Sacramento Real Estate Reflections

I get this question from buyers of all kinds, whether first-timers or investor clients. When I bought my first home about 12 years ago, I recall asking my agent this same question, How do you feel about making low-ball offers? Granted, I didn’t have the best understanding of the market at that time and the market was different. However, some of the same principles hold true.

1) There are logical boundaries:  Most sellers do not price their home too far above or below the market trend.  Most sellers want to sell their home and know that over-pricing it will hamper their possibilities.  Most agents (well, I can only speak for myself, but I’d hope this to be true) will not take a listing that will not sell – it doesn’t make sense.  Why spend money on a listing when you know that the price is not even close to the market values.  I understand that agents are willing to talk a listing a little higher, knowing that the seller will see the light of day and lower the price, but on the whole, an agents job is to help a seller price and position their client’s property best to sell at the highest price and in the shortest time.

2) Statistics show that bank-owned (REO) properties are usually prices at or lower than the market value.  Banks want to sell fast, they are in “as-is” condition, and many times in need of work.  The lower price compensates for the risk and condition.

3) Short sales, many times are also priced a little lower than the market value.  However, they will sell close to market value or little under, as the seller’s lender will only approve a short sale based on sound statistics (an appraisal, a Broker Price Opinion [BPO], and their own internal algorithms, and of course a Crazy 8 Ball [sometimes it feels this way]).

4) There are situations to make low offers, which are not a waste of time.

a) When the property has been on the market a long time without a price reduction.

b) When there is something severely defective about the property

c) When your terms are cash and can close fast

I am working with a first-time home buyer client that is shopping in the $150K range.  She sent me a property listed at $189K and said she “knows it’s not worth that much!”  Granted, it’s been on the market for 76 days, but they just reduced the price $10,000.  I said, “I am happy to make a lower offer, but your budget is around $150,000… $40K under asking would be a far stretch.”  The buyer’s response… “I know, but can’t we just try it?  I mean, all they can say is ‘no,’ right?”  While this is true, it is a waste of everyone’s time.  Let me demonstrate by the analysis I did for the client.

I did two searches for homes sold in a 4 miles radius of the area the client is looking (which covers a broad area).  I searched homes sold in the past 3 months in the $150-200K range and the $125-150K range.  My goal was to see how many homes sold for under the asking price and by how much.  Here’s what I came up with:

There were 57 homes sold between $150-200K in the last 3 months in the chosen area:

– 39 of them were sold at the asking price or higher.  The highest over was $20,000

– 18 were sold lower than asking price.  The biggest discount was $29,000 (from $225K to $196K) and the next was $20,000 (from $185K to $160K), but neither of these qualified for FHA lending, (which is what my client’s finance situation) – in other words, theses tow homes were fixers.  The next biggest discount on the list was $15,000 (from $180K to $165K) and it sold using FHA financing.
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There were 62 homes sold between $125-150K in the last 3 months in the chosen area:

– 45 of them were sold at the asking price or higher.  The highest over was $31,000 – I know this first hand because it was one of my clients that bought this home.

– 17 were sold lower then full price. The biggest discount was $21,000 ($160K to 139K) and this one sold with FHA financing.

Most all of the homes either sell within $2,000 to 7,000 over or under asking…. but you can see that the majority are sold at full price or over asking.  As you can see the largest discount in price was about 13%.

Even though I articulated this prior to the research and knew this internally, some times it’s good to show people the picture on paper – The numbers don’t lie.  No matter how bad you want “that home,” or why you think it should be priced less, or just would like to make a low-ball offer (because you can) – take a look at the numbers in the area that you want to buy and get a reality check.

I sincerely hope this is helpful.  It was for my client.

Enjoy,

Keith Klassen – Real Estate Broker

916.669.9030