Saturday, September 09, 2006

Lowball Advice

From Bankrate:

Lowballing in a cool housing market

In the softening real estate market, how much wiggle room is there in negotiating for a house?
-- Kathi M.

I wish to purchase a home soon. My question is what is a reasonable lowball percent to offer on a house? When I ask agents, they are very vague. Is offering 10 percent below or more way off?
-- May in Mizzou

How low can I go without offending the seller?
-- Anthony S.

As markets that were overheated as recently as early 2005 have cooled considerably, this subject has become a hot one. With a temporary overabundance of housing on the market in many parts of the country, low bidders are truly in their element for the first time in about a decade. Offers that were laughed off just 18 months ago by confident sellers are suddenly being considered. Owners who once advised their agents to ignore offers by lowballers no longer have that luxury in most markets.

But don't expect sellers to flat-out panic. Most who bought their homes recently will not let their homes go for much less than they paid for them. On the other hand, owners who have been in their homes awhile and enjoyed a big run-up in value in recent years might be more willing to listen to lower offers because they'll still profit handily on the sale.
...
As always, homes most likely to sell at a big discount are those in dire need of wholesale repairs, preforeclosure homes and those owned by other highly motivated people (transferring out of town, buying another home and not able to afford two mortgages, had recent death in family, investor who bought at the wrong time, etc.). To them, offers of up to 15 percent or more under market are a little more palatable.

Knowing the seller's motives always gives you much more traction with any negotiable purchase -- especially a house.
...
But you have little to lose, currently, by going low. The worse that can happen is that your offer will be flatly rejected. For that reason, your best strategy might be to pinpoint several potential homes, make your low offers and see what sticks -- or at least who is willing to negotiate. In lieu of price concessions, many homeowners are offering to throw in appliances, furnishings and even such items as high-definition TVs. If you do the math, you might come out farther ahead than if you held out for an additional 1 percent or 2 percent.

49 Comments:

Anonymous Anonymous said...

Interest Rates and Economic factors have never been better. However, tell that to the buyers right? RIGHT! The journalists aren't going to. NAR sure as hell won't. It is your job. Like I said in the First post to this topic. When is the best time to buy? Right Now!

My marketing friend, you are a saleman, you are a marketer.Do what Sales People do. Sell.

Sell your industry, sell your market conditions. Sell emotionally, back that up with logical irrefutable facts. "Mr/Mrs Buyer if you wait, you could be priced out. If not you , then who will. Who will sway public opinion?"

After all if you truely believe. Then you should have no problem in convincing your prospects.What is your alternative?

9/09/2006 06:54:00 AM  
Anonymous Anonymous said...

Goodness gracious. In the context of all the other bad news, this must be pretty bad. Do you feel the Fear and Doom?

Except, 2 1/2 years ago the market was cranking wasn't it?

My point is that we have heard that this real estate market was going to come to a dreadful crash. And if we want to read into this headline it really ain't so bad. I know that was not their intent. But I will choose to be positive.

The fact is that the market is normalizing.

My old friend has been telling me for a year that this market is going to hell. He just had the best month ever in his 20 year career.

Bad news is like a drug. It takes on a life of its own. I only mention this to say be careful as to what you accept into your mind as fact. It ruined my real estate career while I saw many of my colleagues grow to begin new companies that flourish to this day.

So even though I could make it a valid argument that the early 90's was a REALLY bad market. There is a long list of success stories that I personally know, and know of, that invalidate my statement.

And the secret of their success was to not listen to silly stories and headlines. They were too busy finding new buyers and sellers.

I know your buyers and sellers think they are modern day econiomists. The sellers because they have all this new found equity think they are the next Greenspan, while the buyers are hoilding off because they delude themselves that the market will drop.

Somehow they harken back to 1990 when prices did tank. However, the part they are missing is that in most parts of the country unemployment was approaching catastrophic numbers.

In contrast, unemployment today is lower than ever before in our history.

Will you let them buy into that crap? Then they will lose out. And it will be your fault. Because you bought into the Clam Plate Orgy.

9/09/2006 07:00:00 AM  
Anonymous Anonymous said...

Real estate agents getting a little
worried. Now giving sales lessons.

What morons.

9/09/2006 07:01:00 AM  
Anonymous Anonymous said...

gsmls.com

we are almost back to 32K. Over the past couple of days, the numbers seem to be adding up real fast.


I mistakenly posted this message on another page as well.

9/09/2006 07:12:00 AM  
Anonymous Anonymous said...

This housing market is cooling, BUT it is still hot too touch.

I have noticed lately on these blogs that some people are buying or thinking about buying because they have seen some slight price declines.

Lets put it this way, whatever reasons are in your head to justify a purchase right now, get them out of your head.

If you really want to be savy, raise cash, get out of debt, and pump all you can into high interest savings account. You want lower taxes or tax advantages....move out of NJ.
You want a bigger house for the kids...........move out of NJ.
Its really that simple.
I hate to say it, but if you REALLY want to get ahead, you have to move away from here. The system out here is just not set up for middle class people.

Or ask yourself, am I just trying to justify my purchase by coming up with lame excuses?

If you already own, pay off that ARM as soon as you can. Double up on payments.
Yes, you can do it, just get rid of the cable TV and other fluff in your life.

It always amazes me how people are so willing to give away or gamble away there hard earned money. It also amazes me how much debt people are willing to take on and not even care.

ok, I will get off my soapbox.

SAS

9/09/2006 07:19:00 AM  
Blogger grim said...

In contrast, unemployment today is lower than ever before in our history.

Absolutely incorrect.

From the BLS:

NJ Annual Unemployment
1987 - 4.1%
1988 - 3.8%
1989 - 4.1%

1999 - 4.5%
2000 - 3.7%
2001 - 4.3%

2005 - 4.4%

2006
Jan - 5.0%
Feb - 5.2%
Mar - 4.8%
Apr - 4.9%
May - 4.8%
Jun - 4.9%
Jul - 5.5%

9/09/2006 07:22:00 AM  
Anonymous Anonymous said...

"Will you let them buy into that crap? Then they will lose out. And it will be your fault. Because you bought into the Clam Plate Orgy."

9/09/2006 08:00:11 AM

Boy, this like a meatball thrown over the plate with the bases loaded. Where does one begin??? Sell???? Sell to whom????? No sophisticated buyer wants to catch a falling knife. Remember, this industry probably sucked in the next few years of buyers. Now what do they do???? They are trapped and can't get out. Turn on the TV, we have gone from Flip this house to how to make $ in foreclosures.

Quite simply, H-Builders sentiment is falling faster than pet.com did. My question realtor, how do you feel selling/marketing a property in an industry when the H-Builders, in YOUR industry, have zero confindence in their product at this current juncture????? Sell???? To Whom?????

BC Bob

9/09/2006 07:28:00 AM  
Anonymous Anonymous said...

9/09/2006 08:00:11 AM

My old friend has been telling me for a year that this market is going to hell. He just had the best month ever in his 20 year career.


On the contrary those "record" sales didn't make a dent in the inventory and moreover prices fell.


Somehow they harken back to 1990 when prices did tank. However, the part they are missing is that in most parts of the country unemployment was approaching catastrophic numbers.


There you go again...

How many jobs in 1988 were related to housing?

What percent of the mortgage loans were ARMed in 1988?

If you think that it's a good time to buy, then why don't you start loading up? there are 32K + FSBOs to pick from....

It ruined my real estate career while I saw many of my colleagues grow to begin new companies that flourish to this day.


.. and you will repeat what you did in 1990.

9/09/2006 07:32:00 AM  
Anonymous Anonymous said...

"Sell your industry, sell your market conditions. Sell emotionally, back that up with logical irrefutable facts. "Mr/Mrs Buyer if you wait, you could be priced out. If not you , then who will. Who will sway public opinion?"


9/09/2006 07:54:34 AM

Classic!!!!!!!! Just great theatre!!!!! Keep these coming, very entertaining!!! Did anybody see Trading Places???? This person reminds me of Mortimer and Randolph. They were buying OJ based upon a wrong crop report. They rushed to the trading floor in a frenzy, yelling SELL,SELL,SELL!!!!!
Unfortunately there were no buyers. The market had already tanked. One of them was carried out on a stretcher. There will be a movie similar to this in 2009-2010 regarding real estate.com.

By the way, while you are sitting at an empty open house, I am on my way to Camden Yards to see the Yanks.

BC Bob

9/09/2006 07:42:00 AM  
Anonymous Anonymous said...

I found that blog, doing a search of realtor blogs, just to see what other side is saying. I thought this guy was pretty funny!! RIGHT!!

9/09/2006 07:45:00 AM  
Anonymous Anonymous said...

Does he mean SELL = LIE??

9/09/2006 07:48:00 AM  
Anonymous Anonymous said...

I thought this guy was pretty funny!! RIGHT!!

9/09/2006 08:45:38 AM

Classic!!!!!!! I'm just disappointed he won't read my blog about Mortimer and Randolph.

BC Bob

9/09/2006 07:49:00 AM  
Anonymous Anonymous said...

"we have heard that this real estate market was going to come to a dreadful crash"

Try telling that to all the people who bought in the past 3 years (nation wide ). Did all those people not hear this? If they did, maybe some of them would have thought twice, or did they just hear the good stories and the "RE never goes down" bullshit. Guess they were to busy watching Oprah to have known better.

"The fact is that the market is normalizing"

normalizing from what to what? Unless you mean we are going to see a normal boom/bust cycle. ok, I agree with that. We just had one hell of a boom, so buckle up for one hell of a bust. Grim's data has shown that we are just now reaching the tipping point.

"Bad news is like a drug"

I agree and I like that saying. But people on this blog are smart enough to base things on fundamentals and trends. Not what some sissy reporter has to say.

"delude themselves that the market will drop"

thats how your friends in the 90s, with there success stories became a success. They didn't buy into the RE mania, and when prices fell, they bought low, when market swung back up, they sold high. If they tell you anything less, than they are the ones whom are doing the deluding.
I didn't delude myself 2 years ago and went out and bought a house. no, I sold, because I knew this ship was going to sink.
Do I think prices are going to drop? You bet I do.

"unemployment today is lower than ever before in our history"

You know they count the military and national guard as employed right? All those walmart jobs aren't exactly the greatest either. Yes, employment if low, but the questions is.....what is the quality of that job? Remember, once you lose your job, you are lucky to make half of what you once earned.

"bought into the Clam Plate Orgy"
no idea were your going with this one.


Ahh, yes.......
SAS

9/09/2006 07:49:00 AM  
Anonymous Anonymous said...

anon @ 8:00

Are you the same dude who makes $265K a year and bought recently?

9/09/2006 07:54:00 AM  
Anonymous Anonymous said...

How low can I go without offending the seller?
-- Anthony S.

This Anthony S guy is a freaking idiot.
When it comes to negotiations for RE on a one time purchase, on a one time customer, there is no such thing as offending.

Are people really that stupid? They would rather take it in the poop shoot financially than offend someone.
Talk about PC feelings run a muck.

SAS

9/09/2006 07:59:00 AM  
Anonymous Anonymous said...

EARTH MESSAGE !... To Realtors & Sellers IS as Follows;

My INITAL OFFER Price to Purchase IS FINAL with the Contract, stipulations $ contingencies reviewed & Written by MY RE Attorney !

This Final Contract is Valid for 48 hrs for local owners and 96 hrs...Period. A Signed and Dated Rejection Offer Price from your Realtor would be appreciated.

Any & All Counter-Offer Prices ARE REJECTED and INVALIDATE the Offer..Period.

EARTH - Singning OFF!

9/09/2006 08:13:00 AM  
Blogger grim said...

Perhaps in the next few years we'll hear stories of sellers worried about offending potential buyers..

grim

9/09/2006 08:32:00 AM  
Anonymous Anonymous said...

My house hunting observation – price fell below 2004 ?

Agent showed a house in Monmouth county last week. The owner bought the house for 270k in 1998 when the community was developed, and is asking 499k now. No major or I should say any upgrade.

Per taxboard, there was no transaction in 2005 on the same street, and 3 houses changed hands in 2004 between 500 – 515k.

Agent recommend offer 10% off asking.

KV20006

9/09/2006 08:47:00 AM  
Anonymous Anonymous said...

"But don't expect sellers to flat-out panic. Most who bought their homes recently will not let their homes go for much less than they paid for them. On the other hand, owners who have been in their homes awhile ..."


This is ass-backwards and is contradicted by the next graph. It's the recent purchasers who are in over their heads and have to get out. They may not want to take a loss, but hardball for many is not really on the table, the question is how much of a loss are they willing to take?

I've got a feeling we'll be finding out around April of 07.

Grandma and Grandpa paid off the house years ago, unless the taxes are crushing them, they're not in a hurry.

Lindsey

9/09/2006 09:01:00 AM  
Blogger Richie said...

How low can I go without offending the seller?
-- Anthony S.


I think offending the seller is exactly what you need to do.

-Richie

9/09/2006 09:15:00 AM  
Anonymous Anonymous said...

Lindsey makes a valid point. Have done the math on a home I will make an offer on with a known late 90's purchase price. I am ignoring any recent sales in the area and giving the seller a 4% uptick on their original purchase price per year plus assumed cost for an addition they added. Sellers are probably 8 years away from legit retirement and thought they would get out while the getting was good. I fully expect them to reject my offer but I am doing my part to bring sellers back down to earth. If they accept my offer then I see it as a big win since the price will be significantly lower than a 2004 comp. Some of you will say its a mistake but I am not going to wait until the market goes to below mid 90's prices, its unrealistic and me timing the market just makes me as greedy as those who put their houses on the market in 2006 for 20% over 2005 peak prices. - Sen

9/09/2006 09:17:00 AM  
Anonymous Anonymous said...

ok dear bloggers,

why are you considering buying today in this market? Educate me.

10-20% off in this market is nothing.

SAS

9/09/2006 09:21:00 AM  
Anonymous Anonymous said...

SAS, for those thinking of lowballing too soon:

http://www.bullnotbull.com/archive/japan-tale.html

-Sapiens

9/09/2006 10:36:00 AM  
Blogger yo me said...

check this graph home values from 1890 http://tinyurl.com/e4so5
if you graph the same on the peak of the 1970's or 90's boom ,peak will look the same as today.inflation always correct the market to 1950's price.
?:did prices really went down significantly after the boom in 1990's?my house went down 10% for 3 years before inflation caught up with prices,then equity started building up.
same sentiment everybody feels now.too expensive,prices will crash....

9/09/2006 11:27:00 AM  
Blogger lisoosh said...

Why is everyone replying to "anonymous".

Don't. Feed. Trolls.

9/09/2006 11:27:00 AM  
Blogger chicagofinance said...

Anonymous said...
[edit]
The fact is that the market is normalizing.
[edit]
9/09/2006 08:00:11 AM

Anon:

This comment is a flat misrepresentation, and you know it.

9/09/2006 11:32:00 AM  
Blogger Richard said...

the success of a lowball strategy is proportional to the desirability of the locality in question. doing a 15% lowball campaign in Mount Olive is likely to be more successful than one in Summit. keep this in mind so you don't waste your time.

9/09/2006 11:46:00 AM  
Blogger Richard said...

"As markets that were overheated as recently as early 2005 have cooled considerably"

while the article has some good points it's also saddled with subjective can't prove statements like the one above. the fact right now is prices haven't dropped anywhere near the run up. 80-100% in 5-7 years and maybe today 5-10% off the highs. nothing to get giddy over. fact is no one knows how far and/or fast this market will correct but a betting man would be careful with so much evidence pointing in one direction versus the other.

9/09/2006 12:20:00 PM  
Anonymous Anonymous said...

Cranky bored and starving realtors blah blah blah....

Everyone even the last fools left are on to your games.
games set match.

9/09/2006 12:31:00 PM  
Anonymous Anonymous said...

offend a seller?

That's a laugh.

How about the insulting prices!

9/09/2006 01:07:00 PM  
Anonymous Bottomfeeder said...

I just lowballed a fsbo. Asking price 620. Bought 6/05 for 610. Doing the research, I found out 1st mortgage was for 488+. Second balloon with adj. rate was for 122.
Mortgaged 100%. Seller said she needed to sell ASAP to get out of payments. I offered 450. She asked me to repeat what I said. I said I would like to offer 450. She laughed nervously and said she couldn't possibly since she would still owe an additional 160.! I thanked her and told her to keep my number and have a great weekend. I'm pretty sure I just ruined it for her. Time for reality to set in. Why would I care that she overpaid and mortgaged the WHOLE THING!

9/09/2006 01:37:00 PM  
Anonymous Anonymous said...

Can one assume that a 25% cut should be at least tried first? Or more?

9/09/2006 03:26:00 PM  
Blogger skep-tic said...

bottom,

she'd be lucky to sell it to you for 25% off asking. every month that goes by deepens her loss.

any idea if yours is the first offer she's gotten?

9/09/2006 03:57:00 PM  
Anonymous Anonymous said...

anon 9/09/2006 04:26:32 PM

Try the 25% lowball in about another year or two.

In the meantime, raise cash. When your time comes, you will be the driver, and the sellers will be on their knees ready to do....you know what....

SAS

9/09/2006 04:04:00 PM  
Anonymous seattle price drop said...

Interesting that there are still potential buyers out there who are worried about "offending sellers" with lowball offers.

As if they are worried about "good manners, civil behavior" and such.

To such a buyer, here's some advice:

The sellers were not worried about niceties when they decided to stick it to you with an obscene profit.

Now it's your turn.

The market will really change once buyers get with the program and develop a backbone.

Time for a brand new paradigm.

9/09/2006 04:23:00 PM  
Anonymous Sugee said...

Since the RE languished for a good part of the 90s, I am willing to concede owners some extra run-up. I would compond a 5% on a 2001 price while bidding (whenever I do it, that is), plus cost of additions (if they can show me the receipts).

The condos that I have my sights on, on average, sold for 120K in 99, 130K in 00, 150K in 01, 200K in 03, 250K in 04, and 310K in 06. Today I would bid 192K plus any cost of additions for one of those condos.

9/09/2006 05:11:00 PM  
Anonymous Sugee said...

and OMG, I just found out that the condos I mentioned in my previous post sold for 159K in 1988 !! and then 115K in 1991 and 110K in 1998 !

9/09/2006 05:23:00 PM  
Anonymous Anonymous said...

Sugee, and other lowball opinion folks.

Do you think I'm mean, or ill-spirited for my stance on this?

I've been avoiding buying until somebody takes an offer that makes the net ten-year housing ownership cost slightly lower than my ten-year rental cost for the equivalent property. I factor inflation, a 1% housing price appreciation total over the ten years, and the loss of investment income (using a modest 5%) on my downpayment.

Nobody is coming out and telling me I'm bonkers, but the number is 1999 typically, on homes that have a sale available from 1999.

It's not some price inflated from some other year, or some "reasonable" percentage [what in heaven's name does that mean] tacked on to some last sale in 1995, or any other number.

Just what is the thing gonna cost me, and can I rent it for less?

I'm feeling really stupid, and need somebody to argue with me that my expense stance is not justified.

Pat

9/09/2006 09:42:00 PM  
Anonymous Gary said...

Pat,

Does the math your using apply to NYC commuting areas?

I can totally see your logic working in Cherry Hill or some place like that, but it seems like the Hobokens, Edgewaters, Jersey Citys, even Montclairs of the state are entirely different animals now.

(Although, these animals still wear tight black t-shirts and drive BMW 3-series)

Seems like that has implications on everything next to those areas. When the rich people move into the former creative class area, they have to go somewhere, right?

Doesn't that affect all those NJ Transit stops. All those places within a 45-minute bus ride from the city.


Just trying to sort this out.

I completely, completely believe the market's going to correct itself, but how much in these areas? Is a new construction 3-bedroom in Hoboken for 800K really suddenly going to be 500K?

And if not, what about the 350K 3-bedroom in Montclair? Is it going to be 220K?

Just trying to sort this all out.

Thanks!

9/10/2006 08:18:00 AM  
Anonymous Anonymous said...

No, Gary you're right. I know my target area, and that's how I'm doing the numbers. I work in Central Jersey, and live in PA.

You'd have to look at expense in your own target area, and your own belief in future inflation and appreciation/depreciation.

Pull up ten or twenty homes for rent on Craiglist, find similar ones for sale on MLS, and then compare them on a rent versus buy calculator like the ones at

http://www.ginniemae.gov/rent_vs_buy/rent_vs_buy_calc.asp?Section=YPTH

http://www.vlender.com/cgi-bin/calc/rent_vs_buy.cgi

Maybe you'll land in 2000 or 2001, when you start playing with the purchase price that comes in a little below the rental cost. [Look up the last sales on the houses on zillow.]

So, that would be the geographic difference between us.

Pat

9/10/2006 08:38:00 AM  
Anonymous Gary said...

Awesome. Thanks.

Good to do homework.

But, as just a sobering aside, let's not forget that all that homework can go out the window at any moment.


I remember, about a week before September 11th, we had this huge meeting in the office where we had to listen to these two "Futurists" discuss what was "next" for US consumers.

(Yes. "Futurists." That's what their business cards said. Seriously.)

7 days later, everything they had so boldly and confidently predicted was completely meaningless.

9/10/2006 09:13:00 AM  
Anonymous Anonymous said...

Bottomfeeder said:
"Doing the research, I found out 1st mortgage was for 488+. Second balloon with adj. rate was for 122.
Mortgaged 100%"

How did you find out what they owed on their mortgage? I've been watching a condo that has been on the market for over a year, they are asking $200k more than what they paid for it just two years ago, so I'm dying to see how leveraged they are!

9/10/2006 09:46:00 AM  
Anonymous UnRealtor said...

Here's a seller who bought in June 2004 @ $755K, and is now asking $10K less (house is still over-priced) over two years later:

Jun 15, 2004 - Closed $755,000 (MLS 1671861)

Mar 05, 2006 - $879,000 (MLS 2253723)

May 01, 2006 - $829,000

Jun 05, 2006 - $795,000

Jul 13, 2006 - WITHDRAWN

Jul 14, 2006 - $795,000 (MLS 2299446)

Sep 07, 2006 - WITHDRAWN

Sep 09, 2006 - $745,000 (MLS 2317848)


The realtors love this house, they'll make 6% on both transactions in two years, and the "owner" will walk away with a loss.

9/10/2006 12:41:00 PM  
Anonymous UnRealtor said...

Here's the underwater "owner" referenced above:

http://www.realtor.com/Prop/1067710048

9/10/2006 12:54:00 PM  
Anonymous Sugee said...

Pat,

I did not understand your basis. Could you please illustrate with some example ?

I have paid from 1000 to 1335 since 1997 for an apartment. An equivalent condo of the same size, shape and design, in the same area now costs an average of 230K.

These condos cost about 80K in 86, 125K in 87 (did something freaky happen to the RE market between 86 and 87 ? !!), 80K in 96, 120K in 2001.

Now how do I cost your basis given these figures ? (Taxes I would assume between 3.5K and 4K per year).

Thanks you in advance for bearing with my unintelligence !

9/10/2006 04:04:00 PM  
Anonymous Anonymous said...


UnRealtor said...

Here's the underwater "owner" referenced above:
http://www.realtor.com/Prop/1067710048

9/10/2006 01:54:10 PM


And this is the guy with the loot !!

http://tinyurl.com/kjhzt

9/10/2006 04:09:00 PM  
Anonymous UnRealtor said...

And this is the guy with the
loot!!

http://tinyurl.com/kjhzt



Believe it or not, that guy is even more frightening in person.

9/10/2006 05:23:00 PM  
Anonymous Bottomfeeder said...

Anon 9/10/2006 10:46:07 am:
Mortgages are filed in the county clerks office. It is public record. You can do the search with the owners name or property address. Sometimes the lot and block number is needed. Often you can access the info online by entering the county clerk site and searching public records. Hope this helps. Good Luck!

9/10/2006 07:54:00 PM  
Anonymous Anonymous said...

grim said...
Perhaps in the next few years we'll hear stories of sellers worried about offending potential buyers..

grim

Grim, you are awesome!
Perfectly and so simply put!!!

Sellers and the multitude of grandiose realtors-- the party is over!!!!!! It's high time you guys learn to be humans again. A night class in "Professional Manners" may do a world of good than another night class about sales.

9/13/2006 10:18:00 AM  

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