Offering Below the Asking Price on a California Home Purchase

A few years ago, the idea of making an offer below the asking price on a California home purchase might have seemed silly. Back then, competition among home buyers soared, and bidding wars became the norm in many cities.

But the California real estate market is now in a kind of transition phase. Higher home prices and declining demand have shifted and cooled the market, creating a more even playing field.

Research Your Local Housing Market First

When it comes to real estate transactions, almost everything is negotiable. And that includes the asking price.

After all, it’s called the “asking price” for a reason. That’s what the homeowner thinks the home is worth. But their opinion may or may not be realistic.

This is where market research proves useful. Before you start house hunting, spend some time researching local housing market conditions in your area.

Here are some things you’ll want to know, at a minimum:

• Buyer’s vs. seller’s market: Are you in a seller’s market, where there are more buyers than there are homes? Or is it the exact opposite? This knowledge will help you decide whether or not to offer less than asking.
• Average days on market (DOM): Find out how long homes are staying on the market, by using the median or average “days on market.” A longer timeframe suggests that buyers have good negotiating leverage, while the opposite is true as well.
• Recent sale prices: Check the final sale prices of comparable homes to see if they sold above, below, or at the asking price. “Comp” research can also help you determine how much to offer for a particular home.
• Inventory levels: Find out what the inventory situation is like in your area, by using the “months of supply” metric. Low supply levels favor sellers, while higher inventory tends to favor buyers.
• Price trends: Track whether home prices are rising, falling, or staying flat in the area over recent months.

When a Low Offer Might Make Sense

There are times when it might make sense to offer less than the asking price on a home in California. Here are some of those favorable scenarios:

• A buyer’s market: When there are more homes listed for sale than there are buyers, sellers tend to be more willing to accept offers below asking. They’ll do what it takes to close a deal.
• Sitting on the market: If a property has been on the market for 60 days or more without price reductions or significant interest, the seller might be willing to come down.
• The comps support it: A lower offer amount might be reasonable if comparable homes in the same area have sold for less than the asking price of the one you’re considering.
• The home needs work: If the property needs major repairs or updates, you might be able to negotiate a lower price to offset the cost of such improvements.
• Seller is motivated: If the homeowner needs to sell the house quickly due to a job relocation or the purchase of another home, they might be highly motivated to make a deal.

When It’s Better to Offer the Asking Price

When buying a home in California, you obviously want to get the best deal possible. But there are times when it might be unwise to offer below the list price. Here are some examples:

• A seller’s market: In a competitive market where demand exceeds supply, it might be risky to offer below the asking price — especially if the price is reasonable. You might lose the home to another buyer.
• New listings: When homeowners first list their properties for sale, they’re often unwilling to accept lower offers. They might want to wait and see if they can attract a full-price offer first.
• Low asking price: Some sellers price their homes aggressively to sell quickly, meaning the asking price already reflects the property’s fair market value. Offering less in these cases could result in a rejection or missed opportunity.
• Desirable properties: Homes that stand out from the crowd due to a great location or sought-after features are less likely to sell for below asking.
• Multiple offers: If the property has attracted multiple offers already, coming in low could work against you. Multiple-offer scenarios typically drive the final sale price upward, rather than downward.

Sellers Use Different Pricing Strategies

There is no standardized formula for determining the list price (a.k.a., asking price) on a home. Different homeowners go about it in different ways, depending on their unique situations.

But most sellers determine their asking prices in one of the following ways:

• Market-based pricing: Some homeowners set realistic asking prices by taking current market conditions into account. They do this because they are serious about selling, and they realize that a reasonably priced home will sell faster than an overpriced one.
• Mortgage-based pricing: Some homeowners might choose to price their homes based on the amount they need to pay off their mortgage, working backward from there. But that amount may or may not reflect current market trends.
• In a hurry: Some sellers might price their homes below what’s considered to be “fair market value,” because they need to sell as quickly as possible.

There are all sorts of pricing strategies. These are just three of the most common. As a buyer, you’ll want to evaluate each property separately, based on its unique features and local market trends.

Consider Any Features That Might Add Value

When visiting a home you’re thinking about buying, keep an eye out for any value-adding features.

If a house has upgrades or enhancements that set it apart from comparable homes, the homeowners could justify setting a higher asking price. You’ll want to take this into account when determining your offer amount.

Value-adding features and characteristics might include the following:

• Unique architectural style or design features
• Swimming pools, hot tubs, etc.
• Outdoor living spaces, such as a deck or patio
• An updated kitchen and/or bathrooms
• Solar power (in areas where it would be beneficial)
• A larger lot size compared to the comps
• A better location compared to the comps (corner lot, near a park, etc.)
• New or energy-efficient appliances
• A finished basement or attic that adds living space
• Premium flooring (e.g., hardwood, stone)
• Smart home technology or money-saving features
• Mature landscaping that adds beauty, shade, etc.