I agree that your market is not Chicago... but the principle remains the same.... I'm not suggesting that the way I described of "chasing the market down" is the right way to do it... what I'm saying is that based on where the seller is priced, the seller is "probably" not ready to hear that price... if he was, he'd already be priced lower. Nor am I suggesting that his price is right, or that you may still be in a declining market.
It's just human nature, and probabilities. The probability of a seller being willing to accept an 80% offer is slim. If they were truly ready to accept that $400,000 offer, they'd be priced lower. Clearly they still feel that their place is worth closer to $500,000 (based on my prior scenario), or they wouldn't be priced where they are. That doesn't make them right... who knows... maybe they'll end up at 80% or even lower, or maybe they'll get lucky and end up at 92%.
I don't have anything against lowballing, per se... If that's what you think the property is worth, I strongly recommend making the offer that you think is right... if that's a lowball, I don't try to discourage making the offer. I'm just offering my opinion on the potential of that offering being successful.
Realtors try very hard to get their sellers to list at or near the market value of the property. We ( nationallly, more than one million real estate agents) are not always successful at acheiving this goal. If the seller of the home has insisted on pricing their property way, way, way more than it is worth, then a 20% cut from list price might be more than it is worth.
If a professional agent is the one who advised you on the 20% cut, for that particulatr property, then that is probably good advice. If 20% is just a "rule of thumb" such as the advice from Robert G Allen, then you need to read his book again and take it with a grain of salt.
Robet Allen cited a case of an investor who offered a 20% dicsount to list price on 1500 properties and closed on 40 of them. That is a rato of 37 NO's to one Yes. Bob didn't mention that some of the 40 may have been premium priced to begin with, Its very possible that the discount from actual market value was somewhat smaller than 20% for the ones that Bob's investor bought.
BEST ANSWER TO YOUR LETTER MEANT TO HARM THE PROFESSIONALS IN THIS MARKET:
The market is adjusting in a lot of areas, no doubt. You can't expect a record run like we've had to continue forever. There are liquidation deals on financially not physically distressed real estate where appreciation is possible in the long term. I never tell my customers to flip something that's speculation and I dont do that or recommend it. Foretunes were made and lost in sepculation and thats the chances many took but not on my watch. Buy and hold with a positive cash flow is a system thats built to last. If you do your numbers and a proper before and after tax cash flow analysis you wont go wrong. If you listen to one voice telling you sure buy this and the market will go up then SHAME ON YOU ... That is one case where an agent did not disclose sales comps. Most agents don't know how to do a real valuation on a property and disclose all sales to their customers. Its not the agents fault its the buyers fault for picking the ignorant agent, period. There are 1 million realtors out there some are part time pizza delivery people and very few are professionals with a college education and designations under their belt. ONE MUST DO THEIR HOMEWORK NOW MORE THAN EVER IN THIS MARKET.
By the way whos gonna win the next world series since you have the answers?
ARMs reset this spring with a vengence. Subprime market almost gone. Countrywide to name one is in serious trouble with tons of layoffs. You don't see this? 2008 is going to be MUCH worse.
Basically houses became unaffordable, plain and simple. Because of this they invented "creative" loans to get more buyers. This is a much needed correction. 1997 was when those loans started and that just might be were houses and up with a slight over-correction at the bottom.
The statistics you refer to are inherently flawed. Back in the early 90's when real estate prices dropped so significantly between '89-94 the data also did not reflect those price drops. Just a year ago realtors were still saying, "prices will never go down, never have and never will". Simply looking at the median price house sold in any given area does not inherently capture the fact the buyers will often purchase the nicest house they feel they can afford. Anotherwords, spending 1Million to have a $500K mortgage because they make a certain income. It's just that now in Bergen and Essex counties you will get much more house for spending the same amount of money. Also, lots of freebies are being thrown in at closings by builders/sellers which are not captured by official selling price but were essential in order to make the sell. I think prices in Bergen county have gone down the most significantly - and particularly for homes in the 1Million - 2 Million range. I would say a house listed for 2Million back in the summer of 2005 is now listed at about 1.5-1.6M and languishing on the market with very little or no offers. My father is a former prominent independent builder in the area and he backs up all that I have stated. Realtors that I've spoken to have stated that the market in this price range has simply "dried up". Wait until this Spring rolls around and all those houses that the sellers took off the market will be back and the market will tumble further. I have several friends who are realtors and acknowledge the same thing to me personally but would never come out publicly as such. Sellers are willing to wait 2 or even 3 years before they will give up on their initial asking prices and realize the reevaluation of the current market. I'd say there are plenty of listings out there which have been on the market for a year or so and have not budged at all on the price. To all you buyers out there - don't be fooled by the realtors' hype- the bottom is not in sight yet!!!
Let me just caution you on Alex's advice. I am also not an agent and want to give you the same (non agent) side of the story as Alex. However, Alex is a couple hours away from you. The difference between being close to NYC vs Philly could be dramatic. I do not know North Wildwood or West Orange. But I do know that not ALL locations are rapidly declining markets. Some are, some are slowly declining, some are stable and others are increasing. For all we simple home buyers and sellers from outside your area knows, North Wildwood could be the latest, greatest new development since Stepford (http://en.wikipedia.org/wiki/The_Stepford_Wives ).
I think everyone is aware that the airline industry is hurting and trying to do everything they can to cut costs. But Boeing's newest and greatest aircraft is selling for above list price! Your asking price has to be based on local information, not national media gloom and doom.
Do you know the difference between a recession and a depression?
A recession is when your neighbor is laid off of work. A depression is when you are laid off of work.
The housing market is no different. It is all a matter of perspective.
A true "home" buyer sees themselves growing and bringing up a family - not hunting for a bargain basement deal. Your home cannot be purchased at a big box department store. It takes thought, research, and some soul searching.
Will your family prosper, do the schools have a proven track record, is the neighborhood safe, will you feel a sense of community?
There is so much more to consider than the price tag - considerations that directly affect what your ultimate bid is.
If you are buying the property to get a deal and the comps show the property is priced within reason go for the 20%. If you would really like to own the home, it is the one you love and want, I might reconsider. You can still get a deal, and get the house you love, you may not get such a big discount. Good Luck Josie.
A seller who thnks their property is realistically priced could be offended by a low offer, even though the buyer made a fair offer. Remember that no seller has to sell for price at which they are unwilling, even if their number is off the charts.
If you really want the property, put forth some time and effort in your due diligence of a fair and reasonable offer price. Set aside the list price and look at the property as if it had no price tag on it. What do you think it is worth?
Buyers generally look at properties through the eyes of the low price, and sellers see the high. What a surprise! A good buyers agent can help you negotiate the best price.
Even if you used a blanket 20% discount and were accpeted, you might find that you paid market, over market, or just under market price. The 20% number off the list won't mean you got a good deal.
That's a blanket statement and there is no blanket way to present an offer, other than that the best way to present an offer if you are serious about having it accepted is to base it upon what the market bears for comparables.
That's the answer to your original question.
Throw in the additional data you gave us about the property, and things change. Now your percentage is based on actual facts about the property and comparables in the area. In that case, based on what you said, it would seem the home is overpriced, and that's when a 20% reduction in your offer would make sense. Not because it's a number you should apply to every offer, but because it can be fairly applied to this one.
If you go through trouble of writing an offer it would be best to at least get it into the ball park of a counter. I don't know your market The best person for that is an experienced Realtor in your area.
It may be true that 20% below asking price is reasonable, but not in my market.
86% of asking is the % of asking to selling % in North wildwood. If you want to offer 20-30% less, thatâ€™s fine, the seller may need to sell to avoid financial doom and a bid is a bid we have to submit all offers. Thatâ€™s great! Be very very patient! The Seller will need to grasp the idea of lowering his asking price.
Now letâ€™s find out the age style size and location of the property and give the poor person listening to our bickering the range of value for the Subject property. I would stay on the conservative side of the range because as we all know the market is adjusting. As an Appraiser I put in my reports that the market is declining in the wildwood's and make adjustments on the comparables to the subject but I need to stay in a range of values of the previous sales. I hope you can appreciate that you can now go below the range of sales in a valuation. Is up to that buyer to do their homework and get an appraiser to look at the subject property before the loan process not during the loan process. A Real estate agent is not an appraiser, you need a third party unbiased opinion on value before you buy and I mean before the loan process begins. As an Appraiser there is a lot more education required versus a real estate agent who can take a 2 week cram course and get their license with no further continuing education required. I think that will all change eventually but it may take some time. Hopefully this market will eliminate a lot of the get rich quick agents out there. The agents are part of the problem but the bigger problem was the predatory lender. How does someone buy a home and qualify if they donâ€™t have the income, who signed off on those loans?
I agree that the bottom is not in sight yet. I have bid on two houses (one a short sale and the other a foreclosure). Both times my realtor advised me to bid the asking price because it was sure not to go any lower. Later we found out through the grapevine that the bids I made on these homes were similar to what others had bid and one was higher. Also I have pointed out to him on several occasions homes in the same area that are showing up at lower and lower prices. He finally admitted that he has been surprised at how low the prices are going. When someone tells you something like it will never go lower, think of what they stand to gain from you believing what they have to say.
Decide what you want and are willing to spend. Consider the condition of what you would like and the risk for remodeling you can afford and can make, if any. Then have a preapproved price in mind, then go seek as close to what you want....make your numbers work, and your numbers are the basis, not any asking price.
This is a Buyer, not a Seller.
While I completely respect your professionalism, we disagree again. This isn't Chicago, we just started to head back to sane prices here. Condos in Wildwood went from $120k in 2001 to $500k in 2006. They are in fact worth around $150k(3B2B condos rent for about $1,200- $1,700/wk). Why would anyone in their right mind buy one now? Brian hasn't gone through a down turn in real estate judging by his picture, you have. These have JUST started to drop. There is a long way to go here, foreclosures this Spring are going to be huge. Buyers here right now have two choices: Lowball or wait a year or two. Why not Lowball, it will help us get to the bottom faster?
IF he was a Seller in a declining market like this with your example, why would you have him "chase the market"? Get in front of the others and get it sold.
(see below) I wonder if it makes any of you a little scared with your never ending bull market real estate comments......come on now, let's give some fair and unbiased views to some of the potential buyers out there:
Overpaid? Sue your agent.
From the NY Times:
Feeling Misled on Home Price, Buyers Are Suing Their Agent
Marty Ummel feels she paid too much for her house. So do millions of other people who bought at the peak of the housing boom.
What makes Ms. Ummel different is that she is suing her agent, saying it was all his fault.
Ms. Ummel claims that the agent hid the information that similar homes in the neighborhood were selling for less because he feared she would back out and he would lose his $30,000 commission.
Real estate lawyers and brokers say the case, which goes to trial in North County Superior Court on Monday, is likely to be the first of many in which regretful or resentful buyers seek redress from the agents who found them a home and arranged its purchase.
â€œWhen your house appreciates $100,000 in the first six months, youâ€™re not quite as concerned that maybe the valuation was $25,000 or $50,000 off,â€ said Clifford Horner of the law firm Horner & Singer. â€œBut when your house goes down, you ask: â€˜Who might have led me astray here?â€™ â€
Agents representing buyers rarely had the opportunity to make mistakes during the last real estate boom, in the late 1980s, because the job hardly existed then. For decades, residential transactions almost always involved brokers who, whatever assistance they gave the buyer, legally represented only the seller.
The long boom that began in the late 1990s put an end to that one-sided world. As prices spiked, buyerâ€™s agents and brokers became popular as sounding boards, advisers and negotiators. The National Association of Realtors estimates they are now involved in two-thirds of all residential purchases.
That makes this the first housing collapse in which large numbers of buyers had a real estate professional explicitly looking after their interests. The Ummel case poses the question: In a relationship built on trust, where promises are rarely written down and where â€” as in this case â€” there is no signed contract, what are the exact obligations of these representatives in guiding their clients through a sizzling market?
â€œAgents have a lot of fiduciary duties, but they donâ€™t make money unless they close the sale,â€ said Joel Ruben, a real estate lawyer in Manhattan Beach, Calif. â€œIn an inflated market, there are built-in temptations to cut corners.â€
I stopped in at the unbiased real estate site you recommended. It is informative.
Here is a quote from the site today:
"House prices are down by 0.5% to 10% now, depending on the measure used. "
That is exactly what I have been saying. In Bergen and Essex, I'm seeing more data towards the low end of that range. In some communities it may be closer to 10%. Either way, it's not a freefall, it's just normal variation.
If you want to state that prices are declining, that's fine. But you have to present some hard data to support that conclusion. Median home price IS one valid way to measure it. But if you don't prefer median home price, then what are you suggesting as an alternative?
Anecdotal observations are not proof. To prove a statement you need facts. So what facts do you have to support the contention that home prices are dropping sharply?
1. We don't look at the median price. We look price specific for size, age and location.
2. We do record concessions, so they are reflected in the price!
To follow up on the concessions, all concessions are listed in the sale, and recorded on most MLS sites on the close of the transaction. Appraisers deduct these concesions from the price. So they are fairly accurate. FYI
What data are you looking at? I sampled 4 towns and stopped. West Orange: Median home value last 6 months of 2006 was $410,000. Median home same period in 2007 was $404,000. Basically unchanged. In Maplewood, median 2006 was $520,000 and 2007 was $525,000, a tiny increase. Newark median 2006 was $250,000. Median 2007 was $255,000. Slight increase. Belleville median 2006 was $330,000, median 2007 was identical, $330,000.
I'll check Bergen tomorrow, but I'm pretty sure I'll find the same thing. Values are not decreasing dramatically at all in most of northern New Jersey.
Not to say that they won't. Nobody knows the future. But right now, it isn't happening. In fact, many of my buyers are complaining because they've heard all the doom and gloom, yet they're not seeing all these great 30% off bargains. I'm not either.
And by the way, I don't cheerlead anyone for any reason. The facts are the facts. If I see sharp declines, I'll report it immediately and warn my clients accordingly. As a Realtor, I am in a position of trust, and I behave accordingly.
There is no magic list to offer ratio. Each transaction is unique onto itself.
If a property is worth $200,000 and it listed for $175,000 then offer $175,000, maybe $172,000 if your offer is clean and can close quickly.
If the property is worth $175,000 and it is listed for $200,000 then wait for the seller to get serious.
The idea of just start offering 20% less than asking price all over town is not a smart tactic. First a seller would have to have more than 20% equity just to break even. If a property were listed for $200,000 with 20% equity ($160,000 mortgage) and has a mortgage payment of $1,500 per month. You offered 20% less or $160,000, the seller would be able to make the payments for over two years.
Is it possible to make offers and maybe get one, possible? But I think you might miss a lot of opportunities waiting for the perfect storm.
Every offer is different. If you use a generic stratergy you will get generic results. You need to negotiate hard and fast. Back up your offer with relevant data that can quash any counter and be ready to close fast. This is the market where the best will rise to the top and the generics will fight it out or fade away.
If it were this easy the 80/20 rule would not apply. So your answer FALSE.
No one ever said I would not present the offer. I present all offers, buyers or sellers. Good or Bad.
Expect verbal. I will not present verbal offers. Nothing Unethical about that, I live in a non verbal state.
My clients usually say what do you think when I present a offer. As I said I would decline. No reason to tell my clients to accept a offer 20% below their asking price.
My job as a listing agent is to price the home correctly from the start., and keep it priced correctly through out the transaction.
Now to answer your second question. If a Realtor was to receive a written offer for their clients property and not present it , Yes Josie that would be Illegal, immoral, and Unethical.
Now let`s go back to your first question
"ive been told to reduce the asking price of a home by 20% when making a bid. true or false"
Now you are telling me that the property is outdated and overpriced.
If your Realtor can make the case that the property is overpriced by 20% then so be it.
I still think it is going to be a tough sell.
Good luck keep me posted.
They reduced it 21K. That`s 3K per month. average.
Really the price it was then and the price it is now doesn`t matter. A home is only worth as much as someone is willing to pay for it.
Again. If I were the listing agent, I would not sell at a 20% reduction.
What is the fair market value of the home? Your Realtor should have a strong Idea.
Okay, so anybody want to make an accurate prediction about what comes next. I'll tell you all---it's called FEAR. There's fear in the market, fear in the consumer....and there should be. Nearly every economist predicts housing will soften further, I believe the expression is "no end in sight". You don't have to be an expert to call this market. It's called soft and getting softer. It's a SLOW MOTION CORRECTION that began in 2005 and has far more to go. The buyers of 2007 clearly caught a "falling knife". My prediction is that buyers will give up on realtors hopelessly bullish comments and start listening to the market realities. As FEAR grabs hold of the housing market further, the real price declines will become apparent in the next 6 - 12 months. And, by the way, I sold my Manhattan 2 bedroom at the height of the market in the summer of 2005. As a person who works on Wall Street and hears the daily market movers, I refuse to put my money (and that of my investors) anywhere near the real estate market for the next 12-18 months. Even the Manhattan market will begin to depreciate by the Spring as the Wall Street slow down begins to affect the locals. This is the market reality; it's what the basic financials are telling us. Please listen to common sense.
I'd love it if we could sit down over a drink, 5 years from now, and see which, if either of us, is right. Maybe it'll just be a "virtual drink", but I appreciate the intellectual conversation and the dose of realism.
Of all the threads, in all the world... you had to walk into this one...
Thank you for clarifying. I agree with you there, most of the owners aren't ready for a dose of reality. However there just aren't going to be buyers for these properties for a long list of reasons. There is a 24+ month inventory that is going to swell in the prime selling months this Spring. This area is going to fall hard, there were a lot of people that bought as an investment that really couldn't afford the condo or house. These are 2nd house, not their primary homes in most cases.
I don't think you can pick number or percentage as a rule. I think we will see 2001 prices adjusted for inflation in a few years (maybe less here). I think the banks will be first, that will drive down the comps, and the rest will follow. This summer will be very interesting here after the selling season is over in June.
Elvis, you ever see an average DOM 259? lol You don't have to be a fortune teller to know what that means?
Brian: The Phillies.
337 units have sold for a grand total of $123,979,230 combined with an asking price of $144,687,819
combined $350,000 being the mean selling price with 259 as average Days on the market. The ratio from asking price to selling price is 86% I can do a valuation on your property to determine what would be a realistic sales price. After we figure out what the range is of the sales comparables then and only then can we determine the difference beteen what you were asking and what you can actually epect to receive in this market. This will give us a percentage of the difference. Please contact me at your earliest convenience withn more details on your property so I can further assess your situation.
In Patrick's first post, he alluded to the idea that "if the seller were, indeed, ready to consider an offer 20% off the listing price, don't you think that they'd be currently priced a bit closer to that price?" I'm not addressing whether the house is over priced or not... simply that priced where they are, they're probably not mentally ready to even consider an offer that low.
Let's turn that into an example. The home is listed for $500,000. You're suggesting an offer of 20% less which would be $400,000. (A deep discount, I'm sure you'll agree).
As Patrick suggests, don't you think, that before they'd consider your offer of $400,000, that they'd try reducing their price to $479,000.. leave it on for a few weeks, see if they can attract an offer. If that doesn't work... perhaps another reduction to $459,000... still no offer??? maybe they'd reduce to $449,900... now at this new low price, your $400,000 offer is beginning to look pretty good.... but suddenly at $449,900 they find themselves attractive to the public, and begin getting lots of showings, and lo and behold... an accepted offer of $427,900.
I'm only addressing one question: Have prices declined sharply in northern New Jersey. The answer is, for the most part, no. They have declined slightly.
The other news items you are bringing up are valid. But I'm only talking about prices and what they have already done as of today. They are down, but not precipitously, as in Florida, California, and the rust belt.
As for 2008, nobody knows the future. If they did, there wouldn't have been a subprime crisis.
I agree there is no set rule, but Alex is probably correct especially for Wildwood. They overbuilt and are about to have a ton of arms reset. 2008 is going to see a HUGE drop in prices. The person that turns down 20% is going to look back at it as a mistake. In a resort town a good way to look at it is: Monthly mortgage payment after 20% down, plus 50% more of that for taxes, utilities, insurance ect MINUS weekly rent. If it isn't breakeven, then it will drop. There will be no appreciation for years, so why would an investor buy and lose money?
IMHO we will see 2001 prices again by 2010, that is where it should have been.