6 mistakes homebuyers make with lowball offers
Increase your chances of buying a home for a steal by avoiding these errors.
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For some home sellers, it's been a long year without a home sale. That means some buyers, smelling the desperation, may be able to cut a better deal.
Sellers who have had their homes on the market a long time are eager to move on, especially at this time of year, says Bill Golden, a real-estate agent with Re/Max in Atlanta. The closer it gets to the holidays, the more anxious unsuccessful sellers can become, he says.
Other sellers will choose to let their listings expire and try again next year. They, too, may be willing to make a deal in order to sell their properties, even if they're no longer actively trying to sell, says Patrick Carlisle, chief market analyst for Paragon Real Estate Group in San Francisco. (Bing: How long do homes linger on the market in your area?)
The key to making an aggressive lowball offer on a home is to start by finding properties that have languished on the market for a long time. The softer the market, the more likely the strategy will work, Carlisle says.
But buyers can get tripped up. Here are six mistakes people commonly make when making a lowball offer.
1. Not understanding the market
Before submitting an offer, your real-estate agent should do a full comparative market analysis of the property to determine what its fair market value is, Carlisle says.
For instance, it's still a buyers market in the Richmond, Va., area, where Susan Stynes works as a real-estate agent for Long & Foster. Stynes says she wouldn't hesitate to encourage a client to make an aggressive offer, after considering the time the property has been on the market and neighborhood comparables.
- On our blog, 'Listed': Cities where sellers are the least realistic
But in other markets, a low offer won't get you far, says Stephen G. Kliegerman, president of Halstead Property Development Marketing in New York. "In general, sellers today in Manhattan see that inventories are down, interest rates are historically low, and there is a pretty large appetite for purchase right now because of those factors. Sellers will hold closer to their asking prices," he says.
2. Not picking the right real-estate agent
Some real-estate agents caution buyers against making an offer that is so low it could offend the seller and halt negotiations. But sometimes agents are too reluctant to make aggressive offers, Carlisle says. They may be more focused on completing a deal and collecting their commission, rather than making the best deal, or their negotiation skills might not be up to par.
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"If it's an appealing, well-priced property that has five or six offers on it, well, going in 10% or 20% under asking isn't going to get you anywhere," he says. But on a property that has been overlooked by the market and doesn't have multiple bidders, it often doesn't hurt to go in low.
- MSN Money: Hidden costs of homeownership
3. Not backing up your price
There's an art to presenting an offer that's substantially less than the asking price. A low offer could start negotiations off on the wrong foot if you're not careful, Golden says. The key is for you or your agent to explain the offer when presented.
"Sellers want to know why you're coming in so low. Include recent (comparable sales in the area) or issues with the property that validate why your offer is so low," he says. Don't be too harsh with your criticism, however — that can also work against you.
4. Not knowing what you're willing to pay
Buyers these days have a strong motivation to get the best possible price on a property, especially if they believe that home values will fall even more, says Jay Butler, professor emeritus of real estate at the W. P. Carey School of Business at Arizona State University. Their biggest worry is often that people will say they overpaid, he says.
But sellers have limits, too, most often dictated by the amount of home equity they have, Butler says.
Before negotiations begin, it's important for a buyer to decide what his walk-away price is, Carlisle says. "At some price point, the deal is no longer worth doing, no matter how great the property."
While a buyer should know how high she is willing to go, don't put limits in the first offer, Kliegerman says. You lose integrity if you say it's your "best and final" offer, but then are willing to come up with a few thousand dollars more in order to buy the property.
5. Not making a clean and easy offer
When you make a low bid, you want other elements of the offer to be attractive to the seller. And a deal that can close quickly will often have appeal.
Make sure there are as few contingencies as possible, Golden says. It's best if buyers don't have a home to sell in order to buy the one they're bidding on, Stynes says.
Also, have your financials in order from the start. Loan qualification is more difficult these days, so it's important to have a lender preapproval letter, Carlisle says.
6. Assuming cash will always get you the best deal
Cash is king, but in the end, a seller often wants the most money for his home — regardless of whether the buyer needs a mortgage or not. So don't think making an all-cash bid will automatically mean an accepted offer.
That said, if the seller is a bank because the property is a foreclosure, the institution may accept a lower offer from a cash buyer, as opposed to someone who needs a mortgage, Golden says. Banks often don't want to deal with mortgage-related delays.
As we all know choosing the wrong real estate agent can be a painful experience whether you are a residential or commercial property buyer or a seller.
If anyone has had a great experience with an agent please share it at Hallmark Abstract Service by leaving a comment at the article 'How do you choose a real estate agent' here: http://www.hallmarkabstractllc.com/how-would-you-rate-your-real-estate-broker/.
Include exactly how the agent did the job well and a link to the agents website.
Mike Haltman, President
Hallmark Abstract Service
At the hight of the housing boom these properties would not have sold for much over 10 Million.
Although you can see past sales with sky high sales prices but can you really belive the data?
You have to remember that this is the city of the wall street fraudsters!
I read your tale of woe with many thoughts. One and a half years and only 4 offers after performing all the tasks that you and the realtor's agreed to. Dropped your price about $40,000 and still no offers!!! I am a retired 31 years in real estate realtor. You did not mention any comp's in your area on homes somewhat like yours. Realtor's listing and selling their own listing means they have a dual agency responsibility to both the buyer and seller. On the occasion this happened, I would get permission in writing from seller to have another agent in my office represent the buyer. The big issue when you are the seller is to have a current appraisal on the premise along with comp's in the area for any prospective buyer with agent to look at when the house is being shown. This is the best $300-500 dollars you can spend when listing a home for sale. This information should be in the remarks section of your listing for everyone to see. On all my listings in writing the seller could fire me and re-list with another agent in 96 hours which gave me time to have sign removed, lock box removed and have listing out of the MLS. Your home had to be very overpriced for the neighborhood and the realtors knew it and just took the listing knowing it would only be a miracle if an offer were presented, an appraisal would come anywhere near your asking price and any prime lender would give the buyer a mortgage. Thirty one years in the business with appraisers, home inspectors, electricians, plumbers, roofers, landscapers, carpenters, painters etc etc that were a phone call away to help my sellers prepare their home for sale. I would not put a home in the MLS until the home was showroom ready to present for sale. I would not work with any buyer who was not pre approved for a mortgage or a cash buyer who would not put 20% of asking into escrow upon agreed contract. I would not work with any sub prime borrower and only worked with B of A, Wells Fargo, Chase and a couple of other banks. my prime lending bank was and still is Wells Fargo. My real estate experience is about 40% of presented listings were never worth my time, effort or money to list. I really wonder where your home fit in the scheme of presentation.
IMHO, I have yet to find a "real" salesperson in real estate. I have, to date, contracted with 4 agent in the last year and a half. Each agent I hired I did exactly as they suggested with price, staging, renovations, etc..., but to no avail.
First agent 3 showing in 6 months, no offers. Then dropped price and when contract expired dropped her. She didn't even bother to notify me when she took the lock box off. Bottom line a chauffeur, not a proffessional.
Second agent, I studied this guy and hand picked him, lots of honors. Again I followed all of his suggestions to make the home more saleable, including lowering the price. This agent had a lot more traffic, but no offers, dropped the price again. When his contract expired (six months) dropped him.
Third agent, sat and talked with her and asked what it would take to move the house. She suggested I drop my asking price, so I did. Only 1 showing in the first 3 months. She suggested I drop my price again, so I did. Had 1 more showing the day before the contract expired (six months), then I expired her.
Fourth and present agent. I again asked what it would take to sell my home and again the agent suggested I drop my price. I did as she requested, but this time I had a few provisions of my own. First I told her I would only consider a 5% commission and second, I would only have a four month contract. I haven't seen or heard from this agent since I contracted her..
I have dropped my price over $40,000.00 over the last year and a half. Have done ALL that each agent asked from offering home warranty, decorating allowance, carpet allowance, appliance allowance, closing cost, etc... But still no offers.
A common thread with each selling agent I hired was that they did not want to show the house themselves, but thought it was more convenient to just list and "hope" some other agent would show and sell the home and they all wanted to lower the price. They claim being the listing agent would present a conflict of interest in also being the agent who showed the house and sold the house...wtf!
My experience with real estate agent so far has been one of disgust. They are nothing more than "chauffeurs"!
Main Entry: 1 chauf-feur
Etymology: French, literally, stoker, from chauffer to heat, from Middle French chaufer— more at CHAFE
1 : a person employed to drive a motor vehicle
2 : one that transports others by operating a motor vehicle
Avoid part time realtors. Avoid realtors who use the phrase location location location! This is a generic statement, and you have already studied the locations yourself. Also avoid agents who use the terms advocate, and "I will work hard for you!" These are a given, and words learned in real-estate classes!
Avoid agents with lettered abbreviations on their business cards such as CFI. This means that they sat and listened to instructors who teach real-estate because they cant sell it! They need these abbreviation to make up for their lack or experience! You need someone who has lived real-estate all their lives and has a natural ability to deal with people and homes. You will find that these are the realtors who are not pushy and not out for the instant commission. An investor who has made a good life for himself in his investments and is selling real-estate for the love of it! I have no problem finding a property for someone that needs work, and after the sale I have become pretty dirty helping make the repairs!
If you can find and investor with a real-estate license to help you buy or sell a home, he will not be in a hurry to get a commission, instead, he will think of you as he does himself! And there is no better treatment. Most important, if your agent does not know building codes, then they do not know how a home is built! You wouldn't by a car from a sales-man who doesn't know the engines size or type of brakes!
Anyone can get a real-estate license, not everyone can succeed in real-estate. unsuccessful agents will use generic statements, and abbreviations. Successful agents will be relaxed and not push you into regret!
FYI, all of the homes that I was considering were well under 80K and in VERY GOOD Condition so my "standards" are not unrealistic. If you read my post properly, stated that I was outbidded by investors and or cash buyers. As far as the townhouses/condo's most of the communities lost the eligibility for FHA financing due to so many homeowners being delinquent on their HOA fees and the astronomical rate of foreclosures in the community. Think before you post.
I have been in the Real Estate and development business for over 40 years now. My parents were in Real Estate and my son has been the the business for 15 years. I am always amazed that people hire us and then don't listen to us. I personally believe in win win situations for both sellers and buyers. I believe in getting the buyers a good deal but not a win loose situation. Those people that think they can buy homes at 50% of value can go somewhere else. Too much late night television info commercials. If one has cash there are deals out there. If one wants a home that needs no work and can go FHA they better be prepared for competition. There are people with money out there that can write a check for the entire amount. I have seen banks talk offers for $10000 less for cash rather then to mess with the low down buyer. No one wants to hear the truth anymore only what they want to hear. I am from the old school I tell the truth even if it is not to my advantage. I have lost many a client by telling them what they don't want to hear. I have also fired some because all I have in this life is my time and I have to pick and choose my clients so as to be productive or I can't support my family. I believe in a mutually respectful and trusting situation. I really care for my clients and expect some respect in return. Some folks that wrote in seem to be extremely negative. It is very unrewarding to work with negative people.
4 agents, 11 different properties and you. I think you may be the problem. You are the only constant in this equation. You need to change your criteria. Stop looking at foreclosures and short sales. The vast majority of these properties are not going to go FHA because of the condition of the property. Banks are selling foreclosures "as is" and the seller of a short sale cannot afford the property much less any repair required by FHA. Look at homes you can afford that are in move in condition. You may have to be more realistic about what you can afford and the location of the property.
I agree with the post by " Just One of the little guys". Like yourself, I live in Georgia also and I have dealt with the type of agent that you have described. I have had the unfortunate experience of working with 4 different agents, placing offers on 11 different properties and every last deal fell through! There was nothing wrong with my financing, the issues that I encountered the most were townhouses/homes that were not eligible for FHA financing, being out-bidded by other buyers, and last but not least, banks accepting the offers of investors and or individuals who came to the table with cash (even less than the asking price).
Each agent claimed to be this great professional who has sold X amount of homes and none could close the deal. They all claimed to be great negotiators, REO and Short Sales Specialists but each one of them did not seem to have the knowledge they claimed to have had. I have dealt with the pushy agent, who was eventually fired, no one is going to tell me how I was going to spend my hard earned money, the house wives, and the agent that likes to steer buyers in less desirable communities knowing darn well that they would never consider living in those areas themselves.
At this point I am done working with agents, they all have an agenda and that is making that 3% commission. As a result of all of this, I have decided to have a home constructed on some land that I acquired a few years back. Buyers beware and best wishes to you all.
I LOVED my agent (we were the buyers). She sat down with me for an hour and went through a list of my wants and needs. We then both got on the computer and looked at homes, narrowed it down to about 7 and over the next couple of weeks we went to each home. When we found the one we wanted, she guided us through each step. When we ended up paying $10k over what the bank appraised the home, she warned us AGAINST it. This was back in 2009 and appraisals were all messed up from so few home sales. Everything went smooth, her only mistake was forgetting to get the Pest inspection, she was so embarrassed that she paid for it out of here pocket (Luckily no pest ). I LOVE my 1906 totally updated Victorian
I would use her again and send all my friends to her!
BTW, we looked at about 8 agents and then interviewed 3 before picking her
Recently sold a house for about what I wanted. Worked with the realator to set the price given all that I knew was coming. In the main, I have not had good experiences with certain real estate agents so I do all my house work through USAA agents. I have not had a bad experience with them yet. My house sold in less than three weeks.
My buyer later wrote me to tell me that he talked to others of his friends about sales and that they all had horror stories to relate. They were amazed that our deal was so stress free. I guess it all depends on motivation but I got what I needed (overall i did take a loss but did recover my down payment). The buyer and I have kept in touch and they are more than satisfied.
It is just Caveat Empetor.
I respect the work that realtors do, I used to be married to one. I know what's involved with the job, sometimes long hours, demanding clients, liars and creeps. But I also can't agree with the system they work in. There is no basis for a realtor being paid on a percentage of the sale price. One, it means the realtors on both sides have incentive for it to sell at a higher price. That puts a buyer at a disadvantage. Two, at 3% a realtor gets paid $3k for selling a $100k house, they get $30k for selling a $1million house. They don't have to do 10x the work for that $1 mil home, they do exactly the same amount of work. The difference is: Which client are they going to give more attention to? Duh!!
I had a realtor dispute this once, saying, 'I have to find qualified buyers'. No they don't. They send them to a lender who decides if they're qualified or not. The point being, there's no justification for the realtors fee to be based on percentage. It's a scam, and they know it. The system needs to be changed.