Lowball Offer on House

[SlowHabit]

Offer 235k and see if he gives you the "you're embarrassing me with your offer" routine. If he doesn't, then you could've saved some more. If he does, raise it a little bit and make it 239k so he'll feel good making it 243k to go. Then you make it 240k even.

Oh yeah, there's this great line about negotiating: "your offer is too high if you don't feel embarrassed by it."

[w_gibbs]

Just an update. Made an offer on the $269,500 house. Things actually going as I pessimistically expected. I offered $230,000. He countered at $265,000 (from the original $269,500). My thinking at this point is this: if I counter only $5000 higher, he is going to think I am just trying to slowly meet in the middle and not be willing to play ball. So I am thinking of countering at $237,500 or $240,000 to make him think I am going to come way up. Then I put the brakes on and re-counter in the $245,000 range. Then I top out around $250,000. BTW, he said he has an independent appraisal of the house that he provided with his $265,000 counter that says the house is worth $275,000. What do you guys think?

[Shoe]

[ QUOTE ]
Just an update. Made an offer on the $269,500 house. Things actually going as I pessimistically expected. I offered $230,000. He countered at $265,000 (from the original $269,500). My thinking at this point is this: if I counter only $5000 higher, he is going to think I am just trying to slowly meet in the middle and not be willing to play ball. So I am thinking of countering at $237,500 or $240,000 to make him think I am going to come way up. Then I put the brakes on and re-counter in the $245,000 range. Then I top out around $250,000. BTW, he said he has an independent appraisal of the house that he provided with his $265,000 counter that says the house is worth $275,000. What do you guys think?

[/ QUOTE ]

Ask him if the independent appraisal took into considerdation that the real estate market is crashing? Tell him you are willing to wait, when he is ready to deal for 230k he should give you a call.

[Tien]

What are the market comparables?

Ask a neutral agent to provide you with market comparables.

[w_gibbs]

Most of the other comparables in the neighborhood don't compare well because the house I am looking at is on a street that is lower (across the board) than the rest of the neighborhood. I am trying to get into the neighborhood in case I get transferred and need to sell later. Anyway, I have 3 comparables from the same street:

Format will be (Soldprice, Sqft, Soldprice_per_sqft, Solddate)

$283,000, 2719, $104/ft^2, 02/04/2005
$240,000, 2628, $91/ft^2, 11/28/2005
$304,000, 3248, $94/ft^2, 01/13/2006

The house I am looking at is 2772ft^2, so that means if I take the average of the three prices per sq.ft. and multiply that by the 2772 of the house I am looking at that would give an expected price of ~$267,000. However, most people don't take comps beyond 2 years prior so the average of the two within the past two years would give a ~$92/ft^2 average which gives an expected price of ~$256,000.

I am not sure what the state of the housing market was in early 2005 compared to late 2005/early 2006, but that sale in February 2005 seems a bit high.

Anyway, I countered at $237,500 this evening. I will wait and see what I hear back tomorrow. Appreciate all your help guys.

[w_gibbs]

Well the seller came back and said "$265,000 is as low as I can go" which is pretty discouraging. Doesn't seem this guy is motivated at all. His agent said to mine "I think if your guy came back at $255,000 or $260,000 the seller might be tempted and move off his price." I read that as the selling agent trying not to lose me and trying to get me to make a big jump from $237,500. I think the seller's actual rock bottom is probably $260,000 so it will take some work to make it to $255,000. I can't believe the guy would list at $269,500 if $265,000 was really "as low as he can go." You guys ever been in a similar negotiating situation?

[Tien]

It is really difficult to negotiated with unmotivated people.

It is even harder to "negotiate" when you are using a go between like a real estate agent.

Maybe you can get an appointment to see the seller directly.

Other than that, just to prove a point, I would just throw in another counteroffer at the SAME PRICE and walk on to the next house.

BTW, what price are you looking to buy a house at?

[squiffy]

First, I want to thank OP for a great post. I would like to see more such posts re: negotiating for a good price on cars, homes, etc.

I may go back and try to post some info on my car buying efforts in 2006 and 2007. Hopefully others will have some experiences they can share.

I think you are letting your emotions get in the way of your rational thinking.

The FACTS you present in your post directly conflict with the STATEMENTS you make.

You clearly state that there are appraisals and comparable sales that show the house is worth more than you bid. You characterize your own bid as a lowball offer. And yet you are surprised and disappointed that the seller is not stupid or desperate enough to have taken it.

You WANT a great home at a rock bottom price. But when you make a lowball offer, that is below market, by definition, very few rational sellers will accept.

Now we don't have any solid statistics. But if you are offering 230K for a home that is worth 250K, then a rational seller who is not desperate simply won't take it. He will wait a few months until he can get 250K from a rational buyer.

Lowball offers can work. But if they are 20-30% below market, then you may only have a 1% success ratio.

If you make 100 lowballs offers, then you might get one acceptance if that.

So if you are making lowball offers, then you have to accept the fact that you will very likely get rejected. And if you want too long, you may lose the house.

So you need to balance your desire to get THIS HOUSE, with your desire to get a GREAT DEAL on some house.

The chances of getting an incredible deal on any one house is exceedingly small even in a down market.

Also, you need to rethink what market value really means. The home is worth only what you are willing to pay and the buyer is willing to accept.

It's possible, as you yourself wrote, that the seller is in no rush to sell. He has plenty of cash, plenty of equity, and plenty of time. So why would he accept a lowball offer, unless he is desperate, or unless your offer is not a lowball offer, but a reasonable offer at the market rate.

If you really WANT this particular home, it looks like you will have to offer something closer to the asking price and closer to the market value, based on comps. Otherwise, give up and move on, or just wait and see if he comes down. But if you wait too long, you may lose the house to another buyer.

I think you overanalyze the negotiating game in your earlier posts. You offer what you think it's worth, or a little less. And he either takes it or not. It's pretty simple.

Given the info in your own posts, I cannot imagine why you would have expected the offer to be accepted.

Remember, he has already come down from his original asking price, so he may be reluctant to go down much more.

If the market is going down, and if you are patient, you very well may be able to force him to come down. But you will have to be patient and wait. Just say your offer is firm. Make no counter. And walk away. If no one else makes any offers, then he will have to start thinking about coming down.

But realize that when you try to get a great deal with a lowball offer, you will probably LOSE a very very high percentage of the homes you bid on. Period.

You will gain experience as you do more buying and selling of stocks or make more offers on homes.

You should be asking an experienced local realtor what is happening in the market. And how much homes are selling for below asking price, on average. This info should be available to a reasonably competent, reasonably experienced realtor.

[squiffy]

In theory a patient seller could live there for 20-30 years until he dies. So based on this fact that you yourself present, you should not expect him to take a lowball offer.

In his mind, he has already dropped the asking price 5%. And you want him to come down another 11%.

Yet you yourself say there is another house you like more that is OVERPRICED.

If there are 100 homes in the market in that price range, then only two data points are not enough for the reader to determine whether the home is fairly priced, under priced or over priced.

If the seller is over priced and irrational, and can afford to hold out forever, then he won't come down.

If he is over priced and irrational or emotional, but can only afford to hold out for 6 months or a year, then in 6 months or a year, he will sell it at the market price then.

So if you want this house, you have to either increase your bid, or wait patiently and risk losing it.

Getting a good price on a home or in any negotiation seems to be a game of chicken. Whoever is more desperate will break down or cave in or blink and pay the asking price or accept the offer.

The party who genuinely wants it less or can make a good show of wanting it less, generally wins.

[w_gibbs]

[ QUOTE ]
BTW, what price are you looking to buy a house at?

[/ QUOTE ]Tien, I am looking in the mid-200s.

[ QUOTE ]
The FACTS you present in your post directly conflict with the STATEMENTS you make.

[/ QUOTE ]
Your points are well taken squiffy. Appreciate your comments. I think I am going to try to wait it out a bit. Unfortunately, I do believe the house will sell around $260,000 during this season, so I can't wait forever. My plan is to tell my agent that I am going to think about it. I don't really feel like my agent is committed to the deal. For example, when I inquired about the date of the independent appraisal, I mentioned that housing prices have dropped during the past few months. My agent said that the appraisal was done in a downtime (Nov 2006) so that doesn't really matter. Then I mentioned the numbers on price per sq.ft. for the comparables I listed above. He replied with some comment about statistics only being numbers and houses are purchased by humans with emotions. I realize that is true, but I was like WTF. I am trying to give this guy some ammo for the negotiations and he isn't interested. I really would prefer to be negotiating the deal myself. Anyway, maybe if my agent thinks I am getting ready to walk it will inspire him to really sell the fact that we are a young couple and trying to get into the house at a reasonable price. Then I will come back next week and tell him to prepare an offer around $245,000. I will see if the seller is going to come off the price at all and determine my next play.