Statistic Geeking - How Low is Too Low?

Dated: August 22 2018

Views: 281

Every once in a while, I fall down a statistical rabbit hole. And today was one of those days. 

I had another agent who was trying to figure out how to explain to their client about why the low offer they wanted to submit was not really a good use of anyone's time. As a buyer's agent, I am always wanting to get the best deal I can for my clients...and will negotiate my tuckus off to do the best I can for them. 

However, after years of experience and a knowledge of statistics, I know that some offers are just too low to even get a response. So the buyer wastes time, their agent wastes time, the seller's agent wastes time, and the seller is insulted and has their time wasted. 

So today I ran some actual statistical probabilities on what the chances are a low offer will be accepted. Using mean, standard deviation, T-tables and the internets....this was my conclusion.  Of course this can change as the market changes...so this is for Josephine County for July of 2018. Sample size of 119 sales...so significant. 

Sellers mindset in our market is they have to decide to lower the price, they don't accept low offers. 

So the average sales price to list price was 96.98%. However the sales price to original list price was 94.61%. 

There is a 33% chance that an offer at 96.98% will be accepted, but only a 9% chance that an offer of 94.61% would be accepted. Even though that is the average overall from the original listing price. 

So deeper down the hole.  Here are the probabilities.

At 92% of asking price the odds of acceptance are 4.5%

At 87% of asking price the odds of acceptance are .27%

at 82% of asking price the odds of acceptance are .006%

at 78% of asking price the odds of acceptance are .0001%

So when looking to make an offer anywhere below 90% of asking price, the odds are so long!!!!!

As I council my clients....I want them to know that it isn't me who wants them to pay more for the house. The best deal I can get them is what I want. But when I say an offer is too low to be considered, I now have some statistical background and facts to back that up. 

Thanks for falling down my rabbit hole if you got this far. 

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