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    How Much Should I Offer?

    I was out with some clients the other day, Chris and Pat. We’d finally found a house that they really liked. It had a nice big yard, was in walking distance to a coffee shop and park, and included a large basement that they were going to use as a music studio. The price seemed great, but a little too great.

    Some agents price their properties a little low to get attention on the property. Fair enough. Some agents will price their properties so incredibly low that you would swear they just arrived in a DeLorean from 2009 and hadn’t heard the news about the meteoric rise in Bay Area real estate prices. Chris and Pat asked me, “What should we offer?” I gave my standard, incredibly unsatisfying answer, “It depends, and it’s up to you.” That doesn’t mean I didn’t have some arrows in my quiver to help my lovely and talented buyers. We would be able to come to an offer price that they could live with.

    Comparables, and why they aren’t as helpful as you think

    Comparables, or recent sales, are an essential first step. I had Chris and Pat look at recent sales of properties of similar size and condition. They had been viewing homes in the area all along and were imbued with a sixth sense of what things were worth. Studying lots of comparables is especially important in the inner Bay Area. Here we have Victorians, craftsman bungalows and brand spanking new condos all on the same block, like a little rainbow housing coalition.

    Comparables are great for a general sense of value. What they won’t give you is a scientifically arrived at number for what you should offer. You have to learn to feel the value in your bones and then, Grasshopper, you will know its worth, at least to you.

    How much competition is there?

    Another thing I told Chris and Pat was that we really wouldn’t be able to tell what to offer until we get a feel for the competition. Those poor listing agents with popular listings get bombarded with calls as the offer date approaches. They get asked questions like: How many disclosure packages do you have out? How many confirmed offers do you have? Will the sellers accept a bribe as part of the down payment? In these competitive times, they hear it all.

    As part of reading the tealeaves, I have found that you get about 1 offer for every 3 disclosure packages out. So 12 disclosure packages means about 4 offers. The more offers, the higher the price will be (no duh). If there are 3 offers, though, you might think about 10-15% or so over the asking price. If there are 10 offers or more, I ask, “How much can you afford and do you really want to go that high?” You’d better be ready with your prettiest offer dress on.

    What is it worth to you?

    Deciding how much you want to offer can seem like a stab in the dark. You know what, though? I believe in you! You actually do know what you want to offer. You really do!

    I have a basic technique for figuring out how much my buyers want to offer. The house that Chris and Pat wanted was listed at $669,000. There were 21 packages out and the listing agent had 7 confirmed offers. This was going to go significantly over asking, probably in the mid-$700’s. Good music studio spaces are hard to come by, especially in homes with a Viking range.

    Chris and Pat claimed to have no idea what they should offer, but I knew they actually had a number in mind. I used a bookending technique to see if we could narrow it down. I said, “Well, do you want to offer $800,000 for it?” No, they replied, that would be too high. “If you offered $700,000 and didn’t get it,” I asked, “would you feel like you didn’t try hard enough?” Yes, they told me, admitting they would get a case of the sads.

    We went back and forth until they were between $750,000 and $760,000. That is the point at which the buyers just have to decide. $10,000 is a lot of money, except when you’re buying a house. In that case, it’s a rounding error, and not a very big one.

    What is the price that, if you don’t get it, you still tried as hard as you wanted to? You’ll be disappointed, sure, and probably think that the winning buyer was a crazy person for paying so much! Alternately, what is the price that if you do get the home, you won’t feel like you got totally hosed? Were you the sucker who ended up $200,000 over the next highest buyer?

    Like Chris and Pat, you know more than you think you do.

    Taylor Sublett, a life-long Bay Area resident who now resides in the East Bay, has been selling residential real estate since 2007. He was top producer of his office for 2013 and is a tough, but fair, negotiator who likes to work out solutions that make for win-win situations. Find out by contacting him at taylor.sublett@sothebysrealty.com or 510-301-9569.