paid too much and over market value.
House 2 is priced at $200,000. Buyer pays full asking price, not sure if they got a “deal” or not, but in reality they bought at fair market value so all is good.
House 3 is priced at $180,000. Buyer pays $190,000, $10,000 over asking price might think they paid too much to get the house, because offering over asking price was necessary when a bidding war arose with multiple buyers. In reality they got the best “deal” out of any of these 3 scenarios, getting the home for $10,000 less than market value. They will be in the best shape whenever the time comes to sell their home in the future.
This is just one example used to show how you need to: carefully analyze each situation in real estate in order to determine if you are getting a fair deal, use your real estate agent for getting that advice and determining fair market value, and use that knowledge to guide your strategy in obtaining one of the biggest investments of your life at a price that will be most advantageous to you.
