I showed a home this morning (an REO – that is bank owned). It’s amazing how the shift in the market changes how one views a property. The typical buyer is now saying:1) “How low can I go with my offer?” – Everyone wants a deal. The reality is, sellers have not compromised as much as the buyers hope. While it is no doubt a seller’s market the economy has not fallen into the decline that creates a situation where seller realize that they have to grab the first offer, no matter how low. Also, the general public sees “Bank Owned” of “Foreclosure” and they translate that to mean “Half Price” or “Going out of business sale.” Think about it, bank are the tightest group of people on earth. Do you really think that a bank is going to let go of a property they own for 50%, 40%, 30%, even 10% off the asking price. Okay, there are times when 10% is reasonable, but in most cases the bank has several reliable appraisals done prior to listing the property. And there is an account executive who scrutinizes all offers and whose job may depend on getting every nickel possible out of that property. A quick caveat… Banks do generally list their properties slighty below the market, so as to move it fast.
We have investors that get great deals on REO’s, but that is usually all cash offers closing in the shortest time frame possible to accommodate the the bank.
After pricing a listing of mine, at what I thought was pretty aggressive, in order for it to sell, we got an offer the first week! However, it was $30K under asking on a home under $300K. The agent said, “It’s only 10% under asking.” I replied, “We all know that it is a buyer’s market, but there is a difference between negotiable, or should I say motivated, and desperate.” We countered saying we’d meet them half way, and the buyer walked away, saying, “no thank you.”
The answer to this question of “how low?”is related to many other factors”
– What is price of the property? What are the comps.? It’s easy to think that one should just arbitrarily offer 10% lower than asking. Go ahead, but making random offers is different than getting an offer accepted on a good deal. How long has it been on the market? Some sellers and agents actually price properties a little below the market – ask your agent to give you the comparative sales in any given area to help determine your offer.
– Why are you buying this property? Investment? Short-term living situation? A place to raise your family? Your motive for buying will play a big part in what you offer. I paid full price for my home in a declining market. Call me crazy, but the house was priced right; there was other interest; this is where I will raise my family; and most important, my wife wanted to live there! It’s a long term hold, so I am not worried about the market going down.
– What is your time line? A long period of time to make a decision gives the buyer more power in the negotiation.
I begin negotiations based on the situation and scenario of the buyer and seller. Sorry, there is no standard dollar amount or percentage to begin negotiations.
2) What else is available?” is the other question that the buyer is asking. This is RE or economics 101 – Supply and Demand. Right now there is more supply (inventory/housing) than demand, which drives prices down. As a result, the buyer has much to choose from and has the freedom to take their sweet time.
I still counsel the buyer to hone their “criteria for buying.” We discuss their top 3-5 priorities – their must-haves in a home. Unless you find your perfect location, design and have your home built from ground up, you will never find the “perfect” home. I cannot tell how many times the buyer says to me, “If only I could have THIS home THAT location with the OTHER home’s features…. Keeping focused on your top 3-5 buying priorities will bring you into a realistic frame of mind and save much frustration.
Good counsel is essential in making wise decisions – this is one of my strengths.
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