The perfect purchase offer
REThink Real Estate
By Tara-Nicholle Nelson, Friday, April 10, 2009.
Q: Is there a standard dollar amount or percentage that should be taken off a seller's asking price when considering how much to offer? Also, is it standard practice for a buyer's real estate agent to "get a feel" from the seller's agent as to whether an offer of $225,000 on a $250,000 house would be acceptable, prior to showing the house?
A: One advantage to working with a Realtor is that you gain the advantage of their experience and knowledge as to the standard real estate negotiating and transaction practices in your area. But what is standard differs in different areas -- and in real estate, markets are hyperlocal, so standard practices vary state by state, city by city, and even in different neighborhoods within the same city.
Mindset Management
You have asked yes or no questions, so I'll give mostly fact-based answers. However, your question contains an undercurrent of suspicion or distrust in your Realtor's skill, strategy or decision-making. How did you choose your Realtor? Was it by referral? Were her past clients thrilled with her, or not so much? It is really essential that you trust your Realtor to represent your interests; if not, you might not have found the right Realtor fit for you, yet. Depending on how this offer shakes out, you may want to revisit that issue.
Need-to-Knows
To specifically answer your questions, there is no standard dollar amount that you should discount from the list price to arrive at an offer price. Frankly, it is not even standard everywhere that the sales price will be lower than the list price -- at certain price points in some geographic markets, homes area actually selling above asking, even in this buyer's market.
Some of this variability is due to the fact that list prices range widely in the way they are set -- they might be at, above or below the fair market value of the home. For example, the seller of a particular home might set the list price quite a bit lower than its actual value to drive buyer interest and elicit multiple offers, resulting in a sale price over the asking price. Rather than having an arbitrary rule of offering so much above or below asking, the better way to approach the issue of finding an offer price is to get a sense for the range of the fair market value of the home via a comparative market analysis (CMA) -- an analysis of the current market activity and recent sales of similar homes in the area. This should generate a fair market-value range for your target property; the width of the range will depend on how similar and recent the comparable sales analyzed are.
Also, ask your Realtor to show you the average number of days similar homes are staying on the market before selling, and the sold homes' average list-price-to-sale-price ratio. If almost every home in that neighborhood is selling for 8 percent below asking, that is information that should help you narrow the range and get closer to an actual offer price. ...CONTINUED
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Submitted by Peter Lake on April 10, 2009 - 3:30am.
While there's no standard amount that as buyer can count on discounting, there are some guidelines that can be found.
1. Examine the average selling price of hundreds of homes in a certain area versus their asking prices.
In my area this used to be 94-95%, but it's dropped of late.
2. I believe you can buy any house that's been on the market for more than a month at 97% of the asking price. What are the sellers going to do? Try to split the 3% difference and risk blowing off the deal?
3. I've come to believe that you ought to be able to make an offer at 93% of the asking price and at least get a counter-offer. Below that 93% you may just get turned down.
None of these rules are hard and fast, of course, and vary with days-on-market, proper pricing, state of the economy and so forth.
But they're guidelines that are very often true, regardless of the size or value of the house.
What counts at any given moment is what the seller thinks the house should sell for, not what the buyer thinks it should sell for. Only when the two opinions are in agreement does a sale occur.
Of course, the seller is often dreaming, but that's beside the point -- if the seller thinks it should go for $X, then the buyer's unlikely to get it for 85% of $X.
Submitted by Mark Bloomfield on April 10, 2009 - 3:52am.
"The final two pieces of information you need are (a) the details of the seller's situation and motivation level, and (b) your own time frame, situation and how much you want the place!"
If my listing agent revealed ANY information regarding my situation or motivation (positive or negative) for selling my home without my specific authorization, I would say to him/her as Trump has made famous, "YOUR'RE FIRED!!!"
It's these kinds of practices that have clients not trusting their agents and therefore not providing the truth about their situations. No one wants to show weakness in the course of negotiations and back channel communications you are suggesting do just that.
On one hand you say find a realtor you can trust and then on the other hand you are promoting the very practices that undermine trust in the process. No wonder consumers are confused.
Submitted by Robert A. Hulme on April 10, 2009 - 4:19am.
Sounds like you have the purchase process pretty well covered.
Robert A. Hulme
Realtor, GRI, e-PRO
Prudential Utah Real Estate
Loan Officer
Mortgage Xpress
www.washingtoncountyrealestate.ws
www.saltlakecountyrealestate.ws
Submitted by Jon Boyd on April 10, 2009 - 5:06am.
If the licensee in this discussion was doing a good job as a buyer's agent then these questions would have already been answered.
Many buyers suffer from not choosing an agent wisely.
You have provided some great information already but I feel there is one additional set of data that is critical in today's real estate negotiation:
Absorption rate.
A buyer today needs to know how fast similar homes will be selling looking into the future, based on how much inventory is available today. This is critical in in judging if values are likely to drop.
The economic concept of supply and demand is the basis for value.
For example:
In a neighborhood if there are twelve homes for sale now and last year only four homes in the neighborhood sold, there is an oversupply and prices will probably fall farther.
If there were twenty four homes in the neighborhood that sold last year then there is a six month supply and prices are likely to remain stable. When there is less than a six month supply of homes then demand is greater than supply and prices might just go up.
(These are rough estimates. All this is subject to local market variation as you already noted.)
Great article!
Jon Boyd
Exclusive Buyer's Broker
The Home Buyer's Agent of Ann Arbor, Inc.
1908 W. Stadium Blvd. Ann Arbor, MI 48103
http://buyersagentannarbor.com
Submitted by Jay Thompson on April 10, 2009 - 6:18am.
I agree with Mark in that no listing agent should ever divulge their clients situation and motivation level. And as a listing agent I would never do that.
But if I'm representing a buyer, it gives my client a decided advantage to have that info from the sellers so I'm going to try to get it.
And sadly, I'd say more than half the listing agents will reveal at least some tidbit that compromises their clients negotiating position.
Some will sing like a canary. That's great for my buyers, not good at all for the sellers.
Jay Thompson
Broker / Owner
Thompson's Realty
Blog: www.PhoenixRealEstateGuy.com
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Submitted by Pam Buda on April 10, 2009 - 8:09am.
Jay thanks for your follow up comments. I would agree I have met a number of canaries but most listing agents are professional in this regard. That doesn't stop me from trying to find out what I can!
And there are things that a listing agent can divulge to a buyer's agent to help them craft an effective offer that may not relate to price, such as length of escrow. In some cases a seller may want a longer escrow, or a short rent back period, or the ability to address (or not) particular issues found in an inspection, etc. Any transaction can have terms other than price that make an offer into more of a win-win for both parties. It is important to know what these factors might be, and not necessarily a breach of fiduciary responsibility to make them known. Of course, as a listing agent, the seller and I explore these issues in advance to make sure we are on the same page.
Pam Buda
Coldwell Banker
Blog :www.WineCountryandHorses.com
Submitted by Jon Astaris on April 10, 2009 - 9:40am.
The current market conditions in most of the towns and cities across this blessed land make the question and the answers, all of them, wrong.
The only honest advice: Mr Buyer, you're in the middle of a deep dark forest looking for The Truth and The Treasure. If you find it, congrats. If you don't, you're looking in the wrong part of the wood.
Submitted by Peter C. Fyler on April 10, 2009 - 1:13pm.
I once heard the late Louis Rukeyser say regarding investing, no matter what you do it might be considered wrong, but to do nothing is really wrong. Buyers second guess themselves and run around in circles calculating over and over again until they turn into butter, and miss the opportunity. I give my clients the best facts and information I can discover and then I tell them to offer what it is worth to them. We are not curing cancer here, but we are talking about something huge --- quality of life, and life is short.
Submitted by Bruce Wagg on April 10, 2009 - 1:31pm.
With the large amount of REOs in my neck of the woods, the banks have begun pricing homes very low to attract as many buyers as possible. I am calling them teaser rates because most of the homes don't sell for the asking price. Multiple bids (over 10) are very common and most are over asking or all cash. I have to council my clients that just because it is a buyer's market, they will still need to bid high and strong to get the property.
Bruce Wagg
Oakland Real Estate | Berkeley Real Estate
Submitted by Jerzy (George) Szkup on April 24, 2009 - 9:47am.
George Szkup
www.DestinationTucson.biz
All excellent answers obviously based on knowledge and experience.
Summarizing: get good agent, establish trusting relation, use common sense and be reasonable.
The only question is - how to select good agent?
You find an answer in my Blog, April 2009 edition, under "For Dreamers, poets and lovers ..." (towards the bottom of the page).
http://www.DestinationTucson.biz