Inferno493, Home Buyer in 97201

Our realtor discourages lowballs, yet there is a big difference between average list and sales prices. Why?

Asked by Inferno493, 97201 Sat Aug 2, 2008

Are houses really selling for much lower prices than they list overall, or are small pockets of high priced homes throwing the curve?

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Answers

26
Alan May’s answer
Nathanial, your view of how a Realtor works is a bit too simplistic.

Yes, we get paid a percentage of the deal. But the difference in what we get paid, if you purchase for $10,000 more amounts to about $150.00 in our pocket. $150.00 is not enough to cause us to abandon our client's best interests. And most agents I know, take a fierce pride in their ability to negotiate.

The better a deal our clients feel that we got for them, the more they'll tell people, and the more they tell, their friends, the more likely we'll have a referral deal, and much more potential for payment than the lousy $150.00.

So it's in our best interest to negotiate a tight deal.
3 votes Thank Flag Link Sun Aug 10, 2008
Alan May, Real Estate Pro in 60201
MVP'08
Contact
Most of the answers have to do with "stats" and where to find information.

I'm going to toss out another important factor to "low ball" offers. They don't get accepted. For the most part, a low ball is a low ball. If you like the house, and want to alienate the sellers, low ball the heck out of it. They'll write REJECT in all probablity and not take your offer seriously. More to the point, they won't take you seriously.

If the house is price well, in a good location, in good condition, fits your wants/needs, and you can comfortably afford it . . . then why risk losing the house you want to call home?

If you don't care about the property being your home . . . toss away.

I am an Exclusive Buyers Agent in the Metro Portland area. I only work with buyers. I look at prices all day long, and I look at the SOLDS. Very interesting what I'm seeing. The houses start out, let's say for example at $379,000. It sits and sits. Has a few price reductions, but still doesn't move. One more price reduction to, say $349,000 and BAM -- it sells. And it sells for $349,000! The price brought out buyers, and the sellers says "I reduced it $30,000 . . . I'm not reducing it anymore" (as in "you can kiss you low ball offer good-bye!")

It's the oddest "buyers' market" I've experienced in my tenure as a Realtor. It's as if the listing price is set once it hits the right price. Then there is no wiggle room.

The problem with the new listings is that the property hasn't been on the market long enough. So if a low ball offer comes in, the sellers will REJECT it, and say "NO WAY! We only had the place up for a month."

So to answer your question -- No. Houses are not selling for much lower then list . . . if the list is where it should be to begin with!

This is a market driven industry. And when the list "Price is Right" it sells, and not too far off list, based upon my study and research of the current market.
Web Reference: http://www.ebaportland.com
2 votes Thank Flag Link Sun Aug 3, 2008
Hi Inferno493,

There is always a difference between what you ask and what you get, especially in the real estate market right now as a preponderance of buyers may think they smell a good deal &/or seller desperation. Buyers may feel that they are few and sellers are many.

In all my offers for buyer clients, I always research deeds of trust or lines of credit, even notices of default just to get even a splinter of strategy on seller motivation.

Dirk sold a house for a 10% spread at an asking price of $769,000..but his offer was all cash and he agreed too a lower commission (as did the listing broker likely) such that the NET to seller may have been closer to 7-8% off of asking price. Not bad for all cash at that price range, especially to close in 2 weeks (real money offers are rare and I consider a blessing at any price range), as well still a healthy commission to get the deal done. I'd do the same, it's not about the money for us brokers..it's about the deal. Good job Dirk!

However, apply the same % to a $300,000 price tag and it may effect the seller to a larger degree than the higher priced home (larger exponent). Notice Dirk's sale at $372,000 for an asking price of $379,000 is not much of a margin of difference. I think the mentality above $500,000 is much different right now....especially when being offered cash and a short close, but it must exceed the seller's pay off + commissions (duh), hence the strategy to research deeds of trust and other evidence thay may conclude a seller pay off, or debt position. If the subject property is vacant, this is very worthwhile. If occupied, still worthwhile.

Example is I just concluded research on a $400,000 listing for a client that is now price $50,000 less than real market value (per assessor) and started at $520,000. I am very well certain the sellers are anxious to unload given that the property is vacant, and recorded deeds of trust for another purchase they chose last year that coincided with a $150,000 line of credit on the property that is for sale. My conclusion is them painfully servicing about $650,000 in mortgage, half of which is weighted with a vacant house (the one listed) and the other half with their new home. Ouch.

Short story is to swing low. After comparing sold properties to your subject which will determine what your subject may eventually appraise at (if you have a loan), start at 10% from that number, maybe 15% if you are $500,000 and beyond. Anything beyond that may be supported if you are able to prove a heavy dose of seller desperation (deeds of trust, lines of credit, notice of default...etc).

Regards,

Chris Courtney
http://www.HouseNow.com
State Certified Residential Appraiser - 15 years
(541) 284-2511 office
(541) 912-1405 cell
Web Reference: http://www.HouseNow.com
2 votes Thank Flag Link Sat Aug 2, 2008
Inferno, are the houses YOU want to make an offer on selling much lower than listed price? It could be that he houses your realtor is discouraging lowballs on are priced correctly.
1 vote Thank Flag Link Sun Aug 17, 2008
List price and sold price can represent many different scenarios.

Is this an "arms-length" transaction?

Did the eventual sales price reflect any added costs that were included in the sales price? Perhaps things such as the seller paying points, closing costs, lender required repairs or buyer desired repairs, or a host of other possible items may add to a closing sales price.

The reason for the home being listed for sale may also influence the eventual sold price. Perhaps the seller(s) are facing foreclosure and are hoping to salvage their initial investment.

Perhaps a job change and transfer to another area of town or out of town requires a quick sale, therefore the willingness of the seller to accept low ball bids could be another factor.

Divorce, loss of a spouse or partner, or any other factors that might influence a sellers willingness or necessity to make a quick sale may influence a seller to accept a low ball bid. So, its always nice to know the motive behind the sale and to understand a bit about the seller(s).

Then again, the seller may view their property as being worth far more than it actually is in today's market. Ask your real estate professional to prepare a Comparative Market Analysis and make sure the comparable properties used in this report are actually comparable to the subject property and is not just a clumsy neighborhood survey of all properties that are listed, have a pending offer, have expired and never sold, and sold properties. Facts can serve as strength, and vice-versa depending upon how the seller views reality.

Strong negotiation skills used by your real estate professional may also influence the final sales price. If the offer is rejected with no counter, resubmit a new offer if you desire. But then again, you may run the risk of offending the seller and therefore prejudice their view of you as a buyer. It all depends upon your investment criteria and willingness to accept rejection - or worse, acceptance!

Best of luck,
J. Christin
1 vote Thank Flag Link Sat Aug 16, 2008
Chris provided a really good, insightful answer. It's worth reading again.

As you can see from the responses below, your Realtor isn't the only one who discourages "low balls"--though what really is a low ball?

Even Carla, who discourages low balls, gives an example of a house that might initially have been listed at $379,000, then reduced to a final price of $349,000, where it sells for $349,000. She says: "The price brought out buyers, and the sellers says "I reduced it $30,000 . . . I'm not reducing it anymore" (as in "you can kiss you low ball offer good-bye!")" Fair enough. But suppose it's been on the market for just a week at $379,000, and you come in and offer $349,000. Uh oh. Is that a low ball? Or is it the fair price of the house?

There's an interesting difference in perspective between many Realtors and real estate investors, who have a reputation for making lowball offers. Most Realtors want every transaction to succeed. If a buyer makes an offer and it's flatly rejected, many Realtors see it as a defeat. (It's also not financially profitable.) On the other hand, depending on the investor's strategy, an investor might be pleased if 1 in 20 or 1 in 50 offers are accepted. An investor would be quite concerned (and quickly check his numbers) if he or she was getting even a 50% acceptance ratio.

As a retail buyer, your perspective is certainly going to be different from the investor's. But it will probably be different from the Realtor's, too.

The comments below are correct that most (not all) sellers will quick reject offers they consider lowballs. But it's very difficult to read a seller's mind. (However, sometimes, as in Chris' scenario, you can determine some motivation.) One seller might consider an offer even a penny lower than the list price "insulting" because they already feel they're "giving it away." Others might consider an offer 10% below list as a blessing. So, try to determine motivation. But don't agonize over whether a seller might consider your offer an "insult."

As you can see, your Realtor's advice and behavior are very much in line with most of the comments here, and probably reflective of most Realtors nationwide. Nothing at all wrong with that. However, if you feel that your Realtor and and you aren't "on the same page," you should have a good heart-to-heart talk, and then decide where you want to go from there.

Hope that helps.
1 vote Thank Flag Link Sun Aug 10, 2008
Don Tepper, Real Estate Pro in Fairfax, VA
MVP'08
Contact
Yeah, listen to JR....would you take the advice of a car saleperson on what you SHOULD be paying for the car?
1 vote Thank Flag Link Sun Aug 10, 2008
Good question. Your theory that a few higher-priced homes may be throwing the curve is a good one. There may also be some over-priced homes that aren’t selling that keep that list price average high. Another thought is that the upper end of the market may simply be slower.

The statistic you cite is just one of many statistics out there. In my opinion, a more useful statistic is the list price vs. sold price average. This statistic tells you how close to the list price a home actually sold for, on average, for specific areas. Unsold homes—sometimes over-price unsold homes—are not included in this statistic.

Your agent can provide you this and can also give the same information for individual homes that sold in the area where you’re considering buying a home.

I have a page on my website that gives offers a few sample statistics for some different areas, Zip codes and price ranges. You’re welcome to check out this page: http://edburnham.mywindermere.com/index.cfm?fuseAction=conte…

Statistics and averages are useful information for the larger picture, but real estate values are really very local. The difficulty with statistics is that as you zoom in, the sample size gets smaller and the margin of error increases. While you should keep the big picture in mind, what is most important to you is whether the home you’re considering is fairly priced for where it is and what a good offering price might be.

Your agent is the best source for the kind of focused, local and very specific information you need to decide this.

Your agent can provide a market analysis for a home you’re considering. Just as important, your agent provides you with an experienced and often intuitive view of the very local market where the home is located. That’s what you really need to write an offer that has a chance of getting serious consideration by the seller.

And, once a seller is willing to consider your offer, you have a chance of moving from offer-writer to home owner, which is really the point of writing offers, isn’t it?

Best of luck in your home search!

ED
1 vote Thank Flag Link Sat Aug 2, 2008
You can not take market average. You have to look at your specific area and see what has sold by history of the listing. Yes there are pocket areas that are hot in the lower price ranges. As others have said the longer on the market most of the time the price goes down. Get the list of what sold in past 60 days and see which ones you have seen and what you thought of the listed price and now what it sold for and see if your values match? You should be educated in a month or 2 max or are you just waiting for that sweet deal that never comes along? Make an offer and then when the seller counters split the difference and see if this is where you want to be? Sellers like to split the difference if the offer is not to low. Get an offer in while the rates are down because if they go up just 1/2 point in the $200,000 it cost you $19,000 in buying power and that is a large drop in purchase price. Good Luck
Tom Inglesby, Broker
RE/MAX Equity Group Inc
503-495-5416
1 vote Thank Flag Link Sat Aug 2, 2008
Has your Realtor provided you with a market analysis on the homes that you are wanting to make offers on? This would show you the actual listed and sale prices of homes comparable (that have sold in the past 3 months) to the one's you are interested in making offers on, and would give you a realistic view of the difference between the listed and sold price of comparable homes. This might make it easier for you to determine a fair price to offer. An offer is sometime a place to "start" negotiating. But if the "start" price is too far from the listed price, chances are there will be little or no negotiating, just a rejection of the offer.
Good Luck
1 vote Thank Flag Link Sat Aug 2, 2008
Seller expectations are slowly re-aligning, and what may seem a low offer now might seem pretty reasonable in 6 months. For example:

Back in August, 2008, my wife and I put in a bid on a house. It was beautifully renovated, a truly one-of-a-kind house in a great area. The seller was asking 995K. However, the square footage was low, and high-end homes in the same area were priced around 800K. So, we put in an offer at $800K, along with a 6 page-analysis of why we thought that was a fair price given the economy, market, comparable sales, etc. We also offered cash with a short close. Our offer was rejected out-of-hand (fair enough, it was a nice house).

Cut to June, 2009. In the meantime, the seller has had three separate offers on the house fall through, and has lowered the price on the house several times. The house finally sells last month... For $820K. My wife and I would have gone higher if the seller had been willing to negotiate back in August, and he could have closed 10 months earlier, but he was mentally unprepared to deal with what his house could actually fetch in today's market. This is not uncommon. Sometimes, it takes a while for people to wrap their head around what is really going on right now in the housing market.

(For what it's worth, my wife and I ended up buying a great home in NW instead, which we're currently renovating, so the story has a happy ending [for us, at least]).
0 votes Thank Flag Link Mon Jul 13, 2009
I represent both sellers and buyers in real estate transactions and have had training in negotiation. Any opinion on where to start a negotiation on price must begin by analyzing comparable properties sold within the last three to six months, dependent upon your market. Buyer brokers must do this homework on behalf of their buyers and help the buyer decide on a final price in their mind. Then, the negotiation begins. Dependent upon the buyer, the initial offer may be less than the final price the buyer has in mind, and thus, may be considered a "low ball" offer. In this market, buyer's understand they have some advantage and will accept this opportunity. BTW, I don't view negotiation as a game, but rather an art. It requires mastery of the current real estate market and a high level of patience and skill. Not every broker is suited to negotiation or has had proper training. Good luck on your home search.
0 votes Thank Flag Link Sun Jul 12, 2009
FROM a real home seller: Not an agent. I sold my house about three years ago and have been renting since. At the recomendation of the agent I listed it at a set price. Another agent told me to hold an open house and set a day for offers! 2 weeks later and no offers, at my own gut feeling I lowered the price again by 20$K. A few open houses later, I got a low ball offer. Yes I was insulted! He low balled me. My agent sugessted to keep playing, stay in, counter back vs let the insult keep me from countering. I did. Several counters and two home inspections later I sold it. Today I could not touch that deal and am happy with the price I got. A low ball today may be a fair price for tomorrow. Agents will tell you to buy today its a buyers market. A year ago it was the same verbage. In a hot market an agent will tell you to buy today before your priced out of the market. Maybe the lesson is whatever stats an agent uses, will you be happy tommorow be it a buyer or seller? I am but I am sure my buyer isn't.

TShoot
0 votes Thank Flag Link Thu Mar 12, 2009
But it needs to be acknowledged that there are also realtors that don't think about the big picture, but instead want to get maximum profit on one sale.
~~~~~~~~
Consider it acknowledged. I like to think, however, that the bulk of Realtors think 'big picture', rather than 'today's profit'.
0 votes Thank Flag Link Mon Aug 11, 2008
Alan May, Real Estate Pro in 60201
MVP'08
Contact
The referral principle is that if you look after a buyer's best interests (or seller...as it goes both ways), you're likely to have them refer you to other people that may be in the market to buy or sell. Thus your clientele and business grows, equaling more revenue in the long term. That principle applies to ANY business relationship.

Give a dollar today, make a hundred tomorrow.
0 votes Thank Flag Link Sun Aug 10, 2008
The referral principle applies to both fields.
~~~~~~~~~~~~~
What is "the referral principle"?
0 votes Thank Flag Link Sun Aug 10, 2008
The referral principle applies to both fields. There are of course realtors like yourself that look at the the big picture, which is of course the best way to look at it in my opinion. But it needs to be acknowledged that there are also realtors that don't think about the big picture, but instead want to get maximum profit on one sale.

It is important as a buyer to assess this and determine if the person you're dealing with is one or the other. Good response Elvis...I like this conversation.
0 votes Thank Flag Link Sun Aug 10, 2008
The bottom line is the same. They get a percentage of the final sales price. They broker the deal between you and the seller (the car dealership).
0 votes Thank Flag Link Sun Aug 10, 2008
You aren't hiring the car salesman to work on your behalf.
0 votes Thank Flag Link Sun Aug 10, 2008
I love Nathaniel's advice! Don't take any advice from someone who works inthe market every day, but take the advice of a stranger on the intnernet!
0 votes Thank Flag Link Sun Aug 10, 2008
Get another realtor. Prices will be down another 10-20% in a years time. This is a market that is on the downswing. I would be careful on the advice you take from realtors...their best interest in in home prices being as high as possible, because it means they get a higher comission in the end. Would you trust a car salesperson? It's the same principle.
0 votes Thank Flag Link Sun Aug 10, 2008
So long is your offer is justifiable based on the most recent comps and the trends of the market, then it is not a low ball. If it is substantially below any recent comps, then unless a house has been sitting on the market for a really long time it is unlikely to be taken seriously.

In many cases it can be a good idea to start a dialogue with the other Realtor who may be able to tell you if they've already rejected an offer higher than yours. In all honesty, I don't mind writing low offers if the seller hasn't seen any offers yet, because an offer is just that, 'an offer' and is potentially the beginning of a negotiation process that could ultimately culminate in a deal that works for all parties.

Milan Cole
Oregon First, Realtors
(503) 953-3416
0 votes Thank Flag Link Fri Aug 8, 2008
My experience is that any offer that is less than about 1% of the list price should be presented with documentation (such as list of comps) to justify your lower price. A lower price is not necessarily a "low ball". Many sellers are still listing at prices that don't justify what is actually happening in the market. And listing agents that are not doing CMAs every other week and putting it before their sellers are not doing their seller justice. This market demands regular agressive realtor participation in this way- keeping close tabs on the closings and price reductions so their list price can reflect actual activity. So you have a very good question!! The answer to "why" is...homes sellers are not staying informed- the realtor is ultimately responsible for this. Realtors should do their homework and keep doing it.
Web Reference: http://www.junelizotte.com
0 votes Thank Flag Link Sun Aug 3, 2008
Inferno,

Many agents feel "low balling" is a waste of time and insulting to the seller and their agent. Offers should be based on what is happening in the current market, desirablity of the property, and what the buyer is willing to pay for the priviledge of ownership.

Most agents will be happy to present a reasonable low offer that stands a chance of being accepted and is not a waste of everyones time.
0 votes Thank Flag Link Sun Aug 3, 2008
I don't know your market but let me give you my opinion here. As the days on market increase, sales price ratio decreases which means the seller is less likely to get his asking price. Along comes Low-Ball-Larry with his offer. If he tosses enough out there some are going to stick. In some areas of the country there are a lot of desperate sellers. Foreclosure sales are also having a real negative impact on this market.
0 votes Thank Flag Link Sat Aug 2, 2008
It is all over the map inferno.

Most are 1-3% off. Some are a lot more off.

I just negotiated a $379K home to sale for $372 K in 3 days and the other day I sold a $769 new custom in your area for $695K all cash buyer with 2 week close but I split the fee in 1/2 and we got the deal done.

Business is happening every day with buyers and sellers that are engaging the process and the market. Odds are you are too high on price or are being mis marketed. If you need more specific help please contact me directly at dirkknudsen@gmail.com.

Best wishes to you!

Regards;

Dirk T Knudsen
Re\max Metro
President
#1 Rated Re\Max team in Oregon
Web Reference: http://www.nwhomecenter.com
0 votes Thank Flag Link Sat Aug 2, 2008
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