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SF Real Estate Blog Reader Asks: How Much Should I Offer On A Home?

Occasionally I get a question from a reader of the blog that’s worthy of sharing with the world – I thought this one was worth sharing. Hope you think so too…
You probably need a little background on this question since it picks up in the middle of a conversation… I was going back and forth with a contact that emailed me through the blog about a property he was very interested in.  He knew that the property was very desirable and realized that there would be competition (and, yes – there is still competition in San Francisco for good homes that are priced well).  So – here’s his question…… 
Q.  …..I have done a bit of analysis on the house sales data you sent me.  Since Oct. 1, 2007, houses that listed above $1.1m and sold above listing, the average sale price was 7% over asking.  There were some outliers that broke 15% and less that broke 20%.  In March the average in this category was 5% over asking.  We are thinking of coming in at 9% over asking ($1,280,750) with about 30% down. We really love the place and want to make sure we are in the range to solicit counters if there is a “round two”, but yet not over pay.  Any thoughts?
A. That is an incredible analysis!  I know people love statistics, but that analysis is incredibly thorought.  I think 9% over asking puts you in the right ballpark for getting your offer accepted. But the reality is that there’s no real formula for asking vs. selling price.
What I usually tell my clients is that a second round might not come. Some sellers choose to take the best offer in a multiple offer situation (for fear of losing it if a buyer doesn’t want a counteroffer) or they accept the best offer with some minor changes in terms, so I usually suggest putting your best foot forward the first time so that if they DO take the best offer – you have no regrets about not paying more when you were willing to do so. (Now – when they’re not expecting multiple offers, you have more flexibility and have the luxury of leaving room to go up if need be by starting with a lower offer.)
So how do you get to that magic number?
My suggestion is to decide at what price you are willing to let someone else have it. I call it the “I won’t have any regrets if someone wants to pay more” price. This is just my 2 cents, so please, do take it with a grain of salt.  But I’ve seen a lot of people regret passing up the home of their dreams because they let someone else beat them by a few thousand dollars. 
One other thing to keep in mind is that the sellers want more than money in this case – they also have some terms that are imporant to them. They want a short escrow and a rent back as well.  If there are two similar offers that come in, the one with the most favorable terms is much more likely to be accepted.
Let me know if you have any questions. I know this is a lot to digest! It’s exciting and scary all at the same time! So shoot any questions, concerns, etc. my way!!! 🙂