If a home doesn't sell in a market that is moving, there might be something wrong with it—or it might just be overpriced. Buyers often bypass opportunities to make offers on overpriced homes, but if you do this, you might be passing up an opportunity to buy your dream home for a bargain price. There are overpriced gems hiding among the inventory of homes for sale every day. If you know how to identify them and if the circumstances are right, there can be a lot of room for negotiation.
One of the biggest reason buyers don't make offers on overpriced homes is because they don't want to offend the sellers. It goes against human nature to offer substantially less than asking price. It can be insulting to the seller and embarrassing for the buyer. Buyers also erroneously believe sellers know when their homes are overpriced, and if they were willing to sell for less, they simply would lower their prices.
As well, buyers often are wrong to assume sellers must have turned down low-ball offers from other buyers because surely someone, somewhere along the line, had offered a reasonable price.
The reality is that many overpriced homes have never had a serious offer. That's why, as counterintuitive as it may seem, an overpriced home might be an indicator of a potential bargain.
Finding an Overpriced Listing
To such a bargain, though, you first need to identify the overpriced homes where you are looking. The easiest way is to ask your real estate agent about the average days on the market (DOM) for your area. Multiple listing systems are designed, so it's fairly easy to compute the DOM. Then ask your agent to give you a list of every home that has been on the market longer than the average DOM.
If your agent is a neighborhood specialist, she likely has toured these homes and has intimate knowledge of their conditions and other details and can share that information with you. She also can give you her professional opinion about which homes she thinks are overpriced. Agents don't always tell listing agents if they think homes are overpriced for many of the same reasons buyers don't make offers on such listings. Sometimes, listing agents make mistakes when estimating market value prices for a seller, but it is always the seller's responsibility to select the sales price.
Why a Seller Might Lower a Price
As an example, consider a home on the market at an asking price of almost $950,000 for three months. In a hot market seller's market, it probably could sell for about $800,000, but the market might be softening and demand might be decreasing. Moreover, the sellers have moved out of the area, leaving the home vacant, and the listing agent is unaware that the home is overpriced. The sellers, meanwhile, are becoming increasingly more motivated.
These are perfect conditions for buyers who know how to negotiate with tact and conviction. Based on the home's time on the market and insight from their agent, buyers can be confident that an offer will be the only one the sellers have on the table.
They can make their offer more attractive to the sellers if they do not include the sale of their existing home as a contingency and offer a large earnest money deposit to show they mean business. They can further strengthen their position by pointing out market conditions to the sellers, including a list of homes in the neighborhood that sold at more reasonable prices.
Buyers capable of backing up such an offer have a good chance of getting such a home for even less than the $800,000 market value, let alone the inflated asking price. It's possible such an offer would be shot down as quickly as most buyers would expect, but only the buyers who try are able to find out—and maybe find a bargain.