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Offering Below the Asking Price on a California Home Purchase

Just one year 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. Like the nation as a whole,
California is currently experiencing a bit of a slowdown within the housing market. This could give home buyers more leverage than they’ve had in a while.

As a result of these changes, some buyers might now be wondering: Should I make an offer below the asking price, when buying a home in California? The answer is … it depends!

Offering Below the Asking Price

As of summer 2022, most housing markets across the state still favor sellers when it comes to negotiating leverage. That’s because of an ongoing inventory shortage of homes for sale.

But some local markets could begin to shift in favor of buyers, as we move through the second half of 2022 and into 2023. In these areas, buyers could start to enjoy some additional negotiating leverage. So they might be able to offer less than the seller’s asking price, in some cases.

Market research is a great place to start. Before you start house hunting, spend some time bringing yourself up to speed on local housing market conditions in your area. Better yet, bring an experienced real estate agent onto your team.

As a home buyer, you have every right to offer less than the asking price if you feel it’s too high. On the other hand, the seller has every right to reject your offer, if they feel it’s too low. So be sure to do your homework and tread carefully.

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. So let’s talk about that next…

Evaluate Homes Individually, Based on Market Trends

Home buyers in California should consider current market conditions and sales trends when making an offer on a house. You’ll also want to determine whether you’re in a seller’s market, a buyer’s market, or a “balanced” real estate scene that doesn’t necessarily favor one party over the other.

  • In a slower market, where sellers tend to be more flexible, it might make sense to offer below the list price — especially if you believe the house is overpriced.
  • In a more competitive market, where sellers tend to receive multiple offers, going below the asking price could work against you. It might cause the house to slip right through your fingers.

Comparable sales can be helpful when making an offer on a house. A comparable sale (or “comp”) is basically a similar house that sold recently, in the same area where you’re trying to buy. Real estate agents use comps to help their clients determine a reasonable amount to offer.

Researching comps can help you decide whether or not it makes sense to offer less than the asking price on a California home purchase. It could also help you avoid overpaying, in cases where the list price far exceeds comparable sales data. It’s good information to have!

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 particular house has upgrades or enhancements that set it apart from seemingly comparable homes, the homeowners could justly setting a higher asking price.

Value-adding features and characteristics might include the following:

  • Swimming pools
  • Deck and patio additions
  • 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

The bottom line: Making an offer on a home is a case-by-case situation. There is no rule-of-thumb or generic formula that applies to all pricing scenarios. Look at the comps for your area. Consider the type of market you’re in. Rely on your agent’s advice. In short, be a savvy home buyer!

Mike Trejo is a Bay Area mortgage broker with 20+ years of knowledge and experience.

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