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By Tara-Nicholle Nelson | Broker in San Francisco, CA

7 Insider Secrets for Bargain-Seeking House Hunters

1.                Get - and stay - clear on what “bargain” actually means.  Learn the difference between the asking price and the fair market value of a home. Many buyers think a bargain is any sale price below the asking price.  But a home’s asking price is an indicator of the seller’s intention, and can be roughly the same as, greater than or less than the actual market value of the home. In fact, a bargain is a home that you buy at a discount from the fair market value, or one you get with some other perks.  If the list price is set high, a below-asking sale price could still be above-market, and if it’s set low, you could pay more than the asking price and still get a great deal!

Also, get clear on what “bargain” means to you.  Are you looking for the biggest home at the lowest price (i.e.,low price per square foot)?  The lowest price in the best neighborhood?  A home in move-in condition for the price of similar homes that need work?  A home with all the furniture and electronics thrown in? There are many ways to skin the “bargain” cat.

2.                  ‘Regular’ sales may present better bargain opportunities than foreclosures and short sales. Contrary to popular belief, individual home sellers have more leeway and, often, more motivation to accept a lower offer than bank negotiators do. (In a short sale, the bank is the ultimate arbiter of how low the seller can go.)  The banks often must adhere to guidelines, including that they may only accept an offer X below the fair market value - many banks have a policy of slightly reducing the list price and re-market the home before taking a lowball offer.

Individual sellers have no such limitations, and often take bargain-priced offers because they must move quickly, or are otherwise motivated.  Also, individual sellers have the ability to bargain on other transaction points, as well - you might pay the fair market value to an individual seller, but get them to agree to paint the place, complete the pest repairs and fix the furnace.  Chances you’ll get a bank to do that for you? Somewhere between slim and none.

3.                  Look for sellers who have demonstrated their flexibility on price.  When you house hunt online, don’t limit your search criteria to beds, baths and square feet.  Search for price-reduced homes or, at the very least, sort and prioritize your search results by the dollar amount or percentage by which the price has already been cut.
These discounted digs might already be a bargain, and in some cases, the sellers might be willing to deal even more!

4.                  Find a motivated seller - look for homes with longer-than-average Days on Market (DOM).  Talk with your broker or agent and have them educate you about the average number of days a home in your area stays on the market. Homes that are lingering on the market for much longer than that may hold the potential for negotiating an even deeper discount, as their sellers might be very, very antsy and ready to take even a below-asking offer.

5.                  Don’t insult the seller. It might feel like you’re an ace wheeler and dealer when you make a lowball offer on a home for sale. Buyers can get bravado, like, “Ha, Seller, you want X?  Well, I’m only paying X minus 40% - deal with it.” Or, you might think, “I’ll offer you 40% less, then we’ll go back and forth 7 or 8 times, and I’ll be happy with a 20% discount off the asking price.”

But when those bottom of the barrel offers come in, both agents often detect a novice buyer at work. What they know - that you may not - is these two things.  First, many sellers on today’s market don’t even have that much room to negotiate - they’re already selling at a loss or very, very close to what they owe on the place.  If they have to write a check to sell it to you, they’d simply rather not sell.

And, second, many a seller will simply refuse to sell to someone who they feel has insulted or disrespected them.  That insult can be inferred from a lowball, below-market-value offer, or from a buyer’s running commentary on all the things they would change about the place if it was their house. (Note - you already know not to rave and gush to the sellers when you see a house you like. Neither should you trash it.)

And it’s not any different when it comes to institutional sellers, like banks selling foreclosed homes or approving short sales. They don’t take lowball offers either - most lenders say a 10% discount off the market value - not the list price! - is about as low as they’ll go.

6.                  Give to get.  Have your agent interview the seller’s agent to glean as much detail as possible about why they are selling, what their priority is (e.g., fast close or most cash?), and what the motivating facts are surrounding their sale (e.g., are they upside down, relocating for work, getting divorced, or any other facts that may be relevant)?

Then - especially if you’re going to ask for a big chunk off the asking price - give them what they want!  Try to close when they want, if possible (trust your real estate pro for a reality check on this - short escrows are nearly impossible for all but cash buyers these days). Go as-is, if it makes sense, without waiving the right and the time to obtain inspections. Decide what is most important to you, and if it’s a discount, give the seller what they want on the rest of your the transaction’s terms.

7.                   Sell yourself.  Even when they have multiple offers, today’s sellers will take a lower offer that looks certain to close over a higher offer that has no chance of closing.  No seller wants to waste their time on a buyer/offer who can’t close and then have to put their home back on the market 30 or 40 days later.

If you want a bargain, sell yourself and your offer - make a convincing case that you are likely and able to close the deal! Make sure your agent presents a polished, computer-prepared offer (if that’s the standard in your area) - this demonstrates that they have the professionalism and up-to-date market knowledge it takes to get a sale closed these days.  Make sure the offer package presented to the seller includes a polished, thorough loan approval letter, which confirms that your credit, employment, income and down payment funds have all been verified and approved for a home loan.

Also, make sure that your agent and loan broker emphasize features of your qualifications and your offer that render it more likely than average to close. Some sellers frown on FHA and VA loans, because they have a reputation of being tough to close.  If you are approved for a conventional (i.e., non FHA) loan, your offer should say that.  If you have a large down payment, or are paying cash, your offer and your agent should bring that to the listing agent’s attention, too.

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By Don James,  Thu Aug 12 2010, 05:27
What are the risks of coming in with a bid 40% below asking price on an empty house that the bank owns? Especially after they have already dropped their asking price by 20% (from an unrealistically high) starting price?
By Marge Bennett,  Thu Aug 12 2010, 05:41
Good advise.
By Jbarbash,  Thu Aug 12 2010, 06:08
the banks only will accept 10% off the list? i don't believe it. it seems like they'd be really happy to get close to what tis owed on the mortgage; esp if it's in cash.
By Jbarbash,  Thu Aug 12 2010, 06:10
the banks will accept only 10% off market? it seems like given the economy and shadow inventory they'd be happy to get close to what is owed on the mortgage; esp if in cash.
By Starr Mier (239) 404-1219,  Thu Aug 12 2010, 06:52
If you listen to your experienced Real Estate Agent or Broker he or she will help to guide you . Banks are really looking hard at appraised value these days. On some homes you might even have to go off of Assessed Value putting 5% to 8% on top of that.,but again you can do what ever you want the Banks are working with appraised value most of the time.
By Janet Ford - (918) 856-5718,  Thu Aug 12 2010, 07:04
"6. Give to get. Have your agent interview the seller’s agent to glean as much detail as possible about why they are selling, what their priority is (e.g., fast close or most cash?), and what the motivating facts are surrounding their sale (e.g., are they upside down, relocating for work, getting divorced, or any other facts that may be relevant)?"

I do not know about San Francisco, but where I am it would be a breach of regulations for a listing Realtor to disclose seller's motivation to sell their home. Additionally, it would be unethical for the buyer's Realtor to ask knowing it will be a breach. That said, if the seller's have expressly given permission to disclose motivation, then that is OK.
But it is a "two way street," maybe the seller will demand to know the buyers motivation to purchase their home, so should the buyer disclose?
By Markus Yeargin,  Thu Aug 12 2010, 07:15
@Don There's not much "risk" in presenting any offer to the bank. They have no emotional attachment. If it doesn't fit their bottom line, they will counter or reject your offer. They won't send a big buy with a baseball bat after you, or be offended, because they don't have any attachment to the property, other than monetary. @Jbarbash, It depends on how long the property has been on the market as to what they will accept. The agents & asset managers involved in REO property are highly professional, do this all day, everyday, and usually take into consideration everything, including condition, when arriving at a list price (may be different than "market value"). Statistics show that bank owned properties average almost 88% of their list price at sale, which supports the 10% off mentioned here. They are happy to get close to what is owed, but rarely do. When the cost of foreclosure, maintenance, commissions, etc come into the equation, they are losing big money. If you have cash & make a decent offer, they'll take it usually. The perception is that an individual can buy a bank owned property for 40% off list (I hear it all the time), but really, if you look at what the place sold to the former owner for in 2006 or whenever, and compare what you can buy it for from the bank today, that is where the "deep discount" thinking (and advertising) come from. That being said, just as there are some popular properties that the bank receives multiple over-list offers on, there are always some that fall through the cracks & sell for way cheap. Check Hudson & Marshall for auctions in your area. They are just one of several places that auction off houses the banks have had listed for a long period of time with no good offers. Just remember, there is usually a reason why it hasn't sold. I am a Buyer Specialist for one of the top REO agents in the nation, and 75% of my business is selling NON-REO properties. Everything's a good deal these days, and individual owners are often more flexible. They tend to have less cash to relying on when holding out for a higher price, so are willing to deal. Great article Tara!
By Christina Tarkoff,  Thu Aug 12 2010, 07:47
Who determines "fair market value?"
By Sherylynne,  Thu Aug 12 2010, 08:01
I learned a couple of things here, most of it I already knew. But, what I learned on my own (and only took me a year to figure it out!) is to not do business with an inexperienced real estate agent. I was so neophyte a year ago that it's embarassing to admit it. I met the real estate agent at an open house where he was standing in for the listing agent. He old and gray, talked well and seemed knowledgeable so I assumed he was experienced and successful. One day, after wasting three months with him, I asked how long he had been a real estate agent. I asked because by then I was less than impressed with his performance and progress. By his tone of voice it was apparent he took umbrage to the question and replied, "Three years. This is my second career, having retired from an executive sales position with a large, well-known company." Due to his attitude, I didn't question those credentials and decided he must know the business if he's done it full time for that number of years. For the first 9 months, everything he showed me was a short sale, even though I didn't want a short sale, but his reason was that was all that was on the market. I made several offers, waited forever and lost out on each one. By the tenth month, in addition to short sales, bank sales were in the mix. Made offers, with the exact same result. I was "over" the whole process and told him I was going to take a break. Shortly thereafter, I learned from the lender whom he had recommended and had given me my approval letter, that the agent was in his first year. I, also, learned that 3 of the properties sold (one of which was a bank sale) for exactly what I had offered! And, a fourth one, the listing agent stated he never received my offer. I found out because I saw the property listed again with the same agent, but a different realty company. I had no way of going back on the previous three to determine if any of them had received my offer. On my next go-around, I will represent myself and deal only with equity sellers.
By Christopher Phipps,  Thu Aug 12 2010, 08:33
I just had an an REO agent on a Wells Fargo property in the OC tell me he could not submit any offers below 20% of list price. The house has been on the market for two years. That's not a typo, TWO YEARS. The place is a dump and riddled with code violations, yet they won't even look at my "All Cash" offer. It's just a file on some asset managers desk somewhere who has never seen the property. You would think the lenders would have some sort of aged inventory category to put these properties into and investigate them. And the agents don't dare say anything because they don't want to piss off the asset managers. REO's have become a bureaucratic wasteland.
By Carl Medford,  Thu Aug 12 2010, 08:35
Here's a post that may answer some of the questions about low ball offers ...

First-time Buyers Still Trying Lowball Offers: 5 Reasons NOT To
By Christopher Phipps,  Thu Aug 12 2010, 08:38
One thing I see the lenders doing which is good is getting rid of the seedy REO agent's who's only concern is double ending every deal. I interviewed with one of those guys and he had a team of buyers agents and he was taking 55% of every REO lead he would give them. And yes he said his goal was to double end every REO. I am happy to say I have followed his inventory and he currently has zero active listings, down from as many as 75.
By Sharon Schlott,  Thu Aug 12 2010, 08:39
Great article and I whole heartedly agree. Short sales and foreclosure grab a lot of press but the real bargains can be the seller owned homes that are being offered for sale right now.
By Cityzen,  Thu Aug 12 2010, 08:56
The banks never loose money on these deals. They never had the money in the first place. When you take a loan out on a house they don't give you money they earned and saved. They create it. Sure, bad loans affect their ability to create future loans and sometimes lead to closure of banks. Fortunately, for them, the Federal Reserve is allowing them to keep most of their bad assets off the books. Look into the State Bank of North Dakota. It is the only type of bank we should have in this country.
By Maya Thomas LLC, Broker,  Thu Aug 12 2010, 10:20
Excellent advice!
By Carole & Greg Higgins,  Thu Aug 12 2010, 10:52
I tend to agree with the brokers who point out that there is not much risk in offering a low price to a bank if you package that offer well. Offering a quick closing, a higher amount of earnest money and being a strong buyer will go a long way in this market. I do not list REOs but most of our business is short sales and I have found that if I, as the seller's agent give the bank compelling reasons why they should accept a certain price I can often get the deal done. This means a lot of extra work but it is worth it in the end- I go to my bank appraisals- I give the appraiser a copy of the contract we are attempting to negotiate as well as comps supporting the price and of course I point out to the appraiser all material defects of the house that are actually known to me. When all is said and done I have found that 75-80% or so of current market pricing in as-is condition with a 30 day sale will usually get the job done- be it REO or short sale. I believe that REO listing agents have the same options and can probably facilitate the same "deal" if they take time to work the offer-but many REO agents have so many listings that they literally do not have time to work each offer with the bank, which will result in a necessarily higher required purchase price.
By John King, GRI, SFR, Broker,  Thu Aug 12 2010, 10:57
From above:
" the banks only will accept 10% off the list? i don't believe it. it seems like they'd be really happy to get close to what tis owed on the mortgage; esp if it's in cash. "

As a buyer's agent, my buyer bid their very top dollar on a short sale, and they were 5% below the asking price. The bank refused to budge, and even wanted all involved to take a STEEP discount on their commissions as well at the listed price.

That home never sold, and is now a vacant foreclosure. Once they foreclosured, they even raised the price....... And I have seen 3 different listing agents on that property since.

Just goes to show that common sense may not be that common.
By Harrison K. Long,  Thu Aug 12 2010, 11:12
Tara ... Thanks for this article on Top Secrets for Bargain House Hunting. Your secret #1 is the most important I believe - to get and stay clear on what “bargain” actually means. So many people these days are looking for a home and they want a "great deal" too. They are trying to analyze property in terms of what they like and don't like for a home at the same time they are using analytics to consider investment criteria. Fair market value for a property to be used as a home might not necessarily be the same as fair market value to the person looking for an investment and who might be considering rentals and CAP rates.
By Aaron Schreiner,  Thu Aug 12 2010, 11:35
Understanding the "bargain" you're getting is important. For #6 I would like to highlight the suggestion to "go as-is...without waiving the right and the time to obtain inspections." An inspection will only take 2-3 hours and cost $250-500 depending on square footage. We even deliver the report the same day, so your closing won't get held up at all. This is a small cost of money and time when considering such a large investment. Knowing what you're putting your hard earned cash into makes so much sense. Don't skimp on this expense!
By Sharon Sorsby,  Thu Aug 12 2010, 13:57
If there are two liens on a short sale home and the seller's payments are up to date and are not in the home what are the chances of this short sale progressing?
By Tom Inglesby,  Thu Aug 12 2010, 15:27
I agree if you position yourself with a realistic offer even 10-15% off the lowest price homes have sold for you have good chance that the offer with go thru to the bank. You and your buyer need to know the market because all areas and communities in towns are different.

Tom Inglesby, RE/MAX Equity Group, Portland, Or
By D. Mathews,  Thu Aug 12 2010, 17:00
Why hassle trying to Buy a Fixer upper, foreclosure, short sale, reo, when you can buy a nice home in a great neighborhood for the same price or lower? Think of it this way! 30% of all home owners in the US have no mortgage! Another 68% are current and paying their mortgage on time. That equals 98%. My question is? Why is everybody chasing that 2%? Not me!!!
By Suzanne MacDowell,  Fri Aug 13 2010, 12:39
Good advice! I know people working with investment 'gurus' who are advising making offers at 30 cents on the dollar. In my market you would be laughed out of the office if you did that, furthermore, you would get a reputation and no one, not the banks, not the REO agents, no one would work with you ever again. 60 cents on the dollar? Yes. 50 cents on the dollar, Perhaps. But 30 cents, no way. Your clients would do well to listen to you.
By Q,  Mon Aug 16 2010, 11:22
Tell me, Why is it soooooooo hard to find a good relator and or broker? I've been searching for an honest relator for almost a year. Dealing with two in the last past year as only been let downs. I was hoping to quilify for the $8000 Tax Rebate, when a few weeks to the dead line the relator informed me that they could not do anything for me for 6 months. So right now I'm waiting until December to apply for a morg. loan with my credit union. No I will not deal with that last lender or relator. Do anyone have any suggestions or knowledge first hand about which one would be better Bank or Credit Union?
By Jeanne Feenick (908) 337-0943,  Tue Aug 17 2010, 17:16
Agree with reminder to include the inspection contingency and hire a good inspector, regardless of whether a deal is "as is" or not. The $250 - $500 will be the best money you will spend - perhaps even more so if you discover something that you do not want to take on.

As to your question Q, I've had buyers work with both traditional banks and others with credit unions for their mortgage. In the case of the later, they worked with the credit union because they had their accounts there and most of transaction fees seemed to be forgiven. Whatever you do, work with a reputable institution, and also have a point of contact. I have heard horror stories when you are relegated to a 1-800 # without a consistent point of contact.

Sounds like you, Q, have had a bad experience with your agent and your bank. I'm sorry to hear that. There are great agents - wish I could help you myself - but that would be here in New Jersey only. Find yourself a good one, she should be able to put you on the track for a good mortgage provider as well.
By Christian Cazares,  Wed Aug 18 2010, 13:06
Thank you for the advise
By Tom Fleming,  Thu Aug 19 2010, 07:52
Great Advice true in my market place as well
By Patricia,  Fri Aug 20 2010, 13:14
I think this article is great.. I bought my home on a bargain because it has really unique and distinctive architecture unlike the other homes in the neighborhood. I also bought a home warranty from by 24-7 Home Warranty that costs $25/month. So far my experience has been great because it has helped me keep my home repair costs low especially because I discovered that a lot of repairs needed to be done to my home.
By DeeDee Riley,  Sun Aug 22 2010, 22:45
Great post Tara, with great advise!
By Kria,  Thu Aug 26 2010, 12:18
In my market foreclosed homes are the best price per sq ft. The next best is owner occupied the worst are shortsales
By Joe Houghton,  Thu Aug 26 2010, 12:27
Such a refreshing article to read. It's frustrating that so many buyers associate a bargain with dollar off of asking price.
By Steve Lowen,  Mon Sep 20 2010, 11:00
Great 'values' differ by state, county, city, and even street. It is important to understand the history and dynamics of the market before sourcing. Example, I am searching for a home in Georgia or Alabama. I want a large vintage property that requires little work. The prices of these homes have not fallen as much as they have in my present
area, Scottsdale, AZ. Were I to take the same tack as those buying here, I would be put on my ass on every offer
I made in my chosen area.
By Ruth,  Tue Sep 21 2010, 07:24
I loved this article, WHEN I READ IT A FEW WEEKS AGO!!! Thanks for the e-mail alert. Next time, maybe make it a new post!!!
By A. Tor,  Fri Sep 24 2010, 08:58
It sounds like too much effort for nothing. I suggest noone buys a house until the economy gets back on track. You are better able to handle the risks in an upward market instead of the current spiraling downward market.
By A. Tor,  Fri Sep 24 2010, 08:59
It sounds like too much effort for nothing. I suggest noone buys a house until the economy gets back on track. You are better able to handle the risks in an upward market instead of the current spiraling downward market.

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