Foreclosure in Roswell>Question Details

Andy, Home Buyer in Roswell, GA

Buyer strategy if a property is overpriced?

Asked by Andy, Roswell, GA Sat Oct 13, 2007

I'm interested in a price-reduced (~$600K) home, but it's clearly still overpriced by 8-12%. Nice prop. but vacant, OTM for 6 mos. Should I risk a perceived "lowball" offer soon, backed with comps, or wait for another price cut before acting? General suggestions for strategies? Note that I can wait 3-6 mos to buy.

This is a follow-up to, "Good opening offer for 600K home in North Atlanta". Thanks everyone for help in that thread! The consistent answer there: 95-96% is a reasonable expectation of LP/SP **if the property is priced appropriately!** Well, I pulled all comps in the nbhd for 18 mos. Found avg SP of $143/sf, and finished basement premium of ~$36/sf. That puts the mkt price closer to $520-535K. Note: homogeneous neighborhood (lots, age, finishing, interiors, etc.)

I know my to-be-hired buyers agent can help, but that's only one opinion. And the answers I read here will help me pick that agent. So... ideas? Is this a workable situation?

Thanks!

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As consumers, we frequently pay a higher price than we perceive as reasonable, but we decide we want the product or service, and ante up.

A buyer certainly has the right to walk away, and in my prior post, I indicated that the first and primary reason for buyers to review and study comps was to determine their position, including their ‘walk away number.’ At some point, a property might not be worth it for a buyer to pay more. I also indicated in my prior post that the more flexible you are about the property, the more opportunity that you will have, since you can more easily walk away and move your focus to another property.

Carrie somehow perceives that a seller has an obligation to sell at a predetermined market value price, and somehow implies that we, as Realtors, have some power to force sellers to sell. Buyers determine the number that they are willing to pay. If a seller won’t meet them, the buyer has to decide that he/she will either go up with their offer or they will walk away. That is a fact. It is not greed or fear. It is simply allowing a buyer to make his/her choices. Comps are an indicator of market value. A property represents an individual value to each potential buyer. One buyer may value a particular property more than another, and that may be reflected in their respective offers. Carrie’s comments assumes that there is only one right price for a property. You are not wrong to walk away, and neither are you wrong or less intelligent if you decide to increase your offer in order to secure your desired property.

Our lives are shaped by where we live, and buyers make decision beyond simply the numbers. Buyers make choices for housing that support the life and lifestyle they desire. That might mean near a beach, boardwalk, proximate to friends, in the country near equestrian trail, or near a golf course. If it were only about the numbers, a lot of us would not live where we live. We would find a place that was less expensive, had better appreciation potential, or gave us a better deal.

Buyers make decisions on the total package, and yes, the comps and stats are a crucial component. It is not my place, as a Realtor, to criticize a buyer for walking away if the deal does not work, nor is it anyone’s place to criticize a buyer for meeting a sellers higher price because the overall package is worth it to that buyer.

Investors typically make decisions void of any intrinsic value attached to their potential personal enjoyment and lifestyle components. I have helped enough buyers and heard their list of ‘must haves’ on their property search list to understand the difference between an owner occupant and dirt with a structure on it that represents a turn of numbers to an investor. Investors make informed decisions based on numbers and market expectations of a pool of potential buyers or renters. Owner occupants make decisions predicated upon the market data and their personal lifestyle choices.

On a smaller scale, we do that every day. We vacation and pay over the top rates for a particular hotel or restaurant. We say the prices were too high, but we determine we will pay and proceed. We do that with cars, and every aspect of our lives. A home is also where you will share your moments with family, friends and a buyer is not wrong to factor value in these components.

I have certainly had buyer clients who have walked away and regret it. During visits to the following 20 properties, these buyers compared each property to the one that they did not get, pointing out why the available offerings did not measure up. Perhaps in those instances, I failed my buyer client by not being stronger in my delivery of the message that they were going to lose the property at the time of bidding. Perhaps making them more aware of their potential loss was my job and I did not do it well enough.

Other buyers have walked away when there wasn’t a meeting of the minds, and look back with solid confidence that they made the right decision.

My advice to Andy stands.......You are doing a great job in your research. With the help of the Realtor Buyer Agent you select, evaluate your comps, determine your walk away number, and good luck!
4 votes Thank Flag Link Sun Oct 14, 2007
Deborah Madey, Real Estate Pro in Red Bank, NJ
MVP'08
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Hi Andy,

First, let me say how impressed I am w/ all of your homework and strategies. I am quite far from Roswell, GA, so it’s not even a consideration that I could represent you. However, such would be a pleasure. Coming from a background in corporate sales where I presented formal proposals and negotiated prices, I was accustomed to working with clients who would engage in detailed analysis of spreadsheets as we negotiated terms of a contract. Therefore, I would find you a pleasure to work with. Since I am not in Roswell, none of my content here will reflect stats from your local market.

As a buyers agent, I use comps with my buyers to help them understand the market, construct their offer, and determine their walk away number. You have indicated that the subject property has you priority attention, but you will also dismiss it in favor of another if a satisfactory negotiated price is not achieved. The first and foremost value of the comp analysis is to establish buyer confidence in his/her own decisions.

As a buyers agent, I use comps in support of offers presented to a seller. When I can, I will sit down in person and present offers directly to the seller and sellers agent. This does not happen that often, but I frequently request. Sellers do not always view comps the same way that buyers do. What a surprise! Show the same set of comps to both, and here is a true, and common response...... Buyer reviews comps and states properties A and B have stronger locations (not busy streets) and have more spacious room sizes and factors in adjustments accordingly. Seller reviews the same comps and states his property has a stronger, more valuable location (busy streets but offset by proximity to x), the room size differential is nominal, and his condition is better. Two different individuals with opposing goals garner different interpretations of the data.
Still, yes, I am strong advocate of choosing a buyers agent who knows their comps, and can use the comps to negotiate on your behalf. A good buyers agent must know their inventory. There are sellers who simply don’t care what the comps state. They are only willing to sell if, and when, they get their price. Some sellers believe that there is one buyer out there who will see the value in the property the same way the seller does, and therefore be willing to meet the sellers price. Many sellers hang on to this notion until the are ready to accept what the market is saying. Some sellers hear the market speak before they list, others must weather through months of being on the market without a buyer before they are able to hear.

If a listing agent has guided the seller into a higher price range, his/her acceptance of your comps may not be readily accepted either. I had this happen early this spring with a property that had been on the market for many months. The listing agent did not submit our comps with the offer to the out-of-state seller, dismissing them as irrelevant since the seller said he didn’t care. I asked her to provide me comps that I could take back to my buyer in support of the ask price, and she declined, stating it didn’t matter. The property is still on the market, 3 price drops later. The listing agent contacted me a few weeks ago to revive my buyers interest. He remained interested only at a purchase price lower than made in early spring. No deal.

You are right to study your comps, and you very much have a right to expect your buyers agent to be well versed in the comps and the local markets. Do factor in the reality that sellers may not look upon this data in the same light. Real estate is biased and emotional for the principals in the transaction. Because you can validate the offered price does not guarantee seller acceptance. It then becomes only a matter of how much you want to buy and how much they want to sell. Comps become secondary to the emotional drivers of what will make for you a happy home.

Another word about comps........it is important to know that the transactions were arms length and if there were any concessions made that are not reflected in purchase price. Locals tend to have a handle on those matters better than county records.

The more flexible you are in choosing a property, the greater your chances of striking that best (fair) value. Pick an agent based upon knowledge (general industry know-how and local market expertise), skill (presentation, negotiation, delivery, organizational), and commitment to work hard for you. Interview for a buyers agent the same way that sellers interview for listing agents.

Best of luck and do keep us posted.
Deborah Madey - Broker
New Jersey
4 votes Thank Flag Link Sun Oct 14, 2007
Deborah Madey, Real Estate Pro in Red Bank, NJ
MVP'08
Contact
Thanks for all the helpful comments so far! A few replies/comments to some of the questions so far...

Everyone-- I pulled comps by writing software to query the county assessor by neighborhood id. All square footage as listed there. There are approx 100 props in this neighborhood, all built post-2001. Nearby neighborhoods are much more expensive, or much older so I didn't consider those in this calculation (I did analyze them, though, and they would actually help my case). Comps are for same-size homes (~ 3300-4200 sf) , same BR/BA, same builder, same lot sizes, same age, etc. Basement premium is estimated by knowing which comps have finished basements (drive by), assuming a full basement (the norm in nbhd) area equal to main floor area, and comparing finished/unfinished comps ppsf. Note that I inflation-adjusted sales prices to Sep '07 dollars using standard CPI calculator, and further added 2% annual increase due to real property appreciation. The numbers I have compare well to zillow.com Roswell ppsf estimates, and surprisingly to adjusted '05 comps (yes, I did those, too). As a check, I looked at the '07 total tax appraised value and found the relative values in the nbhd to be consistent. I know home county sales reporting online lags by a few months, but I've been doing drive-bys since July so I I'm missing at most 1-2 sales. Does any of this sound unreasonable? Suggestions for better comps (aside from the obvious MLS data I can't access)?

Everyone-- so many detailed responses, let me also throw out this info: there are currently 5 listings in the nbhd, 1-2 new 60-days, all priced lower (square-foot adjusted, and real), one priced almost the same with 25% more sq ft but unfinished basement. Two bank-owned properties not advertised according to RealtyTrac.

Lee-- I agree the seller's finances are also important; that's why I included purchase price in other thread. I'm sure they don't want a loss, so that's the psychological floor. Their real floor may be much higher based on relo, finances, etc. You realtors can provide insight into how important rational valuation is in selling a home in this market... I suspect that a fair deal is probably acceptable at this point, and that a skilled buyer's agent can help present an offer as fair. Market timing must be a looming consideration, also....

Jane-- good advice also, but you seem to contradict your post on my other thread a bit. There you say that 10% is too low to offer, here you say it can work... there you discount the owner purchase price, here you say it's important.

Brett-- excepting recent (6-mos) sales, I think my raw comp data is solid....

Diane-- good point. We want the house, and it's our current favorite potential, but there are at least two others that are very exciting alternatives. If it was *the* house I could just offer 5-10% lower and negotiate a typical sale. Since I can wait, though, I want to get the best (fair) value I can. I'm pretty sure the house is top-25% for its class, but it's mispriced and there are *so* many newer resales and new constructions available within 2 miles. I just don't see a strong bargaining position for the seller. I realize that doesn't mean *they* share my view, tho, which is why I started this thread!

Diane-- Btw, I'm not sure why comps from peak season last year would be *worse* than slump this Fall, especially since I accounted for inflation and 2% price appreciation per year... Does a single possible additional sale in the neighborhood this summer really affect the strategy that drastically, especially as we head further into slowdown?

Claire-- as mentioned, there are no sales in this nbhd within 3 mos. Nearby neighborhoods are '80s or '90s homes, or million+ homes. An appraisal would be interesting, but shouldn't that occur at a more committed point in the buying process? After all, I still don't have an agent yet..... Also, perhaps mistakenly, I'm under the impression that you can get a 600K property appraised +/- 10% by proper choice of appraiser, and that is within the margin of my desired offer, so I expect either buyer or seller could make an appraisal work to justify price.
4 votes Thank Flag Link Sat Oct 13, 2007
wow, Andy! that's pretty impressive!

I gave this some good thought yesterday - after I posted

Let me clarify from yesterday - I wasn't insinuating that these people were all ignoring the comps, but just as you responded - personal perception of the seller is a major consideration - I'd be out of a job if all homes were priced properly!!

additionally, while trulia is giving you some great answers, remember that you can also "interview" Realtors live/directly - most people don't, but you can always ask multiple Realtors questions by phone or email directly too, as long as you don't have a buyer brokerage signed with anyone yet - BEFORE making an offer you will have to sign a buyer brokerage with them - but since you have already found the property of interest - you can get as much advice as possible

The only recommendations I have as far as where to go from is here is to get someone working for you - or maybe WITH you with your level of expertise!! And maybe just to verify your findings and check for any more recent sales. As I'm sure all of us would, I would be happy to help you out with some MLS data, to "try it out"

and since I live in the area, I'm dying to know what property this is - even if we don't work together - feel free to contact me directly if you like

Thanks!
Web Reference: http://www.leeadkins.net
2 votes Thank Flag Link Sun Oct 14, 2007
Andy, a missing piece of the puzzle is to know whether or not this home was a relocation with a buyout and thus corporate owned or if the owners have moved on to another property and still hold the mortgage on this home. Your Buyers Agent will be able to delve into the situation for you to see the financial details associated with the home, the price the former owners paid for the property, etc. All of which is advantageous to you as a buyer and helps in the writing of an offer. Many of my clients have recently been opening with offers that are lower than "normal" (i.e. around 90% or a little lower)--reflecting the state of the market. Part of my job as a Buyers Agent is making that more palatable for the sellers...helping them understand why we came up with the figures we did. In the majority of cases, this has worked to great advantage for the buyers and is even more likely if the home is part of a relocation or has highly motivated sellers. I also would like to know where you're finding your comps--as some of the website information is not always accurate. The best way to pull accurate comps is via tax records and/or the FMLS history for the area. You know I'd be happy to help you in your research of the neighborhood & area--Best of luck to you!
Web Reference: http://www.jane-oconnor.com
2 votes Thank Flag Link Sat Oct 13, 2007
Andy,

What got the ball rolling initially with home prices here (USA) was foreign buyers from, say, Hong Kong, where a 1000sqft condo was $1M--and that was over a decade ago. So, for them, any price here was a drop-dead bargain. Be glad you're not bidding against that buyer.

Now, real estate agents want to instill in you a terrible disease I call Fear and Greed Syndrome. Fear that you will lose the only home you can ever live in, and greed for paying more than you think a property is worth. If you even have a hint of these symptoms, take a really deep breath and recenter.

For example, a prior poster here thought your approach would depend on whether you are investing or living in a home. Really? For the investor, the value and money should make sense. Of course, why would that not apply to your home as well? It doesn't apply if an agent is trying to instill Fear and Greed Syndrome, so you will offer more than you want to offer.

Why not 85%? You did your homework, and found what others SP was. And that's not even the initial offer. You make sense to me.

I look for an agent that can handle figures, on their feet, in their head. An eight-year-old can say, "This is the living room," and you can pay them with peanut butter sandwiches. lol
1 vote Thank Flag Link Sun Oct 14, 2007
Andy, allow me to clarify my position--when I was discussing the sellers' financial position & price paid relative to the establishing an offer price, I said in the first posting that "it was of interest but doesn't relate to the market value at this time". That's not to say that the information isn't important to know--but the interest it holds for the buyer is to gather a picture of how much negotiating space is available and doesn't have any bearing on fair market value. Whether the sellers bought recently and and have little equity or if they purchased it a decade ago and have a smaller payoff will affect the range available for negotiation. Another factor that affects negotiation ability is the reason for moving--downsizing, relocation, financial stress, etc.

Regarding opening offers--what I stated was that many of my clients are opening the negotiations with a 90% (or a little lower )offer. That doesn't mean we ended up there in the final binding agreement--but in this market sellers are happy to acknowledge an offer just to get the process started. Your original question discussed opening with a $510K bid on a $600K property--an 85% offer. I still believe that even in this market that is too low to begin--although I will waffle a bit here (!) and say that if the property is synthetic stucco with electrical wires in the steep backyard, corporately owned and is wallpapered from top to bottom then you could be in the ballpark.

What you should take away from this is that more than statistics factor into purchasing a property--there's a mix of condition, lot characteristics, placement in the neighborhood, appeal, seller position, reason for moving and, finally, emotion. Unless you're purchasing simply as an investment vehicle and thus don't mind whatever you end up with if it's the right price, I would posit that some emotion will come into play...you and your family ultimately must live there & enjoy your surroundings! ---Jane
Web Reference: http://www.jane-oconnor.com
1 vote Thank Flag Link Sun Oct 14, 2007
Andy, you certainly have done a lot of the homework yourself in determing comps but from where? It requires a blend of information both from tax records and recent sales in MLS. You also need to look at how current the comps are. In today's market I work within a three month range if possible and then expand out to 6 months if necessary when building a comparable market analysis. I also agree with Diane that an appraisal is the next logical step.
1 vote Thank Flag Link Sat Oct 13, 2007
Andy,

One of the biggest things you need to decide here is how bad you want this home. Please understand that if you hire a competant agent and they know that as a buyers agent they need to make sure they put a special stipulation in the contract that the house appraises for purchase price or better and if it does not appraise you have the option of waliking. If the house does not appraise and they write the contract appropriately you will not be obligated to purchase at the point or it can be written so you only pay the appraised price. If you decide to try to wait things out you may lose the house, you never know when someone else is going to step in and decide that they love the house and purchase it right from underneath you.

I also am not sure how you are pulling comps and how accurate they are, and again this all falls back on what kind of agent you hire. We as agents pull from tax records and comps from the multiple listing services. It also depends on outside factors, such as area, neighborhood, schools etc. Because of the market we are in you can not even look at comps from a year ago, it is too far back.

As far as the house being vacant they could have been moved by their company and the house could be corporate owned, so once again many factors to consider here.

Good Luck!

Diane Menard
1 vote Thank Flag Link Sat Oct 13, 2007
Andy:

You stated, "Well, I pulled all comps in the nbhd for 18 mos. Found avg SP of $143/sf, and finished basement premium of ~$36/sf. That puts the mkt price closer to $520-535K."

Can you tell me how you did that with such accuracy? I'm from CA and I know that if you were here you would have spent a lot of time at county records. (Brett@DayBreakGroup.com)
1 vote Thank Flag Link Sat Oct 13, 2007
I would actually disagree - seller (and listing agents) don't always look at - or care about - the data -

A seller's price is often based on THEIR needs financially or THEIR perceived value. I think if you plan to end up within 95% of YOUR determined value, you should start there - make a "reasonable" first offer - I have a personal strategy for this negotiation - I almost touched on it in the last thread - I recently helped someone purchase a house close to this price range and we ended up about 8% below on a reasonably priced home, BUT it was in a neighborhood where resale (our deal) was competing with new construction and builder incentives - I think you will get lots of great advice here, but until someone can look at the exact property, pull the tax records, and get to work for you, it's hard to give solid advice. Thanks!! Best of luck to you!
Web Reference: http://www.leeadkins.net
1 vote Thank Flag Link Sat Oct 13, 2007
You seem to be on the right track, gathering as much data as possible is a sure way to validate your offer. I would not worry about making a lowball offer if you actually have data to back it up. Make sure your agent that you pick will be as knowedgable and be able to communicate that data to the other listing agent.
1 vote Thank Flag Link Sat Oct 13, 2007
Carrie, in your honor, I plan to paint a sign "I will sell your house for PB & J Sandwiches" and have my daughter wave it in front of my next open house. ; - ).

Mind reading is an occupational habit that we Realtors often develop for survival purposes. Principals are congenitally unable to be forthright about their motives, their desires. their hopes, their dreams, and their perceptions. They are natural constrained from understanding the influence their own emotions have on their reasoning that guides their business decisions; they are certainly incapable of explaining those emotions and perceptions clearly to others.

So it is indeed impressive that Deborah can read minds. She has many years of experience at reading minds, and she is very good at it. ... But even Barry Bonds struck out occasionally. Deborah did not read your mind correctly, this time.

I believe buyers and sellers are TOO emotional about most things anyway. The last thing that I want to do to a client is to instill more fear or greed. They all bring copious quantities of those commodities to the table anyway. I agree with you wholeheartedly that the advise to a buyer or seller is to "If you even have a hint of these symptoms, take a really deep breath and recenter."

I believe Carrie, Deborah, and buyer Andy are in agreement that Andy wants this particular property, but he is analytical enough to triumph over the want emotion, to allow him to walk away if the seller can't or won't come down to a fair price. Very few principals are as logical and analytical as Andy.


It is NOT Carries perception "that a seller has an obligation to sell at a predetermined market value price, and somehow implies that we, as Realtors, have some power to force sellers to sell" -

There is a common illogical misperception that many principals do have: It is the idea that the Realtors {on the other side of the transaction} make the decisions for their sellers and their buyers.

On the lighter side:

CHP officer pulls over a speeding BMW on the side of the California freeway

"Registration and Real Estate License, Ma'am"

Driver complies "Why did you ask for my Real Estate License instead of my drivers license?"

"Because not everyone in California has a drivers license , Ma'am."
0 votes Thank Flag Link Mon Oct 15, 2007
Jim Walker, Real Estate Pro in Carmichael, CA
MVP'08
Contact
Andy you have done a ton of research, and seem to be a very analytical, methodical and logical person.
Having said that, if you don't have an agent yet - have you SEEN the inside of this house? If not, how do you know you would like to buy it? If so, you may have a procuring cause problem when you DO pick an agent.

Having done all of the work you have so far doesn't mean that you know how to interpret the information as it relates to the market in an unbiased fashion. Of course you want the best deal, and so does the seller - that is the agents job to make happen, so I'd advise getting an agent first and let them do their job for you.

It seems to me that you may be a good candidate for using an Accredited Consultant in Real Estate (for more info check out http://www.ACREcourse.com). I know there are agents in GA that can help you, not quite sure if your area is in their area of expertise though. If you go to the site - click on find an ACRE and you'll know. Accredited consultants are real estate professionals that can give you many options on how to pay for real estate services, thereby making it advantageous to the buyer or seller to raise or lower the price and make the transaction work.

EBA's are another good option, since they only represent buyers which means their will be no conflict if you like a house and they have it listed.

You are on the right track with your numbers and research, you just need unbiased advice from a pro. You may be misinterpreting the data, you may not have all the data, and you don't know the market like a professional does. Having said that though - I'd work with a buyer like you ANYDAY!!

I love it when someone is statistical and wants to be pro-active in the process. The only problem is that you don't know the sellers motivation, and there is where a good agent can benefit you the most. Have you checked the courthouse records to see how many liens there are on the property? Are they being relocated? Are they in pre-foreclosure? Do they need to upsize, downsize? The key to getting the best deal is knowing the sellers motivation and time frame.

Let us know how this works out for you. The only thing I dislike about this Trulia Q&A is that we never usually hear 'the rest of the story'!!
0 votes Thank Flag Link Mon Oct 15, 2007
I am impressed that someone can read my mind, and be so sure of what I am thinking. As a Californian, I know a lot about real estate. Real estate is our state's hobby. lol

I have bought in markets where a listing sold in three hours. I have sold in markets where nothing would sell. On one property I was selling, the first agent wanted to list it at 30% below what the second agent wanted to list it at. The second agent sold it in two days, cash.

I live within my income and have lived in a lovely, historic neighborhood for thirty years.

Having a best friend and a SIL who are brokers, I have seen and heard a lot. The variety of sellers is as wide as the variety of buyers. None of the thoughts you have attributed to me are true.
0 votes Thank Flag Link Sun Oct 14, 2007
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