Now is a GREAT time to be looking for a home!
* Prices have dropped dramatically.
* Sellers are working hard to be, and stay, competitive in the market.
* And, unfortunately for some homeowners, foreclosed properties are aplenty.
* Although lenders have become more risk adverse in the past year, there are
still many mortgage programs available with reasonable down payments:
0% down VA. 3.5% down with an FHA insured loan. 0% down USDA loans;
good in parts of Santa Clara, Santa Cruz and San Benito Counties. And, of
course, conventional loans for first time homebuyers, the self employed, and
even investors!
The Art of the Aggressive Offer
How to make a lowball offer a home seller just might accept
By Amy Hoak, MarketWatch
CHICAGO (MarketWatch) -- Home sellers are not automatically turning up their noses at
offers that come in far below their asking price these days as prices stagnate and the
inventory of homes for sale remains elevated in many markets.
But, buyers who do ask for deep discounts still risk offending sellers to the point where
they quash any deal. So before making an aggressive offer, some homework is in order,
real estate professionals say. Further, buyers need to effectively explain why the price of
a home should be lower.
That's what Pat O'Heron did recently when buying a home in Ann Arbor, Mich. He was
able to negotiate a steep discount with a seller who relocated for a job, in a neighborhood
that had two year's worth of inventory on the market.
Before he even made an offer, the asking price had already dropped by about $80,000,
he said. After O'Heron made his case why the cost should be even lower, he eventually
bought the home for $270,400, with about $11,000 in other credits. The net price ended
up being $115,000 below the initial asking price.
O'Heron was able to take advantage of a market in which buyers decidedly hold the upper
hand, with its excessive for-sale inventory due in large part to job losses in the area. Even
though housing is in a slump in many parts of the U.S., those tactics won't work in markets
that remain healthy.
And in any location in which an aggressive offer is attempted, there is always an inherent
danger in going too low. There's a real risk the offer will insult the seller to the point that
they'll refuse to counter, Realtors say, and the seller could easily make the assumption,
that the buyer isn't committed to making a deal.
"There's a danger of them taking it too personally," said Jon Boyd, O'Heron's agent and
President of the National Association of Exclusive Buyer Agents. "When you're making
the offer, if you justify that offer with outside data, then it's much less likely to be
perceived as being an insult or (the buyer) not as serious," he added.
Heed these three guidelines on how -- and when -- to make an aggressive bid for a home:
1. Learn how motivated the seller is to make a deal
Certain sellers are going to be more willing than others to negotiate a low offer, and there
are several giveaways that might indicate more leeway on the issue of price.
For instance, if the sellers have already purchased another home and that sale has closed,
they're likely to be more willing to make a deal, said Dick Gaylord, president elect of the
National Association of Realtors and a broker with Re/Max Real Estate Specialists based
in Long Beach, Calif. And certainly if the property has been on the market for a long time,
sellers will be interested in entertaining any offers, he added.
To get at as many seller details as possible, Gaylord gets in the ear of his or her listing
agent. The nuggets of information he gets can be clues as to what kind of offers they'll
consider.
Overall local market conditions also play a role. The housing market in which O'Heron
bought, for example, was sluggish, and the home he bought had been on the market for
about a year. Because of the job relocation, the seller needed to move and wasn't in the
position to take the home off the market until conditions were more favorable, O'Heron
said.
2. Make your case with hard facts
When putting together an aggressive offer for a client, Boyd doesn't just hand the seller a
purchase agreement with the price the buyer is willing to pay -- he creates a cover letter
explaining exactly where that number came from.
In addition to citing comparable sales in making the offer, it also could be important to
include details regarding the amount of inventory in the immediate surrounding area, he
said. "If we just looked at the relative values of the houses that sold, we would end up
paying too much for that house because we know that the values are going to fall," he
said. "If we see two years' worth of inventory, we should be buying 5%, potentially 10%
less than what houses have sold for in the past year in the neighborhood."
Buyers may even personally write a letter to the sellers to make their point, as they did
when the market was hot and they aimed to stand out from the crowd, Gaylord said. That
way, they can detail what they like about the house but express their fear of future
dropping values. That's still not to say the seller will respond positively.
"The difficulty we're having in my market right now... sale prices are not dropping, things
are staying on the market longer," Gaylord said. "Buyers read about how terrible the market
is; sellers don't want to budge because they're reading that prices aren't falling."
3. Prepare for the possibility of rejection, or negotiation
Ultimately, a real-estate agent working on behalf of a buyer needs to honor and facilitate the
offer that the buyer wishes to make -- even if it seems to be too low.
Gaylord offers a word of warning to buyers making very low offers, pointing out that the seller
might refuse to negotiate. On a "super aggressive offer," Boyd might tell a client "there's a
one in five chance there will be a positive response."
Still, there's that potential for a seller to counter-offer, especially if there hasn't been many
other bids. Danielle Kennedy, a real-estate sales coach and author based in Pacific
Palisades, Calif., advises sellers not to think of a low offer as an insult but as "a sign of
interest."
"And it begins the dialogue regarding the purchase of your house," she said in an email
interview. "They should make every effort to be grateful that an offer has come in. "Also, not
all hope is lost even if a seller doesn't bite immediately.
Sometimes after time elapses, the seller comes around and decides to negotiate, Boyd
said. Or new information -- such as the sale of a comparable home at a lower price -- can
nudge a seller to give an aggressive offer a second look and open the negotiation process.
* * * * *
Do you envision living on the beach? In a forest? Having a view of
the valley and/or the sunset? How about 'just' living close enough
to work so you can actually enjoy your home instead of tail lights?
Here are some of the basic "let's get started" steps:
1) Get your thinking juices flowing! Read "Realty News from Kathryn"
e-newsletter. Not only will it give you real estate market updates, but it will also provide you
with handy tips on important subjects like; taxes, staging, financing and home maintenance
and news on the housing market. You can subscribe and receive an updated version at the
beginning of each month.
2) Contact a mortgage broker and/or your local banker. Find out what you can afford.
Don't just guess! Learn about your financing options – regardless of whether or not you are
a first time home buyer, seasoned veteran, an investor looking for a rental property, etc.
Interest rates are still VERY low! Note: Kathryn is a Mortgage Loan Agent.
3) Be prepared: Have your mortgage professional pre-qualify you. This is a well spent 15
minutes! Sellers are more willing to consider offers when they have assurance the buyer will
get the required financing. And, in many cases pre-approval is required. (This is especially
true when purchasing a home in foreclosure.)
4) Start your search in the privacy of your own home. This automated system will
email you notification when a home meeting your search criteria has just listed, (or the price
has been changed / reduced). Here.
-OR-
5) Contact Kathryn anytime with questions, concerns, or to set-up an appointment.
She will work with you to narrow down your needs / preferences / dreams and balance them
with what's available in your price range. This personal touch could save you a lot of time,
money and disappointment down the road...
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