Foreclosure in 90045>Question Details

Christine, Home Buyer in Los Angeles, CA

Rule of Thumb When Making An Offer?

Asked by Christine, Los Angeles, CA Fri Oct 5, 2007

Is there a rule of thumb when making an offer? How much lower can/should be offered to ensure your offer is taken seriously. I am looking in a desirable neighborhood on the westside but I think the home I love is over priced. My original offer was 10% less than asking price. Sellers didn't even respond. Since it's been on the market the price has been lowered twice by $10K each time. My agent is urging me to offer just a few thousand under current asking price but I think it is still overpriced. I just don't want to leave any money on the table.

Thanks for the help!

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Answers

28
Your agent is full of it. There are no rules of thumb. Your offer should reflect what you are willing to pay. By making an offer, you are giving the seller an indication of what you are willing to pay for the property. The seller is getting feedback and should look at that feedback seriously. Let's say that the asking price is 500K. If you believe that the property is only worth 400K, then make an offer at that level. The reason it is priced at 500K sometimes has nothing to do with the market realities. I have a seller right now who has a property for sale for close to 600K. He is hesitant to sell it for less because he remortgaged it to pay for a divorce settlement. Do you think that any buyer is going to buy the house for that price because they feel bad that the guy got a divorce and has to get back on his feet financially. How would you feel if the seller bought a house for 400K and bought a 100K Testa Rossa Ferrari and put the house for sale a week later to have a buyer pay for both the house and the Ferrari? You'd think it's crazy, wouldn't you? I couldn't disagree with you on that one. Buyers will buy a property for what it's worth. Any rule of thumb is pure baloney! It does not matter where you live. West Side, East Side, North side, South Side or wherever!!! Value is in the eyes of the purchaser. Keep in mind one thing. Customers Rule. Especially in a buyers' market. Make the offer that you are comfortable with and forget about agents who think more about their commission than your own interest. If a seller is upset about your offer, remind them and their agent that they should be upset at the customers who do not make an offer.
8 votes Thank Flag Link Fri Nov 9, 2007
The only rule of thumb I can think of is don't offer more than you can pay. Other than that, its a shot in the dark based on whatever and whenever people want.
3 votes Thank Flag Link Mon Nov 12, 2007
Your question of how much should/can be offered in order to be taken seriously, leads me to your word "seriously."

If you want to make a "serious offer,' you need to work with a professional in order to give you the data to make that serious offer.

Know the condition of the property, as well as the most recent sale prices of homes that are similar and in the closest proximity. Also know that you need to understand sale transactions that are sold in arms length. Some are not.

Although the internet is a good place to start your research, know that it is obvious that sometimes we can not totally rely upon that information. Just as we can not totally rely on the words of the media. It is too general.

Each and every market is different, even if the general or whole appearance is labeled as being a "Buyers Market." Locally, each and every township or subdivision can and will be different. What appears to be a "Buyers Market" could very well be a "Sellers Market" in a "Very Specific Area."

Most importantly, speak to experts in your specific area,.

My best suggestion would be to ask the REALTOR you are working with for a detailed report of the specific area that you are interestedin, along with the current market conditions.

(ANSWER)... The more knowledge you have, the better the offer.
Web Reference: http://www.MichelleCard.com
3 votes Thank Flag Link Fri Nov 9, 2007
In the Daytona Beach area, during the seller's market, houses were selling within 2-3% of asking price on average. Offers that came in at even 5% off the asking price would offend the sellers. Obviously, that has drastically changed now. But since our area only recently felt the full effect of the decline in real estate values, the buyers and sellers are at a stalemate. The sellers are either not priced properly, or they're not willing to accept the offers as they should. Then 6 months down the road, they wish they had accepted the previous offers!

As you know, this is a buyer's market. So you can really make any offer you'd like. There is no set rule of thumb, and every city and even neighborhood will have a different set of statistics. But for Volusia County Florida, my sales for the last 6 months sold for an average of 9.26% off the purchase price. Bearing in mind that negotiations occurred, you would make an offer for less than that and end up around that percentage.

Good luck!
3 votes Thank Flag Link Fri Nov 9, 2007
There is no rule of thumb. Every seller is motivated to sell their house for a potentially different reason than the next. Your agent needs to speak candidly to the seller's agent and ask very direct questions. What do the sellers want? I would also make the suggestion that your agent meet with the sellers and their agent. Sometimes a face to face can reveal motivation which in turn will answer the ultimate question - What is the lowest price I can pay for the house I want to buy.

Wendy Taylor, CRS, GRI
deasy/penner & partners
150 South Rodeo Drive
Beverly Hills, CA 90212
310.770.0686
http://www.wendytaylorhomes.com
3 votes Thank Flag Link Sat Oct 27, 2007
Sometimes sellers get a number in their head, and hold tightly to that number for an unspecified period of time. Even if your offer is/was reasonable, a seller may still reject it. Usually, they hold on to the hope that another buyer may be willing to meet their price. If another buyer is not willing to meet the price, then, a seller, might reconsider at a later point in time.

If this is the case w/ the seller of this property, there may be little you can do about it at this time. A seller comes to acceptance of market data on their schedule, not yours. Your choice is to either meet their expectation, or move on. Keep in mind that a lender must also agree w/ the numbers or financing will not be approved for the property.
3 votes Thank Flag Link Fri Oct 5, 2007
Deborah Madey, Real Estate Pro in Red Bank, NJ
MVP'08
Contact
Hi Christine:

First, I have not read the responses below, so I may be repeating or in conflict with what other pros are saying.

However, the reality is sometimes the whole world of CMAs will not do any good if the seller is not willing to sell for the price you are offering; especially if the seller has a good reason for that - for example, a unique place in a very desirable neighborhood.

There is also seller motivation involved; and I am not saying whether it's right or wrong, all depends on the situation. If they are not in any hurry, they just might be willing to wait for that 'one pefect' buyer to show up; and if not, they will accept a lower offer.

In real estate, numbers is one thing, the other big part is the emotional value of a property to a person; whether it's seller or buyers. As agents, we can show tons of CMAs and explain them all alway to buyers or sellers, but if they don't want to do it, they won't.

The question to you is, knowing the seller is not willing to sell close to the new asking price, how attached are you to the property?

Do you think you will be fine if you lose the property tomorrow to somebody else who is willling to pay for this 'overpriced' home or will you regret for a long time if you lose the proeprty because of this $XX you are not willing to part?

If you are fine with losing the property unless you get it at the 'fair' price in your mind, they go ahead and wait. If the price is close enough and you will regret losing it, then you might to seriously consider your agent's advise.

Let me know what you think.

Best,
Sylvia
3 votes Thank Flag Link Fri Oct 5, 2007
Sylvia Barry,…, Real Estate Pro in Novato, CA
MVP'08
Contact
Thanks for all the quick responses.

My agent did provide me with the market comps & that's where I got my idea that the property is overpriced. The comps have sold about $380 per sq foot & this house is $420 a sq foot. My offer was under the $380 a sq foot but I thought they'd counter & I'd offer more to be competitive with what else has sold recently. With their $20k deduction, we are closer in price but I don't want to "insult" them with another offer too low nor do I want to leave any money on the table.

Other noteworthy items may be, it's be on the market a little over 60 days, it is vacant but the sellers are local & there is probably about $20k in upgrades/remoding that is needed.

Thanks again for the help. I find all of the responses very informative!

Christine ... the 1st time homebuyer :)
3 votes Thank Flag Link Fri Oct 5, 2007
Generally agents have communication and have an idea of what the sellers expectations are. What they will accept is based on their motivation to sell. My suggestion would be if it is a home you love, write the highest and best offer you feel comfortable with and leave it at that. You will have an appraisal contingency so if the home does not appraise you will be able to renegotiate or back out.
3 votes Thank Flag Link Fri Oct 5, 2007
Christine:

You said, "Sellers didn't even respond." Does your agent have documented proof that the sellers ever saw the offer? Did your agent present your offer in person or was it faxed? The sellers have already lowered the price by 20K, but what dollar amount is 10% of the listed price?
3 votes Thank Flag Link Fri Oct 5, 2007
There is no "rule of thumb" consideration when making an offer, but the 10% less that asking price that you offered earlier would generally be called a "lowball" offer. Sometimes, as in your case, the sellers will not even respond to you offer. In a worst case scenario, the sellers will not even consider your offers after the first "lowball" offer (they would be so "insulted" by your unreasonably low offer, they just can not bring themselves to consider another one of you offers).
There are many factors that your Realtor will consider while conducting research to suggest an offer that you make on a house (remember, YOU are the one who will agree a price to offer, not the agent). Some of these factors include finding out how long the house has been listed, finding whether this is the house's first listing, seeing how much the current owner bought the house for, finding out the upgrades the current owners have made to the house since they bought it, the overall real estate environment for your area, etc.
The fact that the owner's of the house have already dropped the price by $20,000 certainly shows that they are willing to negotiate, so that is a good sign.
Ask your agent for a CMA (comparative marketing analysis) to help you determine a good offer to make.
3 votes Thank Flag Link Fri Oct 5, 2007
I always look at "Days on Market" when advising buyers. If it's a new listing, the sellers are wanting to be pretty close to the asking price. If, however, the house has been for sale a long while, other motivating factors come into play, so a lowball offer might fly...or at least be considered more seriously, especially if the house is sitting vacant.
2 votes Thank Flag Link Mon Nov 12, 2007
There is no general "rule of thumb". Ask your agent to give you the comps for the area in question and take it from there. In my area, homes are selling very close to asking price. I would make an offer only a few thousand dollars below asking unless you can sweeten the deal by eliminating contingencies such as mortgage contigencies, fast close, etc. Also, get proof that the offer was presented to the seller by the seller's agent. Your agent can also request being present when the offer is presented, although, I must say, that rarely happens. At the end of the day, if you still think the price is too high, walk away!
2 votes Thank Flag Link Sun Nov 11, 2007
In this market an offer of 10% below the asking price should be the general guildeline. It is hard to believe that a seller would not consider a second offer because they are insulted. If so they just are not in tune with the market. I'm sure the next person won't be too insulted to look ata second offer.
2 votes Thank Flag Link Sat Nov 10, 2007
I am going to approach this question from a different angle than my colleagues. Have you considered that this might be a pre-foreclosure property? We see it every day in just about every price range.
If that is the case, there may be stipulations that the listing agent is not divulging for privacy reasons. If that is the case, the bank may not be willing to accept an offer for less than the amount owed until the property is actually REO. This may be why you have not heard back on your offer.
I would check with your Realtor to see if he/she has heard back from the listing agent. If the offer had to have bank approval, the buyer’s agent should be in contact with the listing agent to see where everything is in the process. Bank approvals on pre-foreclosure properties often take longer than expected.
2 votes Thank Flag Link Fri Nov 9, 2007
Ask your agent to provide a Market Analysis for you. Your agent can tell you what houses are actually selling for in the current market. With that information and comparable listings that have sold you will know where your offer should be if you truly want to buy this property. Keep in mind that property values are based on what the market will bear not on what you personally think a property is worth to you.
2 votes Thank Flag Link Fri Nov 9, 2007
My suggestion would be to speak with your Real Estate Agent and find out what the homes are selling for in the area. In an average market, with a Listing Price of $XXX and a Sold Price of $XXX the average SALE price could be 10% under asking. Put your offer in slightly lower than you are willing to pay and see how much the Sellers will negotiate - chances are the Sellers are more willing to negotiate now then they were when you put your original offer in months ago!! Good Luck!
2 votes Thank Flag Link Fri Nov 9, 2007
J R-
You are right I am not sure as I do not know comps (if there any recent sales less than six months old) or anything else but if they wanted to make a deal the selling agent would have made the seller reply even with a counter at $10k below asking which is the first price reduction. I just went through the process with a seller that needed to sell (empty house and 2 escrow that did not close) and I am in contract at 28% below last asking price (after a 11 counters) and at 30% less per sq ft from the last comps. I heard so many agents including mine recite comps that were a year or older, especially since transactions have become nonexisitent this past summer.

The buying and the selling agent need to talk and figure out how to make this work and not waste time. That is the only way to get this done efficiently. Also now that the buying agent knows what this buyer really responds to then they should get to to work and find a similiar floorplan to show them. Unless the house was custom there will other homes int he area to look at, even if it means knocking on doors. Time to get to work!
2 votes Thank Flag Link Sun Oct 21, 2007
Fence sitter, how can you be "sure" this house is overpriced? No details were given.
2 votes Thank Flag Link Sun Oct 21, 2007
You offer is not low ball in any way. I am sure the house is over priced in today's market. Be aggresive and send an e-mail directly to the selling agent and make sure they know you are interested in the house; provide document to show you are serious buyer (prequalification letter, no contingencies, quick sale). The buyer might not really want to sell and is doing price reduction to appease the selling agent. Everyone has their reasons to list so you need to quickly figure who the real sellers are as over 50% of people are just testing the market.
2 votes Thank Flag Link Fri Oct 19, 2007
Hi Christine,

Thanks for asking this question. When seller's price their home, the general rule of thumb is that they price they ask truly is the one that they want/hope/believe their home is worth.

When you are looking to purchase a home, I agree that the first thing that your Realtor needs to do for you is run a CMA (Comparative Market Analysis) on the desired property to see if the pricing that the seller's want is in line with what the market is doing.

If the CMA shows that the home is priced appropriately, then asking for a 10% markdown is truly out of line. If the CMA shows that the home is inappropriately priced then you need/should submit the information you used to determine appropriate pricing when you send in your offer. It is one thing to say "This is what I want to pay" and quite another to show that "This is what the market says I should be paying."

In your case, it appears that the market is indeed speaking to these sellers by the fact that the property has had price reductions and is still available so your making a market appropriate offer (and your 10% reduction on the original list price may indeed have been just that - without the facts in front of me I can't evaluate your situation).

Ask your agent to run a CMA that takes into consideration the variances in value that can be attributed to the unique nature of neighborhoods in that area. I lived in your neck of the woods for a considerable length of time before my marriage so I am quite aware that all Spauldings, Genesees and Fairfax's are not created equally and don't even get me started on poor Santa Monica Bl., but I digress...

Ask your agent to run the CMA and then use that to support your offer and you may indeed have better luck and won't feel that you have left anything on the table except the varnish :-)

Take care, good luck and have a wonderful day!

Tisza Major-Posner, Realtor, Keller Williams (909) 837-8922
Web Reference: http://Route66Living.com
2 votes Thank Flag Link Fri Oct 5, 2007
There is no rule of thumb. It is important to have your Realtor do comps on the property you are interested. Look at the data, ask questions on the property you are interested in....how long on the market, sellers motivation, how are they selling the property....with clearances or as is? Structure your offer based on the answers and comps. Also, is this a multiple offer situation or are you the only offer coming in? good luck
2 votes Thank Flag Link Fri Oct 5, 2007
Pam Winterba…, Real Estate Pro in San Ramon, CA
MVP'08
Contact
Rule of thumbs DO APPLY! For market areas and subdivisions/neighborhoods.

So How do you find the "RULE OF THUMB?"

Well, you need to do a comparative market analysis on the home and the neighborhood in general. You should know the price per square foot, what is the average discount given by the sellers (this can not be found without MLS access) including closing costs and overall discount (depending on your state), you should also notice trends based on Days on Market and Market Swings.

For example, if your home is $500K, but based on Square footage it should be at $490K ... THEN .. you discover that most sellers in this neighborhood are paying 3% for closing costs AND Discounting their home by another whole 1% .... THEN you discover that homes that have sat on the market for more than 90 days will discount on average another 1% ... THEN you discover that the seller has a 50% equity position on their mortgage based on the tax records AND that during the months of November and December that sellers will give another 1% if they have a solid contract but closes right after Christmas ... THEN YOU HAVE YOUR OFFER!

Gee that's almost 10% discount.... hmmm have we found a rule of thumb... sort of.

So, the Rule of Thumb is this -> Do your research to find out the trends, then start low and work on the seller. There's a win/win solution out there for you both, a good Realtor will help you maximize your terms and the price also.

If you don't have an agent that is looking this much in-depth into the situation, you might consider hiring a PROFESSIONAL.
1 vote Thank Flag Link Sat Nov 10, 2007
Joshua Jarvis, Real Estate Pro in Duluth, GA
MVP'08
Contact
There is a rule of thumb that I've developed and I'm happy to share it with you. However, I caution that it might only be true in my own area -- the North Shore of Boston, especially along the coast from Nahant to Gloucester. I've studied thousands of sales and found that most houses sell for 94-95 percent of the final asking price. I believe almost any house can be bought for 97% of the asking price and that you will almost always get a counter offer at 93%.
Go ahead, get the selling and asking prices for the past year in your area and check it out. I think the ratio is now on the low end of 94% for selling/asking, but over the long run it's accurate -- at least here.
1 vote Thank Flag Link Fri Nov 9, 2007
Study the comps. This is the only way. I just did a study for a client of mine looking around the $1-1.2M range in a bunch of areas around LA, and the final sales price ended up being, on average, 98% of the final list price. Of course, in the course of a home's marketing, it's impossible to know what the final list price will be, but many times the sales were over asking, and often there was no price reduction at all.

In LA, houses can be overpriced, underpriced, or priced just right, but the only way to tell is to take a few hours and really study the comps. Ask your agent to help you with this.
Web Reference: http://rd.la
1 vote Thank Flag Link Fri Oct 5, 2007
Fence sitter wrote:
J R-
You are right I am not sure as I do not know comps (if there any recent sales less than six months old) or anything else but if they wanted to make a deal the selling agent would have made the seller reply even with a counter at $10k below asking which is the first price reduction.
~~~~~~~~~~~~~
You can't MAKE a seller reply. I've had sellers not counter.
0 votes Thank Flag Link Fri Nov 9, 2007
If your not getting a response, it's probably the listing agent has already advised your agent on what you need to do with the offer price. You can wait it out and possibly lose the house, or you can write an offer. One question you should ask yourself is, "How much do I want the place?" Make a decision and move on.
0 votes Thank Flag Link Mon Oct 15, 2007
Ask your agent to run a Comparative Market Analysis of houses presently on the market.
Then get a list of all comps that actually sold.
This gives you the perspective of the appraiser.
In your offer, you should say the appraisal should be the same or more than the offer...just like the bank will probably demand.

Have your thoughts based on the facts/actual solds....if you are still not sure, check the assessors office to see what sold and for how much.
Web Reference: http://www.iansellsnola.com
0 votes Thank Flag Link Fri Oct 5, 2007
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