We have buyers shopping for condos in the Virginia Highlands and Midtown neighborhoods of Atlanta. When it comes time to make an offer on one of these properties, it’s not uncommon for Buyers to become a little agitated when we suggest making offers that are at, or close to, full price (sometimes even over asking price). It simply doesn’t reconcile with anyone who has purchased property in the last 20 years, when things were more balanced or even favored the Buyer more heavily. “What about negotiating”…right? Buying a house usually means coming in lower than what you are willing to pay and tossing offers and counteroffers back and forth with the Seller a few times until you hit a number that you are happy with, or you at least have the satisfaction that you have beaten the Seller down as far as they can go. Negotiating is one of the parts of real estate that we love most, but at the end of the day, we need to get our clients what they want (to buy a property), and different markets call for different tactics to accomplish that.
In this piece we want to show an example of why condos in the Midtown and Virginia Highlands areas of Atlanta are moving so fast and getting such high prices, and why coming in with a low offer on a property that was just listed is almost always a losing strategy.
Let’s start with Supply and Demand, which is the cornerstone of all markets. Basic economics tells us that when supply is high and demand is low, the Buyer has the upper hand and will drive prices down. When the supply is low and the demand is high however, the Seller is in the better position and prices will rise to the highest point that the market will pay. In real estate, we call this housing inventory and its measured by an absorption rate, or “Months of Inventory”. When inventory is above 6 months, it is considered a Buyer’s Market. When inventory is below 6 months, it’s considered a Seller’s Market. Here is what the inventory levels have looked like over the past twelve months for condos and townhomes in the Midtown and Virginia Highlands neighborhoods specifically:
As you can see, inventory is very low (just 2.69 months in April), which makes this a strong Seller’s Market in this area. So how does this dictate the offer strategy we must use? Well, we need a little more information to figure that out. One important statistic that we have to look at in the micro market that we are buying in is: how close to the asking price are most Buyers paying? Since we very well may be competing with other Buyers for the same property, we need to understand how this particular market, in this area and in the last few months has been behaving. Take a look at this:
The above chart shows us the number of listings that have sold since the beginning of 2015 by the number of days they were on the market. Almost 30% of the condo and townhome listings in Midtown and Virginia Highlands sold in under seven days on the market! Here are those numbers by percentages of homes sold:
Almost 60% of condos and townhomes were sold in less than 30 days! So we can see that a majority of the units are selling very quickly. That tells us that we can’t sit on our hands very long before making an offer, but what does it have to do with how MUCH I should offer? Take a look:
The above chart illustrates the Median Sales Price to List Price ratio by days on the market. You can see that the median percentage of list price to sales price for homes that sold in under 7 days (which is nearly a third of the sales) was 100% of the list price. This means that there were as many of these sales above 100% as there were below 100%. Furthermore, you can see how this ratio declines with time on the market. Still, even at 61+ days on the market, the median sales price/list price is still at 94% of the asking price.
Let’s sum up how we can use these numbers when making an offer in Midtown Atlanta or Virginia Highlands. I’ll say first that this is all predicated on the assumption that we have pulled comparable sales to the unit and found that the asking price is in line with recent sales and that an appraiser would have the data necessary to bless the price. Assuming that is true and the listing is not grossly over-priced, we need to take into account how long the listing has been on the market. If its only been for sale for a few days, making an offer 10% below the asking price is most likely going to go nowhere, in fact, most Sellers in this market would not even respond to that offer. If you want the house, you’ll need to go in very close to asking and if you are in a multiple offer situation, you shouldn’t be surprised if it will take an offer that is over the asking price to win.
Once the listing is on the market for a few weeks, if it has not sold, the market is essentially saying that the listing is over-priced, so offering less than asking will be more successful. Listings sold between 8-15 days on the market were getting a median of 98.6%. If you are a Buyer who insists on getting a Seller down on their price by more than a few percent, you should concentrate on the listings that have been on the market for over 30 days as those listings will be the most negotiable in general. Most of our Buyers are looking for advice though, on what a good offer should look like and this is why we always look at how long its been on the market when putting together the offer strategy.
Want to see these stats for a different part of town? Just leave us a comment below and we’ll put a link to the same charts for that part of town.