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Asked by Ms Dalloway, New Mexico Thu Dec 11, 2008

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Answers

31
Seth R. Shar…, , Oceanside, CA
Tue Dec 16, 2008
BEST ANSWER
I have truly enjoyed reading this thread, and as a real estate professional, I felt I should contribute a recent letter I submitted to a listing agent, on behalf of my buyers (stripped of any personal info.)

For context, the home in question is currently listed for $800K; my clients wish to pay $650K. Here's the text of the letter I sent to the seller, in care of his listing agent:

Dear Mr. Seller:

On behalf of my clients, I wish to thank you and Mrs. Seller for allowing us the opportunity to preview your lovely home. My clients would like to write an offer to purchase your home, and asked that I send you an informal, written inquiry, outlining the key terms of the offer they would submit:

Purchase Price: $650,000
Earnest Money Deposit: $10,000
1st Trust Deed (Mortgage): $450,000
Balance of Down Payment: $190,000
Close of Escrow: As soon as 30 days from acceptance

As buyers, my clients’ qualifications are impeccable; they have $200,000 in the bank for their down payment, a solid employment history, and an excellent credit rating (both have 800+ FICO scores.) I have attached a copy of the pre-approval letter, issued by their lender.

I appreciate your desire to receive the maximum return on your investment, and I understand that the price my clients would offer is significantly less than the price you are asking. Nevertheless, I am sure you see why it is necessary, in a falling real estate market, for any buyer to account for the inevitable decline in the actual value of their investment over the next 12-18 months.

As such, my client’s offer would represent an 18.6% discount on your asking price, which is not wholly unreasonable, considering the area’s recent comparable sales, the recent reduction in conforming loan limits, and a declining overall economic climate.

All of these factors, along with the forecasted increase in San Diego County foreclosure activity through 2009-2010 shall continue to drive down prices month after month, throughout the New Year.

My clients and I appreciate that regardless of their qualifications and desire to purchase your home, you simply may not be interested in selling it for the price my clients are willing to pay. As such, I suggested this informal written inquiry would be the appropriate vehicle for expressing their interest, prior to writing up an actual Purchase Agreement.

Should you wish to proceed with formal, written negotiations, please have your listing agent contact me; I’m able to submit a fully executed Purchase Agreement for your review within 24 hours. In the meantime, my clients and I shall continue to actively search for other suitable homes.

Respectfully Yours,

Seth R. Sharon
3 votes
Dp2, , Virginia
Fri Dec 12, 2008
Anita, you've received quite a bit of advice from a few different perspective, and I'm going to present you yet another perspective.

Suze Orman is an investor whom I respect, but I don't know what her background in real estate. Lately, she has given some advice from time to time about investing in real-estate--I agree with part of it and disagree with the other part.

My next statement probably will not score many (if any) points with some realtors and sellers. To most of the real-estate investors (henceforth referred to as 'investors'), the list price of a property is the least most important piece of information about a property. Perhaps, that may sound a bit surprising, but the truth is bankers, insurers, inspectors, and appraisers also don't base their determination of the value of a property off of its list price. Appraisers--especially for investment properties--use 3 different approaches to determine the value of a property: 1) a CMA (similar to the method that realtors use), 2) an income analysis (bankers and investors tend to prefer this method), and 3) replacement value (insurers prefer to use this method). Appraisers and inspectors--at least good ones--will take their time to thoroughly examine a property to determine ultimately what a property is truly worth. This is one of the key reasons why one is required--at least in residential real-estate--to get an appraisal before one closes on a property. No underwriter (the banker responsible for approving/rejecting one's loan) will fund a deal without having gone over the appraisal; this is also another reason why lenders often demand to order the appraisal. Thus, take Suze's advice with a grain of salt--but not for the many of the reasons you received earlier.

Next, several of the realtors (who have already commented) stated they believe it's impossible for you to acquire a property at 50% LTV. They're wrong. I know many investors (literally 100s of them) who routinely make offers on properties at 10%-20% LTV--and some of their offers (roughly 2%-10% of them) get accepted. However, if you're going to make an offer at 50% LTV (or less), then you better be prepared to explain your reasoning behind your offer. Some investors will defend their offers, and others won't--they'll simply move on to the next property. It's nothing personal; it's strictly business; and it's all about the numbers--period.

Finally, if your buyer's agent refuses to submit your offer, then cancel your contract with him/her and either select a new agent or contact the listing agent to submit your offer directly through that agent. If the listing agent refuses to submit your offer, then kindly--but firmly--tell him/her, "It's awfully rare that I meet someone willing to risk one's career over a point of honor." Stated another way, s/he could lose his/her license for refusing to submit an offer if you were to report that offense to either the state or national board of realtors.
2 votes
Jim Mellen, Agent, Williamsburg, VA
Thu Dec 11, 2008
Realtors have a Code of Ethics and while all 17 articles are equally important, your agent may be in violation of several here. You might want to make sure you have all the facts and if this is really what is going on I would seek out a better agent and company. We do have to treat all parties honestly, but the agents allegiance/loyalty belongs with the client. A company may have procedural policies, but they will not conflict with the Code of Ethics.

Most likely your agent has seen many low offers come and go and is really trying to give you good advice. They must present all offers and counter offers without prejudice and in a timely manner. The receiving agent must also present the offers to the seller without prejudice. This call be done verbally, but written offers-even low ones are a much better way to go to protect everyone.

You might also double check your value figures. We all want to get a deal no matter what we buy, but don't lose sight of the value that may already be priced in. A good market comparison or absorption analysis will identify that.

Suzy Orman is not helping by saying offer "half". There is probably not a snowball chance in hell that you will every get any house at half of what they are asking, and you will soon run out of agents willing to help you because it's just not realistic, unless the house is a wreck. Even then, you will probably pay what the house is worth, and in the end isn't that what you really want. This is a buyers market, the values will rebound.
Web Reference:  http://www.JimMellen.com
2 votes
Kristin Noll, , Milwaukee, WI
Sun Dec 14, 2008
Lana - that agent broke the chain of events when she refused to write an offer. I doubt any arbitration would give her procuring cause at this point. Just showing the house first doesn't guarantee you get paid. You have to be the reason the buyer bought the house. If you refuse to write an offer for that buyer - you're definitely not contributing to a successful sale!

Mr. Bad Time to Buy - I guess you live in Anita's neighborhood, so know her market well enough to give your advice?

First off - nice name-calling. Really makes you sound credible.

Secondly - real estate is local. There is no national real estate market that anyone can be an expert on. In my town, last year 115 homes sold at an average price of $375,000, median $311,000. This year, only 77 homes sold, but the average sale was $460,000, median $335,000. So prices are going UP in my area. So much for your generalizations.

Third - your advice is fine if you're buying stocks or scarves - but this is the housing market. One size does not fit all. People don't buy houses just as an investment. They buy for quality of life, amenities, floor plan, condition and location. The perfect house doesn't just mean getting it cheaper.

I'm in the market right now, personally, to buy. I'm not buying because "it's a great time to buy." I'm buying because my husband got a new job 1/2 hours west and we want to move closer to his work. We are temporarily renting. (On a side note - unlike your articles on your blog, I don't believe renting is ultimately "cheaper." I'm gaining no equity and feel like I'm throwing away my money every month. Plus, I have no control over updating and changes and I have no sense of security - my investor landlord could up and sell under me at any time. My monthly payment will be larger when I buy, but I will get more for my money, IMO!)

Anyhow, waiting for prices to drop, in general, is pointless for the average home buyer. If you are house hunting in your price range, you'll get something you can afford that fits your needs. If nothing fits your price range, then you are correct - wait and prices may go down enough to get your dream home down to what you can afford. But certainly don't skip over a great house in your price range just because you are waiting for the price to drop!

A really great house came on the market that would have been perfect for us. Unfortunately, it was too soon in our house search and we weren't able to write an offer. It was in a perfect location, was more house than we have now, had great potential and all of the amenities on our wish list. The price was in our price range - which I chose to keep low to keep our payment only slightly more than what we pay in rent. If I could have, I would have made a full-price offer. As it was, it sold right away - just a few days on the market. If I had waited for prices to drop more, as you suggest, someone would have bought it from under me.

As it is, I don't know that there will be another property this perfect for us to come available any time soon - I may be waiting for quite a while. This property was an estate and the heirs had dropped the price $25k to get rid of it. Homes sell for about 20% more in the area.

There is never a perfect time to buy. It's always a matter of opportunity and timing. Prices may well drop in her area in the coming years, but will the choices include a home that fits her needs/wants?

The best advice is to stay in your price range, don't let your house payment be more than you can afford and buy what fits your needs and wants.

Personally, if I had been able to buy that house and a year from now other homes came on the market in the area for 20% less, I wouldn't care. First off, chances are slim that those houses would fit all the criteria I was looking for. Secondly, I got to live in the house for that year and enjoy it. I'm settled in and can wait it out - inflation will eventually even things out again.

Finally, your buyer's agent comment is really ignorant of how real estate works. "Offer" the seller's agent 3%? How is she going to do that? In most cases, the listing agent already keeps the full commission if the buyer doesn't have their own agent. Meaning, if the agent is getting X from the seller and offering to split a % of X to a buyers agent, if there is no buyer agent, she just keeps all of X. How do you offer something to someone that is not your's to give?

And if your "convince/trick" is to get the seller to take a lot less in the offer and the buyer is going to somehow pay that 3% back to the listing agent - I know that kind of stuff is common in the UK , but that is ILLEGAL in the US!

And I am a Buyer's Agent about 65% of my transactions. If you think I even consider the difference I would get between the buyer paying $300k and $315k than you are the "tard." That translates to $180. Like I would risk the buyer's ill will and her future business over something like that. Give me a break.
1 vote
NonRealtor, , 23456
Fri Dec 12, 2008
Hi Anita,
Fire your agent. Get an attorney, make the offer yourself. Wait another year, save another 20%. Prices are declining. Good Luck
1 vote
Team Teal, Agent, Wausau, WI
Fri Dec 12, 2008
I think you have gotten a lot of great advice on here. The only thing I would add is:
Buying a house is business not personal, even selling a house is business not personal.
We all have personal feelings about our home and the sale of it but we have to always put the business
first if we are looking to succeed in the transaction and get what we what, ie: a great deal, a home sold etc.
I have seen deals that have gone together that started out at 1/2 or 2/3. There isnt a percentage that is correct. Each home is different.
Good luck with your transaction!

Lana Stollenwerk

Lana@Ask4Lana.com
Cell (715)212-6753
Search for your perfect home at
WausauAreaHomes.com
Web Reference:  http://WausauAreaHomes.com
1 vote
Scott Godzyk, Agent, Manchester, NH
Thu Dec 11, 2008
A listing agent has a duty to present all offers to the seller no matter what they are unless the seller has signed a written request that no offers be submitted under a price or percentage. Now your offer of 2/3 of asking price is way to low, even offering half off a listing price is way to low.

you can not just have the perception to take a certain percentage off of asking prices because all asking prices are not created equal to begin with. You need to see what the market value of each house is and then determine what you want to offer. disregard what they are asking. In addition stay away from the short sales or owner occupieds and go for the bank owned homes. No hurt feelings there.... Some banks will list the property for immediate sale.; Others a 30day and some at retail. By doing your own price oppinion by takin 3 similar properties that have sold in teh last 6 mnonths will give that to you. As far as Suze Orman it depends which area you live as to what type of percentage you ask off, the true percentage that determines a steal is 20% of todays market value. You may not get 1 out of 100 to sell for half. good luck with your offers and i hope you get some to work.
Web Reference:  http://www.ScottSellsNH.com
1 vote
Carol Rice, Agent, Lake Mary, FL
Thu Feb 12, 2009
Wow! In Florida the listing Broker and Agent most likely have a DUTY by LAW to present ALL offers to the seller (owner of the property) regardless of the Brokers opinion. This is based on FL real estate law under "Brokerage Relationships", but it depends on the type of relationship established between the listing office and the seller. In FL, if the Broker has a Transaction or Single Agency relationship, this is a DUTY they have to the seller. If they have a No Brokerage relationship, this duty does not apply. In FL by default a seller would automatically have a "Transaction Relationship" with the seller. You might go back to the agent and ask some specific questions about their brokerage relationship with their client, and ask for proof of said relationship. None of this may apply to your state, so maybe a Broker in New Mexico can answer the question for your state.
0 votes
Dp2, , Virginia
Thu Feb 12, 2009
Seth, that was an interesting LOI. Yours is somewhat different than mine, since I use mine to specify the terms I want, and I don't bother defending my offers. After all, the seller is going to accept, counter, or reject my offer regardless of any argument I'd present to defend my offer. I'll show the seller the comps upon request, and I'm willing to briefly mention the results of an inspection or appraisal, but that's as far as I'll go.

Also like David, I'm curious about the outcome of that deal.
0 votes
David Chambe…, , Saint Petersburg, FL
Thu Feb 12, 2009
Seth, nice letter. Did they get the house? if not is it still on the market? Have the reduced the price?
0 votes
Bad Time To…, Both Buyer And Seller, Miami Beach, FL
Mon Dec 15, 2008
Fine Anita, go ahead and buy. When wave after wave of pay option and Alt-A loans implodes all through 2009, 2010, and 2011 and you are underwater you'll remember me. There is a video on my website from this week's 60 minutes all about it. And don't think this is limited to Miami. These loans are everywhere.
0 votes
Kristin Noll, , Milwaukee, WI
Mon Dec 15, 2008
Um....ok. Irony and sarcasm are obviously lost on you. I can now see why no one else has bothered to address your comments. I think I shall follow suit.

My apologies to you, Anita, for the interruption of your question!
0 votes
Bad Time To…, Both Buyer And Seller, Miami Beach, FL
Sun Dec 14, 2008
Who the hell made mention of the Holocaust never happening? Are you completely insane? That website is about real estate and real estate only. Are you a psychopath? Aliens don't exist, 6 million innocent Jews were ruthlessly murdered in the Holocaust, 9/11 was perpetrated by Osama bin Laden, Elvis died in 1977 due to a drug overdose.
Web Reference:  http://www.patrick.net
0 votes
Kristin Noll, , Milwaukee, WI
Sun Dec 14, 2008
I already read that website. He forgot to add that alien autopsies were done at Area 51, 9/11 was a government conspiracy, the Holocaust never happened and Elvis is still alive.
0 votes
Bad Time To…, Both Buyer And Seller, Miami Beach, FL
Sun Dec 14, 2008
Hey Noll,


Every single one of your points is contradicted at this website.
Web Reference:  http://www.patrick.net
0 votes
Jim Mellen, Agent, Williamsburg, VA
Sat Dec 13, 2008
Anita,

I wouldn't get bogged down worrying about procurring cause. That dispute will be settled between the broker firms after closing if it were even to be an issue. Procurring cause is not as easy to prove as it is to claim. Just because an agent shows you a home and you end up writing an offer, they may not earn a commission based on "procurring cause". Your agent could possibly get paid even if he doesn't help you, but if their policy prevents them from writing your offer they won't get paid or win in arbitration. Be wary of a "starving" Realtor though. I'm sure the listing agent would love to sell the house, so if you can't write an offer with your agent based on their company policies, you should be free to contact whoever you want that can write the offer. If you have enough information to say that in 3-5 years the house will be worth more than you end up paying for it- great, go for it. Even if it is worth the same or even a little less, you still had to pay to live somewhere. With the tax breaks for interest, you're still coming out ahead. Everyday someone drives a new car off the lot and it goes down in value way too fast right? But we keep on doing it-OK maybe not as often as the last few years!

Offer what you feel the house is worth to you, and at a price you would be happy getting it-or losing it. Have some protection for the appraisal value in your tems, and look the appraisal over or have two or three appraisal done if you question their valuation. Yes it may cost you a little more in closing costs, but it may save you thousands as well. I think you know what you should be doing. It's time to stop reading the emails and test the water! Good luck! Jim Mellen
0 votes
Team Teal, Agent, Wausau, WI
Sat Dec 13, 2008
A few other things that haven't been mentioned but are things that you need to be aware of.
In Wisconsin if you have seen a home with one Realtor and have discussed price and offers this Realtor may have precurring cause. That means that if you switch Realtors, the new Realtor that helps you may not
end up getting paid.
I would say that I would give your other Realtor one more shot. We are just hearing your side. You did state that your offer was not written. So what I would do is say to her, we want to write and offer on this house at this price and we want it to be presented. If you do not want to do this for me then I will be forced to go somewhere else, another Realtor or a lawyer. Tell her your feelings and thoughts.
You may find she just wasn't thinking , she may have been trying to get your offer up before you wrote on the house.Etc. I think being open and honest with her will make sure you clear the air. The other thing is you can call her broker and tell her broker what has happened. They will be glad to help you!

I hope that helps.
Lana Stollenwerk

Lana@ColdwellBankerAction.com
Cell (715)212-6753
Search for your perfect home at
WausauAreaHomes.com
~Referrals are what determine my success, one home at a time, one friend at a time, one client at a time~
Web Reference:  http://WausauAreaHomes.com
0 votes
Kristin Noll, , Milwaukee, WI
Sat Dec 13, 2008
Dp2,

Thank you for clarifying. On what you said:

"the loan underwriter bases his/her decision on whether or not to approve one's loan request (and how much to approve) on the results of the appraisal."

And buyers need to know that they can contest that appraisal. Often buyers & their agents have a much better idea of the market than underwriters and appraisers - they are out there comparing properties by actually being IN them and seeing what they sell for. And I don't just mean trying to get higher appraisals. I had a short sale that the bank refused to take a great offer because the appraiser thought he knew better. It was just a small house - I was trying to get her $80,000 (what she owed) and couldn't get an offer more than $65,000. The appraiser (sent up from Chicago) decided it was worth the $80,000 and the buyer walked. The property was eventually foreclosed and sold through another broker for $45,000. After that experience, I contest appraisers all of the time & let the buyer know that they can request the lender get a second opinion.

"By the way, nice deer-hunting analogy--I need to remember that one."

LOL - thanks! I kind of liked that one myself. :)

"Second, 'myth'--in that context--inferred or at least implied that the rest of that statement was untrue. The implication was further amplified by 'half-truths'. The point is technical (in a mathematical sense), and I certainly didn't intend to be pedantic. I simply wanted to let Anita know that it's possible, because I didn't know (and still don't know) if she intends to purchase this property for her residence or investment. "

I guess I should have used a different term - by "half truth" I meant "the half of it." My statement was aimed at the average, novice buyer, who thinks that ALL houses should be half off these days, because they read that is what some people are buying houses for. These buyers don't understand that the huge deals aren't with the average seller - they are REOs, taxes & probate sales, etc - not Joe Shmoe seller who won't sell if he doesn't get a certain price. What I meant by "half -truth" is - the 50% deals are out there, but that's only half the story. Not ALL proeprties are going to be 50% and are a very specific type of seller and it takes skill and research to know them when you find them. And that there is no magic % to offer.

To continue with my hunting analogy - these buyers I'm refering to aren't skilled hunters. They see guys coming back from the woods with 10 point bucks and think all it takes to do the same is a gun and an orange vest. Then they're out there tromping through the bushes, scaring away the prey with their noise and their scent and shooting without good aim at squirrels - wondering why they can't catch a 10 pointer!

Yes, you need a gun and an orange vest - but that's only the half of it. You also need skill, knowledge and experience.

With bargain hunting, you need to make lowball offers - but that is only the half of it. You also have to make A LOT of offers, deal with emotional sellers, be completely unattached and deal with distressed sellers or banks/government owned homes (ie, hunt the right prey.)
0 votes
Dp2, , Virginia
Sat Dec 13, 2008
Kristin, you are correct that I agree with most (roughly 85%-95%) of what you wrote.

I simply took issue with 2 of your statements:
"If 10 buyers think a house is worth $300k and 2 appraisers think it's worth $250k and 2 agents
think it's worth $295k and the seller thinks it's worth $325k - how much is it reaslly worth?"
"This myth about getting homes for 1/2 off asking price may be perpetuated by half truths - people
aren't getting lovely homes in desirable areas from every seller."

First, I realize your example was contrived, and that you were simply making a point. Yet, although I agree that the buyer ultimately determines the value of a property, I also wanted to point out that the fact that the loan underwriter bases his/her decision on whether or not to approve one's loan request (and how much to approve) on the results of the appraisal.

Second, 'myth'--in that context--inferred or at least implied that the rest of that statement was untrue. The implication was further amplified by 'half-truths'. The point is technical (in a mathematical sense), and I certainly didn't intend to be pedantic. I simply wanted to let Anita know that it's possible, because I didn't know (and still don't know) if she intends to purchase this property for her residence or investment.

By the way, nice deer-hunting analogy--I need to remember that one.

Incidentally, I don't know that all investors are jaded and unemotional; however, I admit that I'm somewhat jaded and definitely unemotional when it comes to doing business. One has to develop a thick skin to survive for a while as an consultant. This is also partly why I don't view a home as an investment, because it's hard--if not impossible in some cases--to separate one's emotions from the buy/sell. I believe this is another reason why buyers/sellers should work with realtors, appraisers, inspectors, etc--to give the buyers/sellers a hopefully unbiased (or at least minimally biased), informed opinion about the potential buy/sell.
0 votes
Kristin Noll, , Milwaukee, WI
Sat Dec 13, 2008
Dp2-

I'm not sure why your post has a tone that you are presenting some opposing viewpoint to mine - you basically supported what I said - that the deals to be had aren't your average listing. They are mostly REOs, etc.

Umm...yeah...I have heard of tax and probate sales. Again - that's a specific situation that lends itself to "deals." Those aren't often listed with traditional brokers, either.

Tell me how many "move up" sellers will take 50% LTV? How many sellers who could just stay put and wait out the market - maybe rent out the property - will take 50% LTV?

I didn't say they never happen. I just said that they happen in very specific instances. It would behoove a buyer to know his/her specific target and their motivtion before bothering with an offer.

If you are hunting deer, why waste your time shooting at squirrels?

Throwing offers at unqualified sellers is a huge waste of time. A "qualified" seller being one who is motivated to get rid of the property at a loss.

A move up seller or one who can rent out the property is not a good target and throwing lowball offers at them is a waste of everybody's time - including the buyer's. I don't know too many savvy investors who would waste their time lowballing an unmotivated seller when there are too many other opportunities out there? Only amateurs or people following the guidance of self-proclaimed "experts" like Suze Orman would think that this is a productive use of their time.

These types of buyers are like the sellers in the seller's market who would overprice their house and we had to try to convince them that buyers weren't idiots and could research values in the area - those sellers were just testing the market. Sometimes they got lucky with a naive buyer and that perpetuated the myth that sellers could get any price they wanted. Yes, prices got crazy - but there was a limit.

Again, I never said don't make the offer. And I agreed that the agent was out of line by refusing to present an offer without the seller's knowledge. But there are a lot of things that we don't know here. Was the agent a Buyer's Rep or a sub-agent? In Wisconsin, a sub agent can refuse to work with a customer. They have no obligations to a customer. I don't know the laws in Anita's state.

We also don't know the seller's situation or if the agent even investigated - was this a motivated seller? Or are they just move-up sellers who could stay or go? Were there competing offers? If the sellers are unmotivated and have no reason to have to sell for less, then I would have advise my client of such and recommended that we find a property with a motivated seller, rather than spinning our wheels. If the buyer still insisted, I would still write up the offer. So, I do not side with that agent at all.

I deal with novice "investors" all of the time, looking for foreclosures/short sales deals. Most of them end up giving up on them and buying a well-priced "average" listing. I don't have to convince them one way or another - I just show them the properties, write up the offers and let them find out themselves how frustrating the process can be. I figure they'll eventually see that they have to have realistic expectations and buy a house - and that is what usually happens. I investigate the seller's motivations, price reduction history, sales comps in the area, how much they paid for it, the tax assessment, etc and present all of this to them before they write an offer. Guess what? They set the offer amount and get a decent house for a decent price.

Anita said she was looking for a bargain. There are lots of properties out there these days that are bargains even at full price. But if a buyer thinks that they have to get a set percentage off a price to get a bargain, they could be shooting themselves in the foot and missing out on some great deals.

My job as a Buyer's Agent is to get them the house they want at a price acceptable to them. If I let them continue to have unrealistic expectations and keep losing houses, because they have misconception about how the process works, how am I getting them a house? They will just keep walking away frustrated and wonder that I am somehow not getting them that "bargain." Working for your buyer often means educating them on the process and getting to get them to see the forest through the trees.

Most buyers aren't jaded, unemotional business people who can handle that type of buying. They get emotional. They get attached to houses. They have unrealistic expectations because of late night infomercials. Do those folks really just want a bargain or do they really ultimately just want to get a nice home that they can afford? I'd like to know what is really more important to Anita - bargain vs. nice house within her budget?

I'm not talking about professional investors looking for investment property. I'm talking about buyers who just want a HOME.
0 votes
Dp2, , Virginia
Fri Dec 12, 2008
First, Kristin, any buyer(s), who are willing to pay $300K for a house, and who intend to finance that purchase with a conventional lender (especially after the lender-ordered appraisal came back at $250K), better be prepared to make a down-payment ranging between $57.5K and $100K (depending on the loan product and reason for the purchase). Some buyers are willing to do that, and I'm not one of them.

Second, although you're correct that not every buyer will end up purchasing a "lovely home in desirable area" at 50% LTV, you're wrong to assume that it never happens or that it could only happen in east-/west-coast markets. Ever heard of tax or probate sales? Besides, many investors routinely purchase ugly homes in all kinds of neighborhoods, because nobody else usually wants them. We rehab them into beautiful, marketable homes, and then sell them at or slightly below market value.

Milwaukee is only about an hour or so away from Chicago. Although I don't personally know very many investors from Milwaukee, I know several who either live and/or invest in Chicago. I know people are acquiring homes in all kinds of neighborhoods there at 50% LTV (or less)--mostly on REOs and occasionally on retail homes. However, a house is a house. Investors buy property at wholesale prices--just as many other professionals (doctors, professors, civil servants, etc) do. For every seller (including the banks) unwilling to sell at wholesale, there are at least 20 or more sellers (in certain markets) who ARE motivated to do so. It's nothing personal--it's strictly business.

Awhile ago sellers used bidding wars to their advantage, and now it's our (the buyers') turn to leverage them in our favor.
0 votes
Dp2, , Virginia
Fri Dec 12, 2008
I personally prefer to work with an agent, and to make my intial offers using a letter of intent (LOI). Although the use of LOIs isn't as commonplace in residential real-estate as it is in commercial real-estate, it's convenient for you, and it saves your realtor some time. This way you can quickly submit multiple offers, select the best deal from the ones that were accepted, and then have your realtor to write up the contract based on the mutually agreed upon terms of your LOI--of course, assuming that the listing agent hasn't already countered with a written offer with the mutually agreed upon terms.

Also, you might want to have an attorney to look over that contract before you sign anything.
0 votes
Jim Mellen, Agent, Williamsburg, VA
Fri Dec 12, 2008
Hi Anita,

Jim Mellen again,you can write the offer yourself-through an attorney, directly with the sellers agent, or with another agent representing you as a buyers agent. Personally, an attorney is fine, but they will expect to be paid for their time regardless of the outcome. That might get expensive! My suggestion again would be to work with a professional, full time, respected agent in your community. You will get a lot of advice on this site from non REALTORS insinuating we are not worth the time or money you'll spend and that's just too bad. They are victims of having been associated with a bad agent and feel all are equal.

Personally I've had bad tequila and good tequila and won't generalize all tequila as bad, but am much more likely to drink good tequila the next time I drink any, and will suggest that people stay away from the bad tequila. The difference is cost/value. Good tequila is worth the money and provides good value.

If you're confident in what you know about the home, process and possible issues in not having representation-go directly to the sellers agent, tell him what you want in the offer and let him write your offer. If you don't know enough about the pitfalls and liabilities, you have two choices to submit an offer-hire an agent or hire an attorney. Then sit down with your tequila! Good luck again, Jim
Web Reference:  http://www.JimMellen.com
0 votes
NonRealtor, , 23456
Fri Dec 12, 2008
Hi Anita,
Here is a link that does a pretty good job of explaining the home buying process. This part talks about "how to make an offer"

http://www.mgichome.com/buying/howtomakeanoffer.html
0 votes
Kristin Noll, , Milwaukee, WI
Fri Dec 12, 2008
So many appraisers have such a holier-than-thou attitude, it astounds me.

Truth is, only the buyers can determine what a house is worth. If 10 buyers think a house is worth $300k and 2 appraisers think it's worth $250k and 2 agents think it's worth $295k and the seller thinks it's worth $325k - how much is it reaslly worth? What a buyer is willing to pay for it!!

This is another example of real estate being completely local. This 35-50% off lowballing may work in California or Florida, but it'll only work with the most desperate sellers or most distressed properties in my market. Here, you can only do that with a motivated seller - foreclosure, short sale or estate/POA. The foreclosures & short sales are mostly in rough areaas and in even rougher shape. Estate/POAs are in nice areas, but rarer.

I had a house listed for $140k. An investor made two offers - one at $90k and then a follow up at $70k. This property was in stunningly beautiful condition. The sellers were not being forced to sell - they just want a larger home closer to their church. They have absolutely NO motivation to take 30-50% off. We priced the house well, but there are just too many foreclosures in the area as competition. I did present the offers and we did counter - for $135k. We never heard from the guy again - who probably thought we were being unreasonable!

This myth about getting homes for 1/2 off asking price may be perpetuated by half truths - people aren't getting lovely homes in desirable areas from every seller. Not even 50% of sellers. It's probably 3% or less of sellers that this will work on and they have to fit the profile. These are rare occurances in most markets and only work on distressed properties or desperate sellers. Yes, it does happen. Yes, you should try. But be knowledgeable about the property you are writing on & the seller's reason for moving. Making willy-nilly offers is a waste of everyone's time, only makes you look ignorant and will probably cause most agents to walk away from you as a customer. (Yes, they can do that in my area, so long as they don't have a written contract.)

I will write any offer my client asks and I never assume a seller won't take it, but I'm not going to write 60 offers and take a year of my time writing offers that I know are obviously not going to fly. If I know the seller just wants to sell their house to find a larger home, I know they are not going to take 50% off their asking price. There simply is no motivation to do so. If I know that the seller is selling his parents house and they are both deceased and he's been trying to sell for 6 months, heck yeah I'll suggest a lowball offer! But I'm not going to waste my time with buyers writing offers of $60k on $140k houses. So he finally gets one and after a year or two I finally make $720?

If I were in California or Florida or New Mexico, maybe, but here? No thanks.
0 votes
Bill Eckler, Agent, Venice, FL
Fri Dec 12, 2008
Anita,

The only party capable of determining a fair price is the seller. The owner/broker is obviously some one very self absorbed. We strongly agree, end the relationship and move on to another agent and agency.

We have had many offers both made and accepted that were 20-25% of the asking price. Eventhough "the market is what it is," there are people that feel they can change the character of the market single handed.
0 votes
Jeff, , Virginia Beach, VA
Fri Dec 12, 2008
Wow, another great post why all homebuyers need an attorney IMO.

This is breach of contract and is actionable. You could easily have real damages incurred that the realtor would be liable for. That's why they have insurance, hopefully errors & omissions.

Get a new realtor, don't ever give this type of company a second chance. And spend the money to retain an attorney.
0 votes
Kristin Noll, , Milwaukee, WI
Thu Dec 11, 2008
First of all, for an agent not to present any and all offers is pure idiocy. How do they know what the sellers will take? I just had a seller accept $282k on a property he insisted on pricing at $315k so he could net "no less than $287k." So, you CANNOT, as an agent, assume what the seller will be insulted by. Plus, it's all in how you present the offer. If you go to the seller and say, "Look at this ridiculous offer!" of course he'll take that as a cue to be insulted. If you say, "Hey, at least we HAVE an offer and have something to work with" then you keep the lines of communication open. That's why were are supposed to be the professionals!

Second - agents have no interest in overpricing homes or keeping prices "up." The more homes sold, the better. Pricing out buyers from the market would be shooting ourselves in the foot!

Finally, you said, "But to pay 200+k then add 50-75k more, even if you can make it back some time down the road is a leap of faith. "

The question is, if you put in $50-$75k, would you only have a $200k house or would you have a $275k house?

You simply can't define "bargain" on how much you got off the asking price. Asking price is not always real value or "full" price. Sometimes asking price is higher, lower or right on true value.

I found a house that was priced at $199k in an area of $250-$300k homes. Sure, it needed updates, but then it would bring the house up to the same values of the area. It sold in 1 day within 3% of asking price. Had other buyers come in at some arbitrary 20-30% under asking, they would have missed out on a great deal of a house at a great price! I thought the house was a great deal even at asking price! Once the buyers update it - and it'll only take about $20-$30 k to do - it'll be nicer than surrounding homes and they still paid $20-$30k less than those other homes.

Honestly, I don't know any seller (or real estate agent who will take the listing) who would overprice their house by 30-50%! That would be a seriously unmotivated seller! And no agent in their right mind would waste their time and money on a house that overpriced. So what makes you think the seller would take something that low? If they could afford to sell it for that price, wouldn't they have it priced there or at least close? Most sellers only put a 3-5% "buffer" on the price for negotiating.

While you nickel and dime a seller, another buyer is going to recognize a great deal and swoop in and buy it from under you. You're going to be frustrated and eventually make serious offers. You're in a mine full of sapphires, rubies and emeralds and you're trying to find a diamond, while the other buyers are filling their pockets!

So, the other's are right - make lowball offers, but make sure they are reasonable and timely for the house - it has to be case-by-case. You really need to know the market and be able to recognize a great deal, know when to try to dicker and know when you are looking at a great deal.

The best people to dicker with are relo buyouts, foreclosures and estates (being sold by POA). Find out (if you can) why they are selling. If it's to buy another house nearby , divorce or they "just want to sell" then don't waste your time with lowball offers. These are the least motivated and they need to get too much equity from the sale to bargain.
0 votes
The Hagley G…, Agent, Pleasanton, CA
Thu Dec 11, 2008
First of all, Suze Orman is NOT a Realtor (that I am aware of.) You should only take advice from professionals.

It is not the in the sellers best interest to overprice a home. I may have worded the reason to not to write a lowball offerly a bit differently. In my opinion, it's a watse of everyones time.
Web Reference:  http://www.cindihagley.com
0 votes
Tristan Cela…, , Marin County, CA
Thu Dec 11, 2008
Anita,

Whoops, I just crafted an answer then Jim took the wind from my sails. The only two-bits I've got is that one MUST view multiple properties and learn local value. Then your offers are most educated with the best chance of acceptance.

Remember that agents and sellers are all over the board when pricing. Only local knowledge will reveal best values.
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0 votes
Brittany Sim…, , Columbus, OH
Thu Dec 11, 2008
Anita:

OMG! I cannot believe what I am reading! Terminate your agreement asap and find another agent that will go to bat for you. I find it hard to believe their company has any such policy regarding offers and the amount you must pay. It sounds like your agent knew the offer would not fly and did not want to waste time.

As for Suze Orman, it is unfair to make a blanket statement of offering half the asking price. What if the home is already priced way below the market value? What if it is priced three times higher than market value? In that case offering half would be too much. What if you knew a home was worth $200,000, but a seller is only asking $150,000? Would you offer $75,000? No. You would gladly pay $150,000.

I appreciate you wanting a bargain, as does everyone else in the market today. However, if you do not do your research, you will not know what a bargain is when it is staring you in the face. Study the comparable sales carefully to determine a fair offer. If you go into every deal expecting an enormous discount, you may be looking for homes forever. There are situations that you can play to your favor, but most sellers are already priced very agressively because of the current market.


Best of luck,
0 votes
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