By Stephen Munson, Real Estate Consultant
Low Balling Offers-Why Do Buyers Do it?-Â It's really important for Buyers to understand how and why theyÂ make their offers. Often I find buyers make offers based upon what they've always been told buy their parents or others. For example: "Always go in with your offer at least 10%(or what ever formula they were given) under what the seller is asking".
The problem with this is that there is no real basis for this "formula" other than "low balling for the sake ofÂ Low Balling Offers". I can see if the property is overpriced to begin with, but that's just bringing the seller down to earth on theirÂ overpriced home.
I completely understand everybody wants the best deal they can get. Of course, who wants to over pay for a home?So really, the questions buyers need to ask themselves is why am I buying a home?
Ask yourself this:
Am IÂ buying because I intend to live in my homeÂ for 5 or more years, interest rates are great and I can afford the payments?
Am I anÂ "investor"Â orÂ "trader"Â who intends to "flip" the property for a quick profit?
Both of these Buyers make their offers differentlyÂ because they have different motivations and are looking for different types of homes.
AnÂ Investor is typically looking for "distressed" sellersÂ and homes that need a great deal of improvement. Investors often are contractors or can do the work themselves and save a lot of money doing the improvements the home needs with the intention of putting the home back on the market for a quick profit. These are the investors are in a position to makeÂ "low ball offers".Â They don't care if they get the house or not, it's all about the numbers.
on the other hand...
If you are theÂ buyer looking to purchaseÂ because you want to live in the homeÂ for 5 or more years, your motivation is completely different. Believe it or not, although price is important, terms may be MORE important.
- Are the payments acceptable to you?
- Will the seller take your FHA offer?
- Do I want the seller to pay my closing cost?
- Is it better to buy something that is "turn key" or close to "turn key"rather than find a great deal and pull $30K out of the 401K and have no money left for an emergency?
Your Stratagy Should Be Different
- Write Offers Based on Market Value: If there are NO offers, there may be some "wiggle"room in the price. If there are multiple offers, be prepared to go "at or above" asking price.
- The more concessions you want (closing cost, repairs etc..) be prepared to write a stronger offer.
- If you are going with FHA, be prepared to write stronger offers.
The bottom line here is if you are a buyer who intends on living in your home, make fair and reasonable offers that are a "win-win" for you and the seller. I've seen many people "low-ball" themselves out of homes that would have otherwise been PERFECT for them.
And remember this:Â If you are in fear of overpaying,Â then Fear Not because you are protected by the appraisal. If the appraisal comes in â€œunder valueâ€ renegotiate or move on!
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