How much did they pay for it?

Some of my buyer clients occasionally fixate on how much the seller of a property paid for that property.  Most economists will tell you what any asset was sold for in the past has absolutely nothing to do with what it is worth today. 

In most cases, this is true.  Let's imagine you're competing for a condo with other buyers and the condo is worth $500k.  Even if the seller bought it for $300k, some other buyers will likely offer $500k since that's what it's worth to them and what they'd need to pay for similar properties on the market.  Thus, if you make an offer of $400k (what you perhaps insisted was a more than "fair profit" for the seller); it will be summarily ignored.

Of course, there are exceptions.  One exception is when the seller is happily living in his condo which has not appreciated since he bought the place -- perhaps he even paid a hefty premium for it and the market has since slowed down a bit.  In this case, even if the market price is $500k, if the owner paid $525k for it, it's very possible the seller would turn down a fair offer of $500k, perhaps even $510k.  What may happen in this case is the seller doesn't get what considers to be a good offer or he promises himself he will at least break even and takes the property off the market to try again next year.

Another exception is the case where the seller has a property that has appreciated substantially but hasn't gotten any offers (perhaps it's off season, it's not being marketed well, or there just aren't a lot of good fit buyers).  In this case, even if the seller receives an offer below market value (say market value is $650k and he paid $400k for it), the seller might accept an offer for $625k thinking he deserves $650k but doesn't want to risk the market turning on him or doesn't want to continue paying for mortgage and marketing of the property.

So the moral of the story?  Generally, properties sell for market price, especially for highly sought after condos in popular buildings.  However, if the property owner is taking a loss, he may be more inclined to reject legitimate offers.  If the owner is about to enjoy healthy profits on a less sought after condo, he may be inclined to accept a discount off the market rate. 

Hope this helps.

-Wendy

Technorati Tags: Condo pricing, condo evaluation, Seattle condos, fair market value, fair market price

Comments

[Dan Ji]

These days, all the real estate reading I come across is on the macro-market scale... it's nice to hear the forgotten, but important person to person perspective.

Sometimes I feel like people focus TOO much on numbers and raw data...

Great post, Wendy!

[Gary]

Why whenever one reads about Seattle real estate "competing" is often used? Mind u there are less articles today, but one can still find articles about multiple bids for real estate.

I was dreading this situation last year, when we were looking for a condo. All the units we say in Belltown had been on the market for several weeks if not months. We brought our unit for 10k under asking price. The unit had been on the market for more than 45 days.