Questions about giving low offers

Asked by Windowshopper, Lynnwood, WA Sat Dec 19, 2009

I'm looking in Snohomish county for a spacious 4 BR (e.g., over 2000 sf), good sized yard (e.g., over 6500 sf), good schools (e.g., Northshore, Mill Creek, Mukilteo), around the $310-350k range. It's actually tough to get all these in this range, unless I go for an updater which will cut into my budget.

There are occasionally good options in the $360-$390k range. So, my feeling is that I need to be aggressive and offer a near lowball to get a high-300's home (maybe low 400's) down to my comfort range of low to mid 300's.

So, my questions:

1) In this price range, and for my expectations, is it reasonable to push for a price reduction of $30-50k?

2) What kinds of things would indicate a strong candidate for a low offer?

3) Does anyone have a good feel for how low offers are usually perceived by an owner vs. a flipper/investor vs. new construction?

Thanks for the advice!

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Answers

19
Windowshopper, Home Buyer, Lynnwood, WA
Mon Dec 21, 2009
By 'push for a real bargain', I just meant paying a good deal less than the current market value of the property. I didn't imply that I think it's ever a good idea to overpay. But, since you asked, maybe there are times you'd overpay to ensure you got the property you wanted; for example, in a strong seller's market.

Right now, of course, I don't think anyone should be overpaying. For me, it's a question of trying to find out to what degree I can underpay in order to build in a safety cushion against declining property values, and to pull within reach of the homes that fulfill my families short list of "must haves". Currently, the properties that fulfill all my must haves would overextend us. We could probably get the lender financing for these, but we know what we can and can't afford.
1 vote
Deborah Madey, Agent, Brick, NJ
Mon Dec 21, 2009
When the buyer’s priority is a list of criteria that is found in a specific property, we push for the best contract price and terms on that specific property.

When the buyer is flexible about style, exact location, condition, hardwoods or carpet, etc. etc. and the buyer’s top priority is looking for the undervalued property, the priority becomes identifying those opportunities.

The mission of the buyer agent is understanding and meeting the buyer’s priorities.

Regards,
Deborah Madey - Broker
Peninsula Realty Group
732 530 6350 Direct
732 530 7755 Main
1 vote
Keith Sorem, Agent, Glendale, CA
Sun Dec 20, 2009
It is funny to me that you do not mention anything about your Realtor. The ONLY way, IMHO that you will have success is to have a very sharp Realtor leading the way on this quest.

The best way is to the two of you to sit down a map out a plan for your purchase. While you are clear on your stated objectives, once can also see from your post that you need some help from a professional.

Key points that you should consider:
1. There are statistical tools that you can use, such as absorption rate, to identify areas likely to produce listings that meet your needs.
2. There are other factors that will affect the home's value and your purchase, most notably the mortgage interest rate and the tax incentives for first time and move-up buyers, none of which you mention.
Example - a one percent increase in the interest rate might increase your mortgage payment by $250, which would be about the same as a $50k price reduction on a $400,000 home.

While you're running around trying to get the best deal, rates are likely to up this spring, perhaps over a point when the Treasury dept. runs out of stimulus money to buy mortgages.
Also, you need to be in escrow by April 30th and close escrow by Jun3 30th to take advantage of the tax incentives.

A sharp Realtor will develop a strategy that will take into account these other variables that will affect the cost of homeownership.

Good luck.
1 vote
Kary Krismer, Agent, Renton, WA
Sun Dec 20, 2009
1. You really shouldn't focus on price reduction from list price. You should focus on getting a discount from other similar houses in the neighborhood. The list price is just the wish or desire of the seller at some point in time, and for all you know a seller might already be contemplating a price reduction. I once had an offer come in after a price reduction form was created, but before the client signed it.

2. The best thing is an agent that knows what they're doing, and using one of the mortgage brokers that the agent suggests. As to the former, just as an example, if the agent doesn't have a legal description in their offer, and doesn't use any of the attached documents the listing agent provided, that will not reflect well on the buyer. And if the buyer is using a mortgage broker that the agent cannot vouch for, the seller will have concerns. Both of those concerns relate to problems that arise during the closing process which might cause the deal to be delayed or even flip.

3. While every seller is different, 7our best seller is most likely a seller who no longer occupies the property and is making payments on two properties. Your worst seller is probably new construction where they still have other units available, because they are not going to want to telegraph their price to other buyers. Even there, however, there are things they can do that might help you out that doesn't reflect in the price. As I said, every seller is different.
1 vote
Bill Eckler, Agent, Venice, FL
Sun Dec 20, 2009
Window,

The best offers(low or otherwise) are those that can be backed up by recent sales information on comparable property for the area. As a reflection of the current market realestate activity, this information should clear the way for both the buyer and seller to be on the same page while trying to determine a home's fair value.

There are no guaranteed formulas that insure the success of RE endeavors. It's usually a matter of trial and error for bottom feeders....until they identify a seller that needs their offer.
1 vote
Tonya Brobeck, , Everett, WA
Wed Dec 23, 2009
Windowshopper,

It's not very complicated at all. There are great deals, you sound flexible, and have a good idea of what you want and what you are looking for. Most any Realtor/Agent that is familiar with the area you desire should be able to please you in the way of homes, prices, and negotiating an offer. I agree with Deborah
0 votes
Deborah Madey, Agent, Brick, NJ
Wed Dec 23, 2009
If there are sufficient comps to support "x" an you pay "y" - you have paid under market on that day.

If additional transactions close at "y" - the market continues to trend downward, and a new average is set based upon collective comps....not just 1 transaction.

If additional transactions close at "x" - then you have a property that you bought at under market at the time and the market has sustained itself.

Window - I understand - you want a deal. My advice - make that your priority and decide ahead where you are willing ot "give" in order to "get" what meets your most important priority. You might end up w/ a galley kitchen instead of a U-shaped kitchen, as an example.

good luck.......
0 votes
Mack McCoy, Agent, Seattle, WA
Wed Dec 23, 2009
Thanks, windowshopper, I appreciate your accepting the diagnosis.

There's nothing wrong with bargain-hunting, but let's call a shoveler a sholveler, and not just a duck. (An attempt to avoid shoveling around the cliche of "calling a spade a spade.")

Good times and bad, people would prefer to pay less than more. Except when status is involved; paying $145M for a Klimt seemed like a good idea to someone, when the entire SF art museum cost that to build and you can eat and potty in it. But, I digress.

The best way to get a good deal is to know the value of what you're buying. The worst way to get a good deal is to get a big discount on something that still isn't worth it.
0 votes
Windowshopper, Home Buyer, Lynnwood, WA
Wed Dec 23, 2009
Mack, you sound feisty :) Maybe it's not intended, but I'm trying to put a voice to your comments.

I don't think my comments were abstract, but I appreciate your ability to "abstract" it down to "pay less and get more" anyway. I guess that is kind of what I'm saying.

I'm looking for a bargain in today's market (like a lot of people). Who doesn't like a good deal, especially when the risk of declining property values is pretty high. Houses aren't like liquid stocks, and there's not an active and fluid exchange (like the NYSE) for their prices - so when you compare my efforts to something like trying to buying stocks 10-20% below market value, it's not a meaningful comparison. If you know where to get stocks in the open market at those discounts (other than an Employee Stock Purchase Plan, where I do indeed buy my company's stock at a good discount), let me know.

On the contrary, I think people can and do find bargains in housing. I suppose you could argue that if someone paid the price, it's not a bargain, it's just the market price now. However, my thought is that maybe there are other buyers out there willing to pay more than me, but getting a bargain means I beat them to it and convinced the seller that an aggressive offer was their best shot at selling.
0 votes
Mack McCoy, Agent, Seattle, WA
Tue Dec 22, 2009
So, you're looking to buy in today's market, at tomorrow's potentially reduced prices?

It's true that some people did the reverse - they bought in the then-current market, at tomorrow's potentially inflated prices, because they wanted the property. In fact, they overpaid. And, it worked out.

But most people want to pay less and get more, which is really what your story abstracts to.

We would all like to be insured against future potential losses, which is why I like to buy my stocks 10-20% below today's pricing, too. You know, just in case.
0 votes
Dan Tabit, Agent, Issaquah, WA
Tue Dec 22, 2009
Window,
I wrote a blog post at another site about a “Blue Book Value for Homes.” No such tool exists, although Zillow, eappraisal and a few others may disagree. In reality, the value of any home is the price a willing buyer and seller agree to. Pushing for a real bargain is what an agent is for; knowing if the bargain is at list price, under or even over takes analysis and experience. It’s what we do every day. You should at all times, in all markets push for a good deal.
The dynamic is different in a buyer’s market than a sellers, but the truth is constant, know your needs, know your wants, know where you are willing to compromise on both and where you are not. Find the house which best fits your unique criteria and work with a knowledgeable agent and come up with strategy by which you can find the sellers lowest acceptable price. If its within your range, you have a deal. If not, keep shopping.
Each seller has their limits, just as you will have yours. Finding them takes research, experience and writing an offer. Just asking, “what’s your bottom price?” will not cut it.
I’m glad you have an agent with lots of certifications. If those are matched with real world experience you should do well. If not, ask her who she consults with, either a more experienced agent or her broker. You deserve the best representation available; don’t be afraid to ask for all the resources available.
0 votes
Mack McCoy, Agent, Seattle, WA
Mon Dec 21, 2009
And, when don't you have to push for a "real bargain?" When is it a good idea to overpay?
0 votes
Windowshopper, Home Buyer, Lynnwood, WA
Mon Dec 21, 2009
Keith, one of your points got me thinking. I know rates are low now, and that the outlook is that they'll be going up in 2010. My thought process has been similar to yours, and I've run the numbers to find out how much more home I can afford now vs. at higher rate increments.

But, as I was thinking about it again tonight, and I've started another thread on this topic so it doesn't get buried in this one. Take a look and let me know what your opinion is:

http://www.trulia.com/voices/Home_Buying/_outlook_in_Seattle…

In summary, I wondered if lower rates are sort of a trap in a sense. They do give me a lower payment, and thus appear to save me money. But, when rates go up, and especially if they go up significantly, doesn't that just drive my home value down (and my equity in it...which will be 20% at purchase). By summer, maybe I could have gotten a lower payment just by letting values drop, PLUS saved my equity from dissolving.

I also point out some other things I understand are causing home values to continue to drop.

On that topic, please visit the above thread...

Anyway, these are just more reasons why I feel that if I buy now (Dec. 2009 / Jan. 2010), then I've got to push for a real bargain.
0 votes
Tonya Brobeck, , Everett, WA
Sun Dec 20, 2009
Windowshopper,

It is possible to push for a price reducion of the amount you are suggesting.

Your financing, down payments, closing date, down payment, and contingencies indicate a strong or weak candidate.

There is no way of knowing without having an exact property in mind to know how a seller is going to perceive a low offer. Some owners/sellers look at it as an insult, some are just plain old grateful to get an offer. Strictly case by case, how much they own, how motivated they are, how much traffic/viewings they are gettting, how long they have been on the market, etc all fold into how a low offer could play out.

However, the areas you have mentioned have some of the best school districts in Snohomish County. Would you possibly consider different areas near by that may have lower prices? Would you consider down sizing in sq ft? These areas you mentioned have not had as large of price drops compared to Silver Lake, Everett, Lake Stevens, etc. Clearview/Cathcart/180th Mill Creek, Mukilteo/Kenmore/Brier/Kirkland are still substantially higher in price vs going outside that area just a bit. Only a thought of course, although, you may need to be a bit more flexible in size, location, or price.

Hope that helps
0 votes
Don Tepper, Agent, Burke, VA
Sun Dec 20, 2009
Some very good advice here already. Just to put in my two cents:

Kary is absolutely correct. Don't focus on a reduction from the listing price. Focus on the value--how much lower than other homes in the neighborhood you can buy for. A listing price may or may not be an accurate reflection of value. Example: You see something listed at $350,000. What sort of offer do you make? Well, if the comps in the neighborhood are $390,000-$400,000, nothing wrong with a full-price offer. You're getting a real bargain as is. If the comps are around $350,000, it's at about market value. Probably offer a bit less. And if the comps are at $290,000, you offer under $290,000.

And great answer from April about how sellers perceive low offers. OK, people selling their homes often do take it personally. For investors, it's just a numbers game. Still, never, ever worry about "offending" the seller. You're not a mind reader. (Otherwise, you'd already know our answers, and wouldn't have asked the question!) I've seen sellers offended at offers just a few dollars under their list price; they think they're already "giving their home away." I've seen other sellers delighted at offers 20% or more under list. They want to sell, and any offer is better than no offer. So don't try to be a mind reader. Make an offer that works for you.

As for good candidates for low offers, again, there's some good advice below. In general, it's someone who just wants to get rid of the property. That means someone with little or no emotional attachment to it, or someone whose other concerns outweigh the financial issues. And the list is almost endless: People with vacant houses. Couples who are divorcing. "Tired" landlords. Probate sales. People with high medical bills. People being transferred out of the area. Children who've inherited a home from a deceased parent. Children who are responsible for a home after their parent has gone to a nursing home. Out-of-town landlords. Many of these people are willing--even eager--to sell their properties at a discount just to get out of the situation they're in.
0 votes
Kary Krismer, Agent, Renton, WA
Sun Dec 20, 2009
I forgot to mention bank owned. If you don't mind cosmetic repairs bank owned can be good buys because they are typically very poorly marketed. Again though there are exceptions, such as the Homepath properties which are often in better condition and thus not as great of a bargain (but not necessarily over-priced).
0 votes
Deborah Madey, Agent, Brick, NJ
Sun Dec 20, 2009
Hi,

The best deals to be had in real estate happen when a buyer places his/her other “must haves” as secondary to finding a highly motivated seller.

When a buyer agent negotiates with comps, he/she is establishing solid cause based upn past sales. Comps establish the logical data support for why a seller should accept an offer lower than he/she may desire.

Getting a really good deal is achieved when a buyer buys under market value, under the price established by the comps. In order for that to happen, a seller must have sufficient motivation and need to sell. Therefore, the buyer who is willing to concede on his wish list in favor of buying from the motivated seller will score the best deal.

If your objective is to locate in a particular neighborhood that is pricing out higher than your budget, determine if you want to be there badly enough to make finding the motivated seller as your top priority.

Regards,
Deborah Madey - Broker
Peninsula Realty Group
732 530 7755 Main
732 530 6350 Direct
0 votes
April Crowder, Agent, Charlotte, NC
Sun Dec 20, 2009
First, if you push for a big price reduction on a new listing, then you will most likely have to justify that to the seller. In the past, low ball offers did offend sellers. However in the past year, I have received low ball offers on a lot of my listings. Buyers were looking for good deals. Now I prepare my sellers to expect low ball offers but that does not mean they will take a low offer. As the first agent said, it all depends on the sellers motivation for selling and you have no way of knowing what that is and the listing agent does not have to disclose this. If you don't want a fixer upper then the best things to look for are homes that say they require relocation addendums, corporate homes, vacant home and homes that have been listed for a long time. If a home has relocation addendums, then the seller is moving due to a job transfer and is highly motivated. In a lot of cases, the seller is offered a buy out if the home does not sell and the buy out number is below market value. If the seller ends up taking the buyout, meaning the employer buys the home, then it becomes what is known as a corporate home. These homes are usually in excellent condition and since corporations do not like to own homes, they are highly motivated to get the home off of their books.

You also asked about how different sellers perceive a low offer. To a regular seller, your offer is personal. To a flipper/investor seller or to a builder of new construction, it is strictly business. Most flipper/investors will not take low ball offers as they are prepared to wait for the right offer or they will usually decide rent it out. Builders become highly motivated the longer a completed house stays on their books. Now is a great time to low ball builders as they would like to get the properties of their books before the end of the year.

I hope this helps you!
0 votes
Dan Tabit, Agent, Issaquah, WA
Sun Dec 20, 2009
Window,
Each seller has a different set of circumstances. On occasion, a lowball can be effective, but mishandled it angers a seller who may take offense. A good agent keeps track of the activity in the area you are searching for and looks for certain signs which can indicate a good opportunity to make a low offer.
Some of the signs may be homes that have been on the market for a while where they have a strong equity position, vacant homes where the sellers may have already moved and may have two mortgage payments, fixers can sometimes be discounted a bit more than others that are "turnkey." You say you don't want to cut into your budget, but if you buy a "functional, but dated home" you may come out okay. Just put off the expensive updates until a later date when you can afford them and live in it the way it is.
There are others to consider as well, but we have to keep some secrets on a public post.
One other consideration would be to get a fixer and use an FHA 203K rehab loan. This would finance some of the fix ups for you. Let me know if I can be of help.
0 votes
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