Ben and I met years ago. Funny enough, we met at a dive bar in Mission Hills. I was there with my wife after a sushi dinner date, and heard Ben’s British accent. Naturally, as I do with anyone from England, I asked him who his favorite soccer team was. Ben is a Manchester City fan, and I’m a Liverpool guy. We bantered back and forth, and despite his terrible taste in sports teams, we ended up becoming friends.
A short while thereafter, Ben was in the market for a condo. He lived in a small rental in Mission Hills, and wanted to make a move to Downtown San Diego. It was early 2015, and the housing market in Downtown was trending up. After the market bottom in 2010-2012, 2013 and 2014 had seen almost double digit equity growth in both years. After a short period of searching, Ben found a 1 bedroom condo in Little Italy and was ready to make an offer.
The condo was listed at $320,000, and has JUST been listed. We were able to get in for a tour quickly, and thanks to a bit of a relationship with the listing agent, we knew that there were other tours happening, and other offers that we would be up against. Before offering, we sat down together and did a comparative market analysis of the other recent 1 bedroom sales in that building, and a few select nearby buildings. It was pretty clear to us both that the condo was priced correctly, if not even a tad bit low. There were somewhat comparable sales, ranging from $315,000 to $340,000. We offered the sellers asking price, and waited.
When the inevitable counter offer came, Ben was a little bummed. It was a MULTIPLE counter offer, meaning that other buyers had received one as well, and the seller was reserving the right to choose between the reponses. I suggested that, along with shortening some of the contingencies (inspection period, etc), we should raise our offer ABOVE the sellers asking price, to $323,000. Ben was really struggling with this. Ben now felt that he was OVERPAYING for this condo. The same condo that he was ready to pay $320,000 for, now seemed to lose some luster at $323,000, even though we had identified comparables all the way up to $340,000.
This phenomenon is not at all uncommon. Nobody wants to OVERPAY for something. Nobody wants to leave money on the table. Nobody wants to “lose” a negotiation. But, in Ben’s case, none of these things were actually in play. The available information was telling us that we were in the range of the comps. The multiple offers told us that there was additional demand for 1 bedroom condos in this building. The real estate market, while not completely predictable, was in year 3 of a 7-8 year gain cycle. The indications were that the price point was going to continue to rise for that condo.
Ultimately, Ben agreed with me and we offered $323,000 and our offer was accepted! The transaction went smoothly, and Ben moved in. 5 years later, Ben has moved on to a new townhome up North, but still has this condo as a rental property. The condo is valued somewhere around $450,000 (up ~40% in 5 years). Looking back, Ben is now pretty happy that he “overpaid” $3,000.
Here’s an industry secret. Listing agents mis-price homes ALL THE TIME. Often times, they OVER price homes, but sometimes they miss low. Comparative Market Analysis’ are not just for prepping your home for sale. You should always establish an independent value of a potential home that you’re considering making an offer on. Oftentimes, buyers may get too caught up on the listing/asking price, and miss a great buying opportunity. -Jason
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