Market Conditions in 18704>Question Details

Stacey, Home Buyer in Kingston, NY

what is a reasonable offer?

Asked by Stacey, Kingston, NY Wed Aug 20, 2008

I am very interested in a a house in the kingston, pa area. how do i know what a reasonable offer is? I am being told to start at 20% below asking price because of the way the market is right now. is that smart?

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17
Darin hit the nail on the head. Homes prices in your area are still high. You will find this out when you try to get a loan for your home. Banks are now sending out their own appraisers to get true market values. Some banks are not even approving loans for homes that are overpriced. Homes now being appraised are beginning to resemble the appraised market value from 2002-2003. Banks are being very picky. The run up on home prices these past few years have banks facing a large volume of foreclosures in the coming year due to false appraisals and many other reasons. The entire housing market needs a total correction until prices fall back into an affordable range. What the media is portraying is NOT hype. Most Americans really do not know what is happening with the economic downturn due to the housing market. It is very serious. Do not feel that you are going to insult anyone with your offer. If you feel you can start at 30% off the asking price then do it. It can't hurt. If not you then someone else will go for it. I am sure the owner is still making a nice profit. However, in you area, prices will fall well into 2010. I do a lot of research in this field and I highly recommend people to really do their homework. Back in 2001-2002 most home owners were only getting $10,000 to $20,000 above their assessed price. Now people think they will get $100,000+ above their assessed price. This is not the case and that is why there is way too much inventory and homes are sitting on the market for months, possible a year if not longer. I wish you all the best but be advised that property values will continue to decline. Also, most advice from this site will be from realtors and they will advise you that now is a great time to buy. They do offer some good insight; however, it is all business. I know many in the real estate business and the realtors I deal with are already declaring this year a wash. Trust your instinct, do your homework, and if you feel that your starting point is a good start then go for it. Remember, a house is only worth what someone is willing to pay for it!!!
2 votes Thank Flag Link Mon Aug 25, 2008
Go back to the average price per square foot for you area in 2002-2003 and you should have a good idea what to offer. The run-up in valuations was unsustainable and the current asking prices still haven't come down to where the market will eventually settle.

I suggest you be very careful with any purchase right now.
2 votes Thank Flag Link Fri Aug 22, 2008
ELVIS brings up a very good point about the psychology on the seller's side of the table. As an investor, I'm looking for the sellers that are desperate enough to make the move and work with the low offer. And of course if that does not happen I will move right on to the next one. I have profit margins to think about. I have to get a lower than fair price offer in order to make some money of course. Yes, for most sellers, they will simply wait it out and see what happens when they lower the price 3-5%.

J R--I do know what fair market value is. As stated above, I'm trying to get the best deal possible, regardless of fair. I'm looking for that one perfect situation among the hundreds of homes I'm looking at so that I can turn a profit. Comparing my tactics to TV negotiating is quite rude, and would appreciate it if you would refrain from behaving that way. There really is no need for it.
2 votes Thank Flag Link Fri Aug 22, 2008
Stacey- I have heard people with offer formulas before. There are none. A good agent will already have a home priced for the current market conditions. The homes prices reflect the market. Does that mean that you shouldn't try to get a deal? No way . Try, but keep a few things in mind.1st is when negotiating to purchase you are making your decisions on finances and "getting a good deal" , but the seller is selling their "home" an emotional sell. You will gain a lot of ground in negotiating-if you keep that in mind. 2nd- find out what similar homes in the area are selling for...this will show you what the current market says the homes value is. The closer you can match a homes size, features(bed rooms,age updates),etc. the closer you will be able to match a price to the home. Go in maybe 6 or 7 percent below that...as a beginning. Don't insult people, but test their motivation. 3rd remember if you do get a home 'cheap' you have lowered the value of homes in the neighborhood you just moved into.
2 votes Thank Flag Link Thu Aug 21, 2008
I do agree with Terrance, that you need to do some research first, but please be sure and also find out how long the home has been sitting on the market as well. Also find out how much the sellers purchased the home for. These things factor in to the negotiation. If they bought the home 40 years ago, even 30% off of the price could be a hefty profit for them. Who knows...they could be desperate to sell for one reason or another, and you could get a great deal. You never know the seller's motivations, and should try to find out as much as you can about them to determine what to offer on top of whether or not the home is priced right.

Don't worry about a "slap to the face", or hurting someone's feelings though. This is business, the home is a product, and you're trying to negotiate a good deal for yourself as much as they are doing for themselves. Even if you lowball them, a business minded seller will usually counter with the price that they are willing to sell it for. If they get emotional, let their ego get in the way, and say "I'm insulted, I'm not even going to counteroffer this ridiculously low bid", then you probably don't want to do business with them in the first place.
I've found that it's very hard to get a good deal with people that can't separate their emotions from business transactions.
2 votes Thank Flag Link Thu Aug 21, 2008
Wow, that is the question all buyers need the answer to! To begin..Our multiple listing shows detailed information regarding what a home was listed and the final sale price. When I work with a buyer we review all sales within the last 6 months to get the best picture of the current market conditions. Depending on the condition of the house we are looking at, we select the homes most comparable to our subject property and go from there. If similiar homes sold for 95% of list price, then we have a good idea of what to do and what to expect. If the home you're interested is a distress sale or corporate relo, then I would research sales with similiar motivations and you should have your answer. All this is possible when working with a Realtor..if you are on your own... then gathering this type of informtion may be more difficult. Good luck and happy house hunting!
1 vote Thank Flag Link Fri Aug 22, 2008
If the home is for sale for $1,000,000, and you brought an offer of $850,000 to my client, my recommendation to my client would for our counter to be "full price".

Your offer of $850,000 is a strong indication to me that you will not be willing to increase your offer, through negotiations, to anywhere near what we're looking for. (btw, my research has shown that fair market value on this house is $960,000.. but we may be willing to accept as low as $950,000... a 5% reduction. Are you surprised that the seller and the seller's Realtor's idea of fair market value might differ from yours?)

Whether we budge from our full price stance will depend totally on how you respond to our full price counter. My guess, based on what you've outlined below, is that you're not going to respond high enough to get us to move off list price. That will mean, you'll move on to a different low-ball home, and we'll sit, awaiting our next offer.

We might get one, we might not. If we don't, we'll lower our price... who knows... maybe $975,000... maybe $950,000... it all depends on what our feedback has been... how many showings... what did the agents say... have we had "any" other offers.

so... is that smart?? Only if the house has been sitting for months, with no activity and no chance of offers. If I'm going to accept an offer (as the original poster asks) of 20% below asking... I'm probably going to reduce by 3-5%, 3 or 4 times to try to attract other potential buyers, before I'm willing to even consider your 20% below list offer.
1 vote Thank Flag Link Fri Aug 22, 2008
Alan May, Real Estate Pro in Evanston, IL
MVP'08
Contact
Is a great question - I even created a blog entry just for this question ! See:

http://activerain.com/blogsview/577308/Offer-8-percent-of

The media has caused a lot of fear and whacky recommendations which has thrown some curve balls and wrinkles to all of our local markets ? Did I just say local ? Yes, I did... that is the key Stacey. You need to focus on the Kingston market and consult with your buyers agent. If you do not have a buyers agent, get one. If you need one, email me from my site below.

Your buyers agent will go over what the other properties sold for around the one you are interested in and then come up with a strategic value for the one you are interested in. In other words, who cares what the listing price is ? Let's come up with our own value and then offer accordingly. Is a case by case basis. Some properties are underlisted and priced to sell fast ! If you offer 80 percent of the listing price, well... you will not own that home. Other properties are wayyyyyyyy overpriced. If you offer 80 percent of the lisitng price, you will own the home and still overpaid for it !!!!

For more info and helpful hints, see our website below and visit our blog !
1 vote Thank Flag Link Fri Aug 22, 2008
A reasonable offer is one that is supported by the sale price of similar properties in the area - those that sold recently. if there are none, you can look at somewhat different properties and make adjustments for the differences. Your Buyer Agent (I hope you have one!) should be ablt to get this information for you. It's called a comparable market analysis (CMA).
1 vote Thank Flag Link Thu Aug 21, 2008
I agree with Larry, but it's very important to try and "know" the seller when going into the negotiation process. Of course, you don't want anyone to be angry, but do try and push the limits to what they may sell it for. You need to gauge what is a fair price, and then drop it down lower in your favor. People can be insulted at any price offer, so don't worry about that. You don't want that, but don't make that a consideration when offering. I'm going to give you an example:

$1,000,000 asking price (it's a round number, so it's easy)

You do your research, and find that based on the market it's fair value really somewhere around $925,000.

You want a good deal...maybe $850,000. So you offer at $725,000, thinking that they will hopefully split the difference and counter at about $862,500.

You're offering low, but you need to offer low knowing that they will usually try and counter higher than your offer. If you want the home for $900,000 and offer that, then they'll probably counter in at $950,000 find the common ground.

Some people can be insulted in a situation like the above, where you just offered nearly 30% below asking price. If you have the numbers to back it up, and know that you're making offers that are in line with factual data, you can't do anything if the seller gets insulted and doesn't want to negotiate at all. Just remember that sellers usually price a bit higher knowing that buyer's are going to offer lower. They factor in that you will not pay the full asking price. So if you offer 6-7% lower, they will most likely counter midway to see if you'll accept 3-4% off the asking price. Do your homework on the home and then push to get at least 10% off.
1 vote Thank Flag Link Thu Aug 21, 2008
yes, we actually have now contacted a realtor on this. well have to see what happens. i dont think the house will be on the market for long. thank you all for taking the time to read my question and for all your very helpful insight. im new to this site so its really impressive to see you all taking the time to help me out. i really appreciate it!!
0 votes Thank Flag Link Sun Aug 24, 2008
I assume you are working with a Realtor? If they are working with you as a Buyer Broker, they should be giving you recent comps
0 votes Thank Flag Link Fri Aug 22, 2008
NBW: agree with Larry, but it's very important to try and "know" the seller when going into the negotiation process.

JR: "Know" the seller?

NBW:Of course, you don't want anyone to be angry, but do try and push the limits to what they may sell it for. You need to gauge what is a fair price, and then drop it down lower in your favor. People can be insulted at any price offer, so don't worry about that. You don't want that, but don't make that a consideration when offering. I'm going to give you an example:

$1,000,000 asking price (it's a round number, so it's easy)

You do your research, and find that based on the market it's fair value really somewhere around $925,000.

You want a good deal...maybe $850,000. So you offer at $725,000, thinking that they will hopefully split the difference and counter at about $862,500.

JR: And the seller tells the listing agent "Are they CRAZY!? I'm not GIVING MY HOUSE AWAY!? I have to get 950,000 or I can't buy that condo I'm looking at plus put away 500,000 for my retirement! Tell them to go to h*ll! Tell them they have to come up."

NBW: You're offering low, but you need to offer low knowing that they will usually try and counter higher than your offer. If you want the home for $900,000 and offer that, then they'll probably counter in at $950,000 find the common ground.

JR: I call this "TV negotiating 101". In other words, it's what people who learn negotiating from television shows do.

NBW: Some people can be insulted in a situation like the above, where you just offered nearly 30% below asking price. If you have the numbers to back it up, and know that you're making offers that are in line with factual data, you can't do anything if the seller gets insulted and doesn't want to negotiate at all. Just remember that sellers usually price a bit higher knowing that buyer's are going to offer lower. They factor in that you will not pay the full asking price. So if you offer 6-7% lower, they will most likely counter midway to see if you'll accept 3-4% off the asking price. Do your homework on the home and then push to get at least 10% off.

JR: NBW do you know what fair market value is? You said the house has a FMV of 925,000. Why should the seller take 850,000?
0 votes Thank Flag Link Fri Aug 22, 2008
How do you know if the house isn't priced 30% above what it should sell for? If you started 20% below the asking price you'd end up overpaying. There is no "rule" for making an offer.
0 votes Thank Flag Link Fri Aug 22, 2008
Hello! There are many factors to consider when making an offer. How long has the house been on the market? What are similar houses in the same neighborhood and condition selling for? Although the owner may have purchased the home 40 years ago, they may have refinanced a few times and still owe money, so it really isn't imporant when they bought their home (unless they bought it within the last few years and now it's not worth what they paid, but that's a completely different subject). Also, you don't want to go too low when making an offer on a home you really want. Not only will you insult the seller, but you will look like you are not a serious buyer and it will make the seller not even counter offer (where if you had made a sensible offer to start, they would probably counter) If the house is priced correctly in the first place and you really like it, offer what you would feel comfortable paying. Make sure you see other homes in the price range so you can make a good comparison. Good luck!
0 votes Thank Flag Link Thu Aug 21, 2008
Thank you! I am a first time home buyer but 20% below seemed low even to me, especially since it may already be priced low just based on the specs given. Thank you so much!
0 votes Thank Flag Link Wed Aug 20, 2008
You get a local Realtor (NOT the listing agent) and have them show the home to you and do a market analysis for it. And go from there. 20% below is a slap in the face if the home is priced right no matter what the market is like. And if the home is priced well above what the market shows it's value to be, you will have the paperwork to back up your offer.
0 votes Thank Flag Link Wed Aug 20, 2008
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