One of the keys to winning any competition is mental preparedness. You might have the best equipment and solid training, but if your head isn't in the game, YOU'VE LOST BEFORE YOU'VE EVEN STARTED.
Buying real estate in a Sellers' Market is very much like a sports competition. Your equipment is your pre-approval letter from your lender and your training is looking at enough houses to get a sense of the market. The mental part of the game is knowing what it will take to make the winning offer. To make the winning bid it's vital that you understand what your competition is prepared to do to win.
To that end, I did some analysis of condo sales over the past 12 months, within a two-mile radius of downtown Seattle, priced at $600,000 or less, and that sold in 21 days or less. I found 912 sales matching these criteria. I split data into two price ranges: A) Condos that sold for less than $400,000 (the median price) and B) Condos that sold for between $400,000 and $600,000. These two ranges represent the bulk of the market. Somewhat surprisingly, both segments of the market behaving very similarly. I expected that as prices increase the level of competition would reduce. Not so.
This table may look intimidating, but it is really quite simple. For example, Row 1 says that the Average Sales Price is 3% to 4% above the List Price. Row 2 says that 54% to 55% of all sales are above the List Price.
If all you know about condo prices is that homes are selling for an average of 3% to 4% above than the asking price, you are going to be ill-equipped to make a competitive offer. In roughly 33% of cases, condos are selling for between 5% and 20%+ above the asking price. You might miss out on your dream home many, many times and never understand what happened. It's important that you understand the tendencies of your competition, so you are mentally ready to compete. Review these stats and then think about where your offer should be to give you the greatest chance for success.
Here is one more key fact: If 33% of condos are selling at 5% to 20%++ above the asking price, you might need to consider looking at lower priced condos so that you don't exceed your loan capacity in the frenzy of a bidding war. For example, if you are pre-approved for a $400,000 purchase, you should be making offers on condos priced closer to $333,000. In this way, if the bidding is 20% above the asking price, you will still be qualified to purchase this home. It doesn't make much sense to start your bid at your maximum loan amount. You will quickly be eclipsed by your competition. (This is hard news to deliver. Please don't shoot the messenger.)
In Part 2, we talk about the Secret Weapon you’ll want to deploy in your winning offer.
Seattle Condo Specialist