For first-time home buyers, the list price is all the matters. That is the key and one of the biggest questions of the game. What if I told you, list prices don’t matter and that realtors only want what benefits them and the seller. This is how the game works and you need to know how to beat it. Join your host, David Sidoni on how to know you’re getting a good deal. Learn how to know the right price offer and what they will accept. In every market, there are facts and details that a first-time buyer HAS to understand before picking a price to offer, especially in a HOT market. Listen in the discussion to learn how to play the game, as David gets into the heads of the sellers.
Should I Offer Over List Price To Get My Dream Home? How much?
As A First-Time Home Buyer, How Do I Know What The List Price Means?
The summer of 2021 has a big question happening. Should you offer over list price? How much? When and why? List price is the price for sale. It’s a simple concept. Seller says, “Pay me X amount of dollars and you can buy my house,” right? No. Buckle up because nothing in real estate makes sense.
If this is your first time, welcome. I’m glad to have you here. If you’re regular, you might notice a slight change in your usually optimistic host, the one who loves to provide inspirational quality information to help take the mystery out of the home buying process. You might notice that I might sound more like a guy dropping some cynical truth bombs but you know me, there’s a reason behind it. Read all of it with an open mind, knowing I’m always here to help. I preface it that way because this information is illogical but knowing the insanity will help make this daunting task uncomplicated, understandable, and un-confusing.
I’m here to tell you that when it comes to the list price, there’s no logic to it. I wish I could but I can’t take the mystery out of it. I can only give you the pointers on why it doesn’t make sense and that is an oxymoron in itself. Let me explain why things don’t make sense and the sense of it not making sense. It doesn’t make sense. Deal with it. I’ve come to accept it, regrettably, and now you can, too, and you’ll be as smart as a realtor, probably smarter than a lot of the ones that I work with.
No matter what the market is doing up or down, sellers and realtors, a lot of times, don’t have any logic, rationale, and reason when it comes to setting that list price. Don’t believe the stories from your friends and family. You can’t get your uncle, cousin, or your smart financial friend their tips on a deal because every single deal in housing is different. You can’t expect logic because some sellers suck and they demand a price that is too high and it makes no sense. Some realtors suck because they list homes too high or too low to try to get some deal. Sometimes, you learn that when you’re buying a home, especially buying your first home, that there are suckable parts to it that you never expected.
Have no fear. I’m here to take away as much suckiness as I can. This is some real truth and spoiler alert, some of it does suck because when it comes to list price, you might get a deal but you’re probably not going to get it in the traditional way, the way that you’re used to. It’s going to take some different thinking to figure out how to get it done. It’s not a price tag in a store or a price you see posted on the internet. It’s not even like a car lot even though a lot of people try to tell you it is. Take everything about buying things about shopping, negotiating, bartering, getting a deal, and throw that all out the window.
If you’re one of those anal people who scour the internet until you get the absolute best deal, you always get all the coupon codes and you always get the best deal, your head’s going to explode. Speaking of heads, you might want to plant this in yours right now and let it live there for the whole buying process, list prices don’t matter. Never, especially now. I’m doing this in the summer of 2021 in this insane market, list prices don’t matter now. Here’s the catch, the reason they don’t matter now is they don’t matter in regular markets. I’ll explain why as we move forward.
Why Price Lists Don’t Matter Right Now
In no market, up, down, or stable, do list prices matter. There is no formula for reals. There are lots of reasons for it. I’m explaining the whole thing in detail but let’s get right to it and start with why they don’t matter in this market right now. Either you’re trying to buy right now or you’re ready to buy and you’ve heard all the horror stories. I’ve heard many of you ask, “How much over list price do I need to offer to get the home?” I don’t know and I live for this data. I’m a dork. I love all this info. I don’t know. If anyone tells you that they know, unless they’re your realtor who’s been working with you the whole time, they don’t know. No one else’s deal is like yours.
List prices are tough to figure out exactly where you should offer and this is why. Number one, list prices don’t matter. Number two, in summer 2021, bidding wars are the best ways to get the buyers to fight for home and pay max dollars and that’s what the realtors are trying to do for the seller. The reason for that is because the inventory is so low so pricing a home incorrectly below market value is very much a tactic that realtors and sellers use.
Number three, many realtors list way below list price as a tactic. I know they said that was number two but there are other reasons behind it because often, they’re going to list that home way below the last comparable sale, which is the obvious market value. The dumb thing about that is they list below the home that sold a month ago and this is a market that’s going up. It’s illogical and it doesn’t make any sense. Unfortunately, get used to it. I’m telling you this to help your sanity. I want to help you beat the system. It makes no sense but they do it all the time. One of the reasons they do it is because they expect and anticipate to get that bidding war to get offers $10,000, $20,000, or $50,000 over the list price. Sometimes it’s even $100,000 over the list price.
Some of you might have experienced this when you’re trying to get home. You see one that pops up on the internet on Wednesday or Thursday and it says, “No Showings Until Saturday,” and they’re going to do an open house for a couple of hours on Saturday and a couple of hours on Sunday. Their goal by putting that list price wrong and low is to get offers in those few hours on Saturday and Sunday and look at all those offers Sunday night. This is happening a lot. This is because of the crazy low supply right now and bonkers demand. Buyers are out there thirsty to suck up every single home as soon as it hits the market. I said, thirsty and I know what you’re thinking.
Another reason why realtors love to use this under listing price tactic is that many realtors think that buyers are cheap. Especially the first-time buyers, they still believe that they’re going to come to their low-priced home’s open house and eventually work with them, which will get them another sale. It will probably be on another house at the price that they listed their home where the buyers can afford it. Most of the realtors out there want to help the seller first. By doing that, they think that buyers are going to show up to the listings. They’re dinosaurs. They still believe buyers are lemmings who are going to wander into their open house uneducated because they saw that enticing list price and they can bestow their magical real estate insights to you.
They don’t want to help first-time buyers plan ahead of time. They want a buyer who walks into their house ready to go and give them the cash right there. Boom. Easy deal. Because of that, they don’t even try to market to you guys. Google it. I’m not kidding. Google first-time homebuyer. Tell me how many realtors you see. You’re going to see tons of banks, some government programs, and a lot of loan information, but no realtors. It’s not what they work for. I’m sorry to say that you, as a first-time homebuyer, are not what most realtors work for but we do have some solutions to that.
Let’s talk about list prices. Because they think you’re going to come in, they list the price wherever it suits the seller and them. Logic be damned. A little insider side note here. Here’s a fact. Do you want to know how they train new realtors? This is the formula. If someone says, “I want to be a realtor.” They say, “Great. Go get your license.” You work with first-time buyers for 1, 2, or 3 years until you figure out how all this real estate stuff works. That’s the truth. It sucks if you’re one of those first-time buyers.
After 2 or 3 years, when you finished all this out, “Good for you, new agent, you never have to deal with first-time buyers again. Now you get to become a listing agent.” Now you get listings and if the markets are hot like it is right now, here’s a trick listed for super low, then hold open houses, get tons of buyers to walk in and you get new buyers because they didn’t have a clue they couldn’t afford that house. You get 2 deals in 1. You can either make that buyer way overpay to buy the listing that you’re on or take them out to other houses they can afford since your list price was way off. You can do that same thing with 2, 3, 4, 5 buyers that all walk into your open house, that open house that none of them can afford.
New realtor, now you’re three years in. The goal after that is you get a team. You don’t even have to work with the buyers that walk in. You talk to them for a little bit, give them your magical insights, then you pass them off to one of your team members who were like you three years ago, a bartender four days a week who got their license and didn’t know anything about it. The cycle continues and list prices act as bait and the first-timers get royally screwed trying to figure out what you have to pay to get your offer accepted on that illogical list price that does not align with the market value. Let’s figure it out. Do yourself a favor, learn the game.
Learning The Game
The first rule of the game is, there are no rules. Here are some general thoughts to keep in mind so you can be a more educated buyer and figure out how to beat an incorrect list price. First, stop listening to people that say, “I hear homes are going for X amount of dollars over list price.” I wish there was but there’s no math and formula. That’s because every list price is different on every home in terms of how it matches up with actual market value. That list price is a made-up number. Think math. It’s tied to nothing. It’s not a constant. It’s not even a variable you can quantify. No equation can be calculated uniformly, unlike terms, or equally. How about that, Miss Hos from algebra two? They’re math terms from David Sidoni.
The only way that you can judge how much to pay over a list price is if the list price was always listed at fair market value. Sad to tell you, as you figure it out, it rarely is. That’s especially true in a seller’s market like this one but now you know. You don’t have to beat your head against the wall, aluminum siding, or the wainscoting that you’d love so much.
Knowing means that you have the upper hand. Don’t be bummed out with these facts. Be stoked that you know the truth and you can work them all in your favor. Remember number three, realtors sometimes suck and they’re going to list the home low to get lots of buyers. They have a larger buyer pool to choose from and that helps them in their seller. You need to come in knowing market value and forgetting about their list price.
Here’s another Insider. This serves another purpose for the realtor as well. Lots of buyers come in really quickly at the beginning because it’s listed at that enticing, incorrect low price means they can guarantee a quick and quality buyer. They’re going to get a bunch of people in and that means the more people they have in, they can choose the best of the bunch. That’s crucial to lazy realtors who don’t like conflict because if you have a home on the market for too long, the seller starts to get antsy.
If you’ve got the home on the market for a couple of weeks or, God forbid, a month in this crazy, hot, fast market, the last thing the realtor wants to do is deal with the seller saying, “Why hasn’t my home sold?” It doesn’t make any sense but they’d rather put that home on the market, show it a few times on the weekend, and because the price is so low, get 75 showings and 50 offers.
For some of the realtors, it’s a real strategy. You can beat it. If you and your realtor understand the process, you can come in at strong market value. You can understand and know that price is ridiculous and you’re going to come in higher because this is a strategy that some people do use. The reason for that is. If the realtor listed at the market price, they might get 5, 6, or 10 offers but if they listed at a low-low price, they get 37 buyers coming in and 37 offers.
They’re betting that some of those 37 people that came in that this isn’t their first rodeo, they know that maybe they put offers in 3, 4, 5, or 7 different houses, and the buyers are watching the prices go up as they put a new offering every single weekend. If they can produce multiple offers to those buyers, they can tell them, “We know you’re frustrated and you’re competing against 36 other people.” “It’s 37 total this weekend, I’m sorry.”
They’re going to get that frustrated buyer who’s not just in a bidding war but they’re in a frenzied bidding war, they’re going to get them to go higher than they would have, maybe even paying a little extra above the appraised value or maybe waiving the appraisal completely. Sometimes it’s because they’re lazy, but sometimes it’s because the realtors do this as a strategy. Their goal is to help the seller first.
The realtors, if they don’t have the home listed where it should have been, market value, that’s where it confuses everybody. If you know that they’re doing it to try to get that frenzy going, then you understand the game. Don’t hate the player. Don’t even hate the game. The listing realtor is being paid by the seller to max their dollars and for some of them, this is the way they do it.
How do you understand the game? First, you take that little piece of knowledge for you in 2021. This is the biggest part of the game. It’s the mental aspect. I’ll get into the details on what you need to do but first, I mean this from the bottom of my heart, you’ve got to believe in the numbers of owning versus renting. This can’t be a win for you. It can’t be, “I’m only buying a house if I can score a killer lowball deal.” If you’re buying it now in 2021, that’s not going to happen. You’ve got to want this and know you’re not going to have a super sexy story that you can brag about.
You don’t get to go, “Houses are going for $400,000 on that street. My realtor and I got a sweet home for $375,000.” It’s not going to happen in this market. You got to believe. It’s Ted Lasso. He is my hero. He doesn’t always look like a winner to the press of the masses but he coaches with a proven track record with passion and integrity. In the end, his players are better in the long run. You’ve got to believe in the numbers. Believe, Ted Lasso style.
You do that and all the fear, negative nancies, all the bitching, the people that bitch and come at you. If you believe in the numbers, that confidence, you know you can move forward and fight this fight. The numbers are there and they’re real. I can prove it to you. Take a look at my numbers in my twenties. I wasn’t 20 in the ‘20s. I’m old, but I’m not that old. I blew it, then I figured out what I want to do with the rest of my life. I got into real estate and I’ve been helping other people not make the same mistake that I made. They are financially way better off even if it wasn’t the super sexiest deal at the time.
It was a good deal and sometimes a great deal and they’re better off because renting was not going to be financially beneficial for them in the long run. You’ve got to believe in episode 40 in the timing of buying a new home versus waiting. You have to believe in the numbers. You’ve got to believe in all the success stories that you’ve heard from other real buyers on this show. You’ve got to believe that a home is a great leverage against inflation. When there’s a coming recession, a home is a great leverage against that because you have to know, comprehend, and believe in the boring numbers. You’ve got to stop wanting a cute top five list from the internet to give you your confidence and your validation as you get ready to go to battle.
You’ve got to listen and re-listen to the numbers until you believe in yourself. You’ve got to believe and grasp the numbers in episode 36 about timing your lease, or episode 43 on focusing on price or monthly down payments, or episode 44 on how much you should put as a down payment. There’s not an always do this rule for everybody. That’s my belief. A lot of people have an always rule on how much you should put down. Why am I talking about this when we’re talking about list price? It’s because that can change what you can offer on a home.
You need to figure out your individual magic numbers before you dare go out and look at any houses. I texted with my girl, Madison. She’s the most incredible saver I’ve ever seen. I was afraid to buy her booze. I said congratulations when she finally got her house. She’s a first-time homebuyer and she’s this incredible saver. She put 5% down and closed on her first home on April 19th, 2021. She could have put more and could have done all kinds of things but that was a choice.
Here’s her cool story and how the list price and understanding the game worked for her. She was looking with me and we got beat out once and she instantly decided she did not like that. Madison is not one to lose in financial situations. She said, “That’s going to change my strategy.” Another home came on the market and it was listed at $475,000. It came on the market midweek. Here in Southern California, a two-bedroom condo goes for $475,000. I know if you’re someplace else you fainted and if you’re in San Francisco, New York, or Seattle, you’re going, “I would take that in a heartbeat.”
This was listed midweek, not the usual for showings on Saturday to get a bidding war. That made me curious. We decided to jump on it. We got there at 10:00 AM because it hit in the middle of the night. The realtor met us there to let us in and that’s when we saw her opening. She started talking about the crazy market, the multiple offers, how she didn’t want to bother with all that work and the unqualified buyers and the counter offers and the bidding. Madison and I exchanged a sly look at each other realizing this was our shot. This was March 2021 and the bidding wars were starting to kick in high gear.
We knew that the market value in this was about $475,000. We thought that they’d have a bunch of buyers come in and counter this thing up to $500,000. I said to the realtor, “It’s terrible out there. I know you got started and Madison’s well qualified. She likes this place and we don’t want to mess around with all that extra work and all that bidding stuff. What if we gave you your seller full price right now? I know Madison probably wants to come in lower because it’s the first day but we’ll give you the first price right now and your seller and you don’t have to deal with all that hassle.”
Done deal. The home is under a contract under market value but wait, there’s more. The agent had to find the seller, a place to live, and her going out there and looking at all those other homes having to deal with bidding wars, you know she wasn’t going to like that. That means that the seller of the home needed a rent back of the property. We would close in 30 days. Madison owns the place at $475,000, which as of the day we bought it was right at market value and probably could have gone for more. We’ve got 30 days, plus, we’re going to be getting a whole bunch of days our rent back and we’re locked into that $475,000 price while the market goes up.
Madison’s a landlord, the seller rents back to her, it’s a little bit less than Madison’s new payment but Madison’s locked into a condo that’s going up to $15,000 or $20,000 while the market prices go up the entire time to sellers renting back. Even though she had to pay a little bit of the mortgage, it was a touch, ten weeks later, by the time that she moved in, her property had gone up 5%. That’s higher than the average twelve months’ worth of appreciation. I’m so excited I cannot even speak.
Two big takeaways from that one. Number one, list price is $475,000. We got there first thing in the morning, should we have lowballed to try to save money? No, she was not leaving money on the table. We didn’t get out-negotiated right there, “We could have got it for a little lower.” We knew that if we gave everybody what they wanted that this could be a win for us on the back end. She looked into my eyes when I was talking to that agent and she gave me the green light. It was like, “Do it.”
We offered full price. The realtor and seller were happy. Everybody got what they wanted. Madison knows that we negotiated her a killer deal working on that list price. Sometimes you can pay the full list price and still have a super sexy net deal. It doesn’t sound as sexy as I paid $20,000 under list price, but the net she’s going up 5% at locked into that price, it’s unbelievable.
The next big takeaway is about your down payment. The reason we talked about this is because your down payment can affect how much you can put into over and above to get that sexy net deal. You can still give them their list price but you can work if you have a little bit of extra cash on some of the other things that happen when you’re under contract, so if you put all your money down the down payment and the closing costs and don’t have any little extra, which is fine.
If you need to do that, go for it but if you have options, think about them. The reason she texted me was Dave Ramsey, her guru. He had tweeted or posted something and she loves Dave. Dave Ramsey is a big financial Guru. He’s the one that helped her get in the shape that she is at such a young age, which is so commendable. She’s so young. If I saw her on the street, I would think she’s not old enough to babysit my kids and she’s got a better financial spreadsheet than most of the people my age. I love you, Madison.
Dave Ramsey is a big proponent of big fat down payments, 20% or 25% or more. You’re eliminating your mortgage as soon as you can. His whole thing is he hates debt. He looks at mortgages as big debt and he wants to get rid of it. God bless him. That’s a great philosophy for many Americans. If a lot of Americans adopted that, we’d be way better off. Our country’s debt numbers are stupid. Madison, like all smart and critical thinkers, heard this from her guru, but she didn’t let her emotions sway her power of thought. She loved Dave and what he helped her do but she looked at the numbers and started to question things. We discussed it.
I copy and pasted my thoughts straight from episode 44 for her and her situation. I know it was going against her guru’s guiding principles but it was on this one issue with our whole financial picture. She knew the numbers and she needed a reminder. At the time that we bought it, she believed and she didn’t let the game intimidate her.
A few months later, she saw that again and went, “Am I doing this wrong?” No. Now it’s time to get back and believe. She’s dominated the game because she knows the main rule. She knows the number. The overall number of owning a home versus renting is going to tell you how much you need to put down and how much you want to pay for a house if you want to pay a little bit over market value. Notice I didn’t say how much over list price to offer because list prices don’t matter over market value. You’ve got to pay what works best for you according to the actual market value of the home. You’ve got to work the system to figure out what works best for you today and tomorrow. Believe.
That was an intense Ted Lasso tangent. The numbers don’t own you, scare you, and freak out when you see the illogical way people are listing their homes. Embrace the numbers. After you believe, you continue to move on knowing that there are no rules. You never look at list prices again to obtain information on market value. You don’t do it and you don’t do it in any market. Here’s the trick, only look at sold numbers. If there’s any advice that I can give you is to never look at the sold list prices again, only look at sold.
List prices are fabrication, often a bizarre combination of a seller who is clueless, unrealistic, and stubborn, or delusional. Combine that with a realtor who’s lazy, shady, greedy, or not super bright. The only fact that you have, the data that you can find, which you can now on multiple different websites, are sold prices. It’s tangible. It’s out there. It’s a true market value bearing what buyers are willing to pay. You can’t go back 2 or 3 years, but you can find out what buyers will pay for an asset at this time in this market. That’s what the market value is, not what homes are being sold for. If you’re doing it yourself or learn to use those apps, look at the sold prices, and understand what homes are selling for. Ignore all the list prices.
You’re going to determine market value by looking at the homes that are comparable to the ones that you’re thinking about writing offers on. Same bedrooms, bath, and square footage. If one is different from the other recent solds then it’s time to do your research. Look on Google satellite. Is there something weird with the location? Is it backed up to a sewage dump? Is it on a busy street? Are there power lines? Does it have a teeny tiny yard and comparison? You’ve got to look at all that stuff.
Getting A Unicorn Team
If the market is hot like it is right now in summer 2021, you’ve got to look at those solds like in the past 30 days first, because the ones from 60 or 90 days ago might have gone up since then. If there’s none in 30 days, great, then you got to go back 60 and 80 and back 90. That’s what you do to help figure out the market value. If you’ve done all that and you’re digging deep but you still don’t understand and it doesn’t feel comfortable for you, then maybe it’s time for you to stop doing this all yourself and get a team that’s going to work with you.
Get yourself a trusted bad-to-the-bone unicorn realtor who knows this stuff inside and out. I guarantee you they don’t give a squat about list prices. Unicorn agents, good agents know the market value. They know the price the home should sell for. Maybe even sometimes, I talked with my buyers about, “It should sell for this but I know that we saw 58 people have the open house the other day. What’s probably going to go 10 or 20 over.” We discuss if that works for them and they figure out, do they believe that the future appreciation and getting the home at this price is better than trying to go right at the market value and maybe getting beaten out?
A good unicorn can give you that number despite all the list price shenanigans, and you can discuss if that home’s going to sell over. Together, you will decide if this is a smart move for you. Sometimes it is. Sometimes my buyers do decide to pay over market value. When you’re educated working with a great team, you, your unicorn lender, unicorn agent, you’re not even going to talk about list prices anymore.
In this market, 2021, there are some cities going up 3% in 30 days. That’s almost what the average annual percent is. If you’re putting in 4 or 5 offers before you get one accepted, and now you understand this, and you’re in a bidding war, you are probably going to be one of those people that goes ahead and pays a little bit over the market value and it could still be a good deal for you.
Me and my unicorn figured out the market value, and now we see a home that is $300,000 but we figured out the market value is $350,000. We offer $350,000. Did we get it right? I don’t know. It depends. Is the seller psycho? Is that realtor totally lazy? You never know but I can give you this general formula on that one. If the market value is $350,000, they’ve listed and home at $300,000, someone knows something. They know that they are way underpriced.
Some of the other buyers have read the blog or have a unicorn realtor themselves, if you offer $350,000 and think, “I’ll offer market value. That’s what David said,” maybe you need to offer $360,000 or $365,000. As I said in some of my other show about offers, maybe offer $362,000 thinking that everyone else is going to offer $360,000 and that little $2,000 could be the thing that puts you over the top. It’s crazy. In 2021, list prices don’t matter. If you pay over list price, how much it’s all relative based on market value.
The principles for 2021, ignore the list price. Focus on the market value price, determine what the right math is for you. Believe in the numbers and be ready to pay over market value price. If that’s the right financial decision for you and your family and you believe the homes are going to keep going up at least for a little while longer until there are no multiple offers happening on homes, then you’ll believe and you know the math is right.
Some General Notes And Summary So Far
More general notes on list prices in general. 2021 has a lot of those extra rules but here’s something if you’re reading this in the future or for you to understand how these prices work. This is a quick little side note. This is not a normal buying process. What you’re doing is you’re buying in a not normal market. You’re getting double the bang.
Buying a home in a regular market is not a normal buying process that you’ve ever experienced in your life. It’s not a target where you know how the price works. It’s not the internet. It’s not like buying a car, even though a lot of people think so. People go, “The car but they have a real number.” That’s different. There’s a dealer. They’re selling multiple units. They have a whole different formula. This is not normal and not like anything you’ve ever done before.
Being a buyer sometimes sucks, because so much is out of your control and nobody wants to say that and nobody does. Why are you just knowing it from me right now? This is my mission. Anybody out there that talks to you about buying a home, they don’t like to tell you all this stuff because they want you to be their client and they want to close a deal with you. They don’t want to rock the boat and scare you away.
What buyer out there is going to run in and work with someone who tells him that the deck is rigged and this is going to be hard and it’s going to suck. The lenders and the realtors aren’t out there using marketing trying to capture you as clients with scary words. They don’t want to tell you that all those HGTV dreams you’re having, they’re just that. They’re total dreams. That’s why I’m here starting the show. It’s a truth bomb to get you the facts, show you the rules, help you beat the game because the deck is stacked against you. Get the truth, get empowered, and get your game. Don’t win the game, win your game. Know your numbers and believe.
If you guys out there in the future are reading this and you’re flying cars and I’m assuming everyone wears one-piece rompers, you don’t have to deal with 2021 cray-cray but if the market comes back to normal, or if it even drops, list prices still don’t matter. Many sellers and realtors suck in every type of market. Here’s how list prices work. The same principles apply. Nothing’s logical. You have no clue what’s going to happen. Bear with me. It’s the miserable reality of buying a home. Nothing’s uniform and there’s no secret equation. For sure, there are no formulas when it comes to counter offers, offers, negotiations, and a deal. I wish there were coupon codes or honey price drop alerts but this is different.
List prices are one person setting their own market for that one item with no company attached. There are no rules. It’s one person selling one thing one time. They don’t care about a good review, customer loyalty, or the mushy feel-good feelings during the transaction. They sometimes don’t even care about what’s fair, right, reasonable, or just. This is one person selling one thing once. Whatever anyone tells you about their experience in negotiating a list price or the right way to make an offer, punch them in the face. Maybe ignore them and do your research.
I told you guys before if you’re thinking, “David, I’m no sucker. I research everything.” I get it. You’re practical and you always get the best deals and you never overpay. I totally believe you. That’s awesome for you. The sooner you grasp the rules of this game and believe in the overall numbers, the quicker you’re going to grasp how you do that and win in this game. I have several buyers right now with whom I’ve had coffee meetings. That’s how long I’ve been working with them. Coffee meetings, when people met in-person, emails, phone calls, and Zooms. Back when I started the show in 2019, people probably could have bought with me back then. They were approved with good money and they’re paying rent.
I went back and looked at the buyers who have been talking to me since we started but haven’t made a purchase because they’re too busy analyzing, waiting, and trying to figure things out but they have an average of $39,000 a year in rent they paid. The homes that we first started talking about, they’ve gone up an average of $240,000 in equity. When they’re done researching, and they finally believe, I hope that when they do, they’re believing that they don’t figure out that math because that would bum them out.
No matter the market, list prices are not sticker prices. The seller doesn’t care about your formula so delete your spreadsheets on price per square foot because that seller might not care even if you come in with the right market value offer in a flat market. In any market, if you want to stay sane when you’re looking at list prices, keep that in the forefront. Most of these prices have little to do with the actual value of the home. It’s emotion and gamesmanship. What’s the realtor strategy? They use the strategies and all kinds of markets, not the ones that we talked about. Maybe the seller is cray-cray.
If some of your practical pragmatic people you’re thinking, “Why doesn’t the seller want to sell the home at the best price to a good buyer? Isn’t that the reason you put a home on the market?” No, please, and it sucks. You’re going, “That doesn’t make sense.” Correct. Now you’re getting the game. None of it makes sense. Let me explain why and here’s an example of how someone chooses a list price in a flat or a down market. It’s like, “Mr. and Mrs. Realtor, I’m going to sell my house if you can get me $500,000.” Why does the seller choose that number? It’s because they like the number. It’s round, even, and yummy and it makes them feel smart and confident. It’s got nothing to do with the current market value.
I can’t tell you how many people have paid $1 million. My buyers, because I’m in California and prices are crazy sometimes, people paid $1 million for a home that we know is worth $975,000 but we know the seller won’t sell unless they get exactly $1 million. That same seller insanely trickles down to all kinds of numbers. I’ve seen it at $400,000, $250,000 and I’ve seen it at $125,000 even though the house was worth $105,000 at most. That’s the number that makes the seller feel good.
Understanding List Pricing
How do you be the logical thinking on list price? Give it to them? A good unicorn realtor could find ways to put that number on the contract but eventually reduced the net to you. Your net with credits and discounts and all kinds of things, it’s where the market value is. Sometimes you’ve got to give them that number somewhere on paper even if it looks bad at the beginning, then that’s going to be where they need to be at closing.
Always assume that you are the most reasonable and logical person in the deal. Sometimes you could not be but assume you are and it won’t hurt as much. Be ready to bite the bullet or walk away if that seller ends up being a cuckoo. That’s why we started to believe. If you’re confident in your numbers overall for a ten-year period, deciding what you can do, what you can purchase, and why you want to purchase in this market.
Stacking things against you even more when the seller thinks their home is worth more than it’s worth. The agent does what we call buying a listing. You see this a lot in down-trending markets. The realtor says, “I can sell you a home for $325,000,” knowing full well it won’t sell for over $275,000 and the market is going down so they lock the seller in the contract. The market keeps dropping and the home gets new offers, the realtor says they have to reduce the price. The frustrated seller reduces to the price that it probably should have been listed in the first place. Here’s the extra bummer part for you. I know you’re thinking, “That means I can swoop in and I can pick up that home at the right price because the sellers getting desperate.” The seller is doing what we call chasing the market. Be ready for this.
When you see a reduction and a price hits down to that point because the agent bought the listing and now it’s finally dropped down and the market is going and they’re chasing it, that seller has lost all faith in the realtor and the agent they’re working with. You could come in and offer that exact new reduced list price at fair market value. Give them exactly what they’re asking for and they could still say no because they’re pissed, they had to reduce that in the first place.
You could offer a sticker price and not get the home. This can happen. Some sellers might be mad and they decide not to sell. Another thing about list prices is some sellers put a home on the market and they never had any real intention of selling. They’re testing the market. Some sellers are stubborn people and they want a number and that’s that.
Even More Reasons Why List Prices Don’t Matter
Here are some other big reasons why list prices don’t matter and I’ve gone through this with so many different buyers. Hopefully, this will be something that you can put in your back pocket and remember. Here are reasons why list prices are bogus sometimes. iBuyers is a new thing that’s been happening for more than ten years where a lot of the big tech companies will get a listing up and they tell the person they’re selling their home that they can bring them iBuyers. As an iBuyer, you might look at this price and think you got it but you have no negotiating power. There is no way you can get any credits, repairs, or any of that stuff done.
It’s difficult with an iBuyer. There are lots of hidden fees. This is a tool usually for investors or cash buyers and generally not great for first-time buyers. Another one, short sales. A lot of people see short sale list prices and they get all excited. I could do a whole show about short sales but let me explain it like this. The list price on a short sale is a total fabrication.
A short sale means that the person is selling the home, the value of the home is less than their mortgage. The bank should take the home back and sell it and try to get $0.80 on the dollar but what happens is they go, “Instead of doing a foreclosure, give it a run.” The seller then puts a list price which nobody has approved and the bank might not approve it. They do a bait and switch into a low price. If you see a short sale price and you don’t understand anything I said, know that short sale prices are not approved by the bank and the bank is the ultimate person trying to sell that house because the owner is upside down.
Probate sales. People think these are great deals and most of the stories you’ve heard about great deals are for cash buyers or investors who understand the game, not someone out there trying to do it for the first time. A lot of probate deals need court approval. That means that they put the home up, they get all the offers and they go to the court and the court goes, “No way we looked at the market value. This is way lower than what it should be.” A list price sitting there that doesn’t have the approval and the authority of the actual person trying to sell the house.
Another one is online auctions. This is one of my favorites. These are ridiculous. They put up a list price that is super low to entice all kinds of different buyers. Sometimes $100,000 under what the home’s worth and the auction itself has reserves and sometimes they won’t even accept the list price that they advertise. They put that out there to get the bidding started but if you came in with a good offer, they wouldn’t even take it. Also, all those online auction deals, when the list prices are wrong, you usually end up paying a 5% fee on top of it.
Another reason list price is confusing is a land lease. That means that you buy and own the property but you rent the land. The rent for that land might be another $300, $500, or $1,500 a month. With interest rates and about $1,500 a month that you’d be paying to rent the land, you could buy $275,000 more in-house on a property where there was not a land lease and you owned the house and the land. You see a lot of land leases in mobile parks and manufactured home places. A land lease list price can be deceiving.
There’s a whole bunch of other stuff that happens in your specific area that I don’t know about because I sell homes here in Southern California. Do you know who does? A local unicorn realtor. We’ve been busy here at How to Buy a Home headquarters. As of August 2021, we’ve got 176 unicorns in the United States and Canada helping readers all over. If you need some help, I hope this information was valuable to you but if you need a coach, a guide, or an expert to help you build your super team, we’ve got hundreds of readers out there that have closed on their first home.
Don’t be ashamed to be ignorant about this, it isn’t your thing. This is my thing, as sad and depressing as that is. Hire the best. About 25% of the realtors out there are unicorns and they do care about you. You can ask me for one anytime. Go to HowToBuyAHome.com or DavidSidoni.com or DM me on Instagram or go to the websites and find my email. Remember, instead of wondering what the magic number is to offer over list price, get a great team to work with you and they can help you formulate your best ten-year plan once you believe.
Keep in mind, you and your great unicorn realtor can put in an awesome offer and for whatever reason, the seller can still say no and if there are multiple offers, they might choose somebody else’s. As long as they’re not discriminating against anybody, they can do whatever they want. They could decide, maybe this isn’t what they wanted, maybe this is too much for them and they pull the house off the market.
Remembering that there was a seller selling one thing once, what can help you is data and knowledge and that’s where a great unicorn realtor who knows the sales history of the neighborhood, an experienced person who knows if the other realtor is a good person or a lazy person. That is something that can help you and work out for you. Be ready and you won’t be shocked. Know your numbers and you’re going to find some good things.
It’s called a bidding war. War is hell. Don’t expect it to be HGTV. It’s called a war for a reason. Remember, after the war, if you study history, the winners of the war often have times of peace and prosperity. Don’t hate all my words for dropping the truth. Don’t hate this player. I’m on your side and now you know the game. I believe in the facts, the data, and the math. Call me cheesy. I don’t care. I don’t need anyone’s approval, the data backs me up. I’m not here to the front. I screwed up big time in my twenties and I want to help you.
I lost hundreds of thousands of dollars renting like a moron. What sucks worse is I’m over fifteen years in real estate and I figured out that in 30 years since I was blowing this, no one stepped up to fill this void. My mission is to be locked here in my new office, which is hot because I can’t figure out the air conditioner and because I’m serious about helping you make the most of your rent money turning into mortgage money here in the hottest week of the year sweating in my new sauna office.
I’ve got a sweet above-ground pool at home that I built and I can’t even swim in it because I’m here trying to help you guys. I’m a cheeseball. It doesn’t mean I can’t shoot straight. No fairytales and false hope. This is hope. Now you know what happens with a listing price. You know how to negotiate it. Now, you know the numbers need to work and you can work with crazy people and their crazy list price prices. I love flubbing into the last words of the show. I won’t flub this. You can do this.
- Episode 40 – Should I Buy My First Home Now, Or Wait? Question Of The Week
- Episode 36 – Timing Your First Home Purchase With The End Of Your Lease
- Episode 43 – Should First Time Homebuyers Focus On The Price Of The Home, Or The Monthly Payments?
- Episode 44 – How Much Should A First Time Home Buyer Put Down? Question Of The Week
- Dave Ramsey
- Instagram – David Sidoni How to Buy a Home
This podcast was started for YOU, to demystify things for first time home buyers, and help crush the confusion. After helping first timers for over 13 years, I knew there wasn’t t a lot of clear, tangible, useable information out there on the internet, so I started this podcast. Help me spread the word to other people just like you, dying for answers. Tell your friends, family, and perhaps that random neighbor you REALLY want to move out about How to Buy a Home! A really easy way is to hit the share button and text it to your friends. Go for it, help someone out. And if you’re not already a regular listener, subscribe and get constant updates on the market. If you are a regular and learned something, help me help others – give the show a quick review in Apple Podcasts or wherever you get your podcasts, or write a review on Spotify. Let’s change the way the real estate industry treats you first time buyers, one buyer at a time, starting with you – and make sure your favorite people don’t get screwed by going into this HUGE step blind and confused. Viva la Unicorn Revolution!