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Jesse Kim, Home Buyer in Massachusetts

I've always heard that to offer less than 20% of the asking price is an insult to the owner. But in today's

Asked by Jesse Kim, Massachusetts Sat Apr 5, 2008

market, is there a new number that's higher - offering 30% less, for example?

Thanks.

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Larry Tollen’s answer
I have been in real estate full time for nearly 20 years and have had my license for 25. I’ve been buying and selling for an additional 10 years and have lived and worked in several states over this 35 year period and have never heard of 30% off of asking price as a rule of thumb. I would tell you that the majority of the time an offer of 30% below asking price will receive one of two reactions, the Sellers will either feel that rather than receiving a bona fide offer that you are attempting a hostile takeover and will be insulted, or they will simply ignore you. Put the shoe on the other foot and ask yourself what your likely response would be to an offer of 30% off your asking price.

There is no “rule of thumb”. The best advice there I can offer is that you do your diligence before making an offer. I encourage you to work with an experienced Buyer Broker who can sit down with you and show you all the recent sales data in your area of similar homes that sold within the past 90 -180 days as this will be the best gauge of what properties are selling fro in your area. They can also help you compare the house your considering versus those that have sold in terms of size, finish quality, extras (pool, decks, screened porches, landscaping lot size etc.) so that you can come up with a maximum price that you would be willing to pay. They can also help you understand the market absorption rate of homes similar to the one you’re considering. Once you have this information you’re ready to make an offer.

Bear in mind that the best deals typically involve neither side being 100% happy. If each side can fell that they are 95-98% happy and can say to themselves, “I didn’t get everything I wanted, but neither did the other side and the deal that’s on the table is fair and something I can live with” then you’ve got a good sold transaction. Remember unless your buying the property AS-IS and there will be a second round of negotiations one you have the property inspections done, so beating the Seller to within an inch of his life may not serve you well as they simply may refuse to address any requests for repairs and at that point while you can walk away, you’ll be out your inspection fees and probably your mortgage application fees as well.
1 vote Thank Flag Link Thu Aug 26, 2010
The Market has changed a lot since 2008. There was an over supply in 2008 and offering less then asking was reasonable. In 2009 we have been dealing with a lack of inventory and buyers are now offering over asking.
1 vote Thank Flag Link Thu Aug 26, 2010
There's no magic number, either in the past or today. Offering 20% less may result in a great buy (if accepted), or--if the property's overpriced--may not be a good deal at all. Same with 30%. As other agents will advise, first you need to know the comps. List price means very little; it may or may not be close to the real market value. Good agents will set the list price at or slightly below the comps, but there are a lot of other agents out there, and a lot of owners looking for yesterday's higher prices. So, don't focus on the list price. Focus on comps--the recently solds.

Second, regarding "insulting the owner," get over it. So what? You come in low, and the owner has 3 choices: (1) accept, (2) counter, or (3) reject. If he accepts, fine. (Except that means you could have gotten it for less.) If he counters, fine; that means you're in the ballpark. And if he rejects, then you move on.

You're not competing for Miss Congeniality. You're trying to buy a house. Base your offer on the comps, and then, if you wish, go below those.
1 vote Thank Flag Link Sat Apr 5, 2008
Don Tepper, Real Estate Pro in Fairfax, VA
MVP'08
Contact
Jesse:

It really depends on the sellers situation. If you are trying to make a living buying low and then fixing and selling then you have to offer low. I am sure that if you put enough offers forward you will eventually find someone that is desperate. It is a matter of time vs money. What is your time worth?
0 votes Thank Flag Link Wed Sep 8, 2010
Not all markets are in the forclosed state. Asking 20% less would not be insulting, but what else are you asking for? Closing cost? Closing fees? Depending on the location, your Realtor may be able to find what the Seller paid for their home and you can go from there. If you have been following your housing market, you would know what homes are selling for and know what to offer.
0 votes Thank Flag Link Wed Sep 8, 2010
How can one feel insulted when he is offered money? I think it is great when another person agrees that my property is worth something.
I get insulted instead when someone tours my property and then does NOT make an offer. They waste their time and mine.
So feel insulted, if you wish, by such a time waster.
If no one makes an offer, then the seller has no opportunity to make a decision or to engage in a negotiation.
An offer may not be high enough to get the job done, but it is definitely better than no offer at all, and is most certainly NOT an insult.
0 votes Thank Flag Link Wed Sep 8, 2010
Part 2.

In the end - it doesn't matter what the current owner paid, how much is owed - etc.

In the mind of the seller it might, but that's not your problem.

If the house is worth 50% less then waht they paid or what they owe - it's meaningless.

It's not your problem the seller is in debt. You are not the one to bail them out.
Web Reference: http://www.rentlaw.com
0 votes Thank Flag Link Wed Sep 8, 2010
Part 2.

In the end - it doesn't matter what the current owner paid, how much is owed - etc.

In the mind of the seller it might, but that's not your problem.

If the house is worth 50% less then waht they paid or what they owe - it's meaningless.

It's not your problem the seller is in debt. You are not the one to bail them out.
Web Reference: http://www.rentlaw.com
0 votes Thank Flag Link Wed Sep 8, 2010
Offer want you want.

You have no idea what position the seller is in - none.

If the house has been on the market for a period of time - there's a reason. The house is "priced right" only if there is a willing buyer. Without a willing buyer at the asking price - it's not priced right.

If there are 50 houses that all look the same in a development - and 25 of them are for sale - at the same "priced right price" - you need 25 buyers. Easch seller may or may not have the same reason for selling.

What determines the price - - recent sales? what an agent thinks the house is worth? what someone else paid for it? what the seller "needs"? what your friend thinks it's worth?

Look at everything around it - the land, the building, the CURRENT inventory of homes on the market - and determine what you want.

Make your offer based on THAT.

As a buyer, I could really care less what the seller thinks - or if I hurt their feelings - or if I thought they had really lousy colors.

You are the buyer. You (hopefully) are the one that has the money to buy their home. Some sellers don't want to sell. Some sellers are greedy. Some listen to their agents a bit more then they should - and wind up owning their home longer they want to - over a couple thousand dollars.

Sometime the agent is more "insulted". If they don't want to present the offer, mail it or deliver it yourself to the seller and cc their broker's office.

You may save yourself that 10%.

Remember this - you can ALWAYS GO UP on your offer - unless someone offers more then you to begin with. Even then, you may still have the opportunity to get into a bidding war.

I'd avoid it - unless you really want the house. Keep ypur options open and know when to walk.
Web Reference: http://www.rentlaw.com
0 votes Thank Flag Link Wed Sep 8, 2010
Do you have a buyer's agent helping you? That professional can look at market values in the town where you hope to buy and help you determine an offer price that is aggressive but still enticing enough to get the seller to consider your offer.
0 votes Thank Flag Link Wed Sep 8, 2010
If the home is priced right, most likely offering 30% less is not a great strategy if you really want the home. Since there is nothing set in stone as far as how much to offer, you are welcome to offer whatever you feel comfortable with. Keep in mind that you want to leave yourself some wiggle room when making an offer so that if a counteroffer does comes in, you have some room to move and you also feel comfortable with the final offer. An experiences buyer broker will give you tools to work with so that you can make the correct decision when purchasing your next home.
0 votes Thank Flag Link Thu Aug 26, 2010
Jesse, Before making any offer you want to know Fair Market Value. The market drives the price. Today's market is competitive, no doubt, but most homeowners have a loan to pay off. If a home is already priced right then offering 20% to 30% below list price is probably not your best strategy. Even foreclosures and short sales are usually priced at the low end of fair market value.

I always advise my sellers to not be insulted by lowball offers and to take the emotion out of the equation and counter back. But yes, many homeowners would be insulted and not take your offer seriously, which may result in no counteroffer at all.

Sure, buyers want a deal in this market but do your homework. Your agent should be able to pull the deed and see what a seller paid for their home and how much was financed. If they owe the bank 90% of list price and have to pay broker fees how could they afford to take 20% to 30% less?

My advise to you is to find a Realtor familiar with your market to determine fair market value and make an offer that is reasonable enough that you have a good chance of ending up reaching an agreement.

Good Luck!
0 votes Thank Flag Link Thu Aug 26, 2010
Jesse:

This is such a great question and the true answer is that it depends. You can absolutely offer 30% in some situations, but you also must understand that some sellers are positioning their homes on the market at a lower than market value position. I had a seller come to me and I asked the question: "What is your goal from selling this home?" They said I want to sell fast and have the shortest relationship with you as possible.

Therefore we positioned below market value and as a result got multiple offers and sold for more than asking in 3 days. Now had a buyer not done their research and used a general rule of 30% below asking then they would have not even had a chance at this home.

You really have to do your due diligence and determine what the proper course of action is. I am a certified Short Sale and Foreclosure agent and if you have further interest please view my website.
0 votes Thank Flag Link Thu Aug 26, 2010
Hi, Jesse,
When my husband and I bought our first house 22 years ago, that was the "rule of thumb" that well-meaning people told us. Times have changed. In our market, houses are typically selling at 90-94% of the listing price. Offers 20% or 30% below asking are not in any way considered reasonable. The seller will not see you as a serious buyer, one acting in good faith.

In MA, we have buyer representation, if you chose to make use of it. Remember that if you don't, the agent IS working for the seller. The seller already has agreed in the listing contract that part of the commission he is paying at closing will be split with whoever brings the buyer. If the buyer has a buyer agent working for her, the agent's fee if nearly always paid by the seller. A buyer agent is likely to ultimately save you a great deal of time and money.

Your buyer agent will do many things for you, including helping you determine and prioritize your needs and wants, search for properties that will meet your needs, set up appointments to see the properties, research to find answers to your questions, and refer you to professionals such as lenders, home inspectors, tradespeople, and attorneys. The biggest way a buyer agent helps you get the best possible price and terms, however, is to prepare a Comparative Market Analysis (CMA) of any property upon which you wish to make an offer. The document is just like the one prepared for the seller when they list their home for sale. The agent looks for recent sales of the most similar homes possible - In our market we have no "cookie cutter" developments, so it is a bit like comparing apples and oranges. The experienced agent will adjust the prices of the comparables to allow for such differences as square footage, number of baths or bedrooms, lot size, whether or not there is is a garage, etc. The buyer is shown what the property is likely to sell for in a reasonable marketing time. This is different from an appraisal, prepared by a licenced appraiser. The agent relies on what he/she is seeing in the market place - what values his/her buyers are placing on the differences.

What do you do with these numbers? You use them as reasonable boundaries. You can compare them to the listing price to see if your seller has a realistic view of what the house is going to sell for. If there is a "recommended price", it represents fair market value of a property that has been on the market a reasonable period of time (here, roughly 6-8 months) and the seller is reasonably motivated, but not desperate. It is reasonable to predict the final selling price will be close to that number. If there is a "low" figure also given, that is a "desperation" sale price. Do not expect that the property will sell at that price unless it is a foreclosure (We have VERY few of those here in the Berkshires!) or a court ordered sale,as in the case of a divorce or lawsuit settlement. If there is a "high" price, and the seller is not very motivated, (such as one of our many second home owners), the seller may wait out the market to get a figure closer to this number, and can expect to do so if he is willing to wait a very long time...in some cases 2-3 years.

If you offer too low of a price, the seller may well be so insulted that he will not even respond, or will respond by digging in his heels and be unwilling to negotiate with you. He figures you are "low-balling", so his response will be equally unreasonable. The closer to that recommended price you offer, the more likely the seller will see your offer as reasonable, and the more willing he may be to respond favorably to negotiations, including to any requests you might have to later make for adjustments for inspection issues. Offering more than recommended may be necessary if the property were well priced and there are competing offers - Yes, even in this market that is happening - I've had two such situations in the past two weeks!

Notice that I am NOT refering to the listing price here, only the numbers from the CMA. A flat percentage off of the listing price is a knee-jerk reaction that means little. If your are offering close to the recommended price, and it is significantly different from the listing price, it may be wise to have your agent provide the listing agent with a copy of your CMA so he can show the seller where the offer is coming from. The lisitng agent may well have been trying to get the seller to price at this level to begin with, and can use the CMA to gently tell his client "I told you so", and work to help the seller understand what is a reasonable offer for his property.

As always, working with an experienced LOCAL professional, a member of the National Association of Realtors, is recommnended. On-line data in interesting, but local agents will have first hand knowledge about the local market and what truly affects local property values. The resource is free to you - why not use it to your advantage?
0 votes Thank Flag Link Thu Aug 26, 2010
Hi Jesse,

I always encourage my clients to respond to all offers. I have been on both sides of the transaction several times and have never used a percentage to qualify an offer for being good or a bad one. An offer is an offer and we should detach emotional feelings from it. It is a business transaction and the response should reflect that. Hope this help.
Leonardo.
Web Reference: http://www.leonardoteam.com
0 votes Thank Flag Link Sat Apr 5, 2008
I agree with everyone else..First,check comps to see what the house is really worth. Do not go buy the listed price.Find out how long the house has been on the market, and whether there are multiple offers. Above all , use a knowledgable realtor with good negotiation skills. Visit my website for further information.
0 votes Thank Flag Link Sat Apr 5, 2008
Each house is unique and so is its price. Imagine if a house was way overpriced, and you offer them 30% less but even at that price it's still overpriced. On the other hand, if a house is priced slightly below market value (what similar properties sold for in last few months) would they really take 30% less?

A house in a town I do work just went under agreement in 3 days. Buyer;s market? How about 20 showings and multiple offers in 2 days, they didn't even have time to hold an open house. The point is, if a propery is priced low enaugh (and 30% lower than asking price would definitely make it priced "low enaugh" unless the list price was way over market value) then it's not a buyer's market at all.
0 votes Thank Flag Link Sat Apr 5, 2008
Jesse,
You hear a lot of things in our business! Most are created by realtors/brokers who nothing better to do. Have your realtor conduct a market analysis, determine the current value of the property in todays market. Take into consideration (1) how badly you want this property (2) does it met most or all of your requirements (3) how much is on the inventory in your area (4) the forclosures/bank owned situation in your market. After you do these fairly simply checks, make an offer. How much depends on the answers above. Generally, most sellers don't expect to receive asking price in todays market. If they are not in a hurry, and they know they have a great property - don't expect much. But always start lower than asking.
Best of luck
Marian Schaffer
The Schaffer Realty Group
877-886-8388
http://www.marianschafferrealty.com
terry@marianschaffer.com
0 votes Thank Flag Link Sat Apr 5, 2008
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