Lots of people watch those shows on TV about fixing and flipping houses. Lots of customers come to me asking to see foreclosures or ones with foundation damage. Then they want to offer 20%-30% off the asking price. That is generally a great way to waste everyone’s time. The reason is that everyone watches those shows and knows to ask their Realtor those same questions and offer a low-ball. So what has been happening is those houses get multiple offers and then ultimately bid up to the asking price or more.
Just to test this theory, I did some historical analysis in the MLS. I looked for certain keywords in the descriptions and then computed how much “off the asking price” the final buyer got. This data is for the period between March 2007 and March 2006. Here is a snippet of the results of that research.
NOTES: If the discount is positive then they got it for less. If the discount is negative then they paid over the asking price. I actually searched for variations of the keywords and also took out the ones which were obvious false-positives.
Keyword Discount
handyman 1.07 %
needs work -0.4 %
short-sale -0.02 %
motivated seller -0.03 %
foreclosure -0.008 %
As you can see, these houses aren’t going for 20% off their list prices. They are often listed, however, for 5% or more below market.
My point is this -- When you make your offer, look at the property relative to everything else in the neighborhood. Is it cheap compared to everything else?