Thursday, July 2, 2015

Think a "Lowball" Offer Will Get Your Home in a Hot Market? Think Again...

Summer is here, and that's not the only thing that's hot! The housing market here in Utah County shows that sales are up 17 percent (YTD), and home prices are also up at a 17.5 percent increase from just last month. The Utah County Association of Realtors reported, however, that listings are down 27 percent. These numbers indicate that the market is strong, but more inventory would also be a good thing.

When you find yourself in a hot market, you want to be careful as a buyer not to insult a home seller. So, what initial offer would be insulting to a home seller? 10% less than asking? 5% less? A full priced offer with 3% of buyer's closing costs paid by the seller?

As a REALTOR®, I have seen my share of sellers who were insulted by a buyer’s offer. There are times when anything less than a full priced offer is insulting... but should a buyer be afraid to request a few thousand dollars toward closing costs? Will the seller balk and accept the next offer in line?

To be honest, a lot of it depends on the price and location within Utah County.  In some neighborhoods, it could be insulting to offer less than full price- especially if it is a home priced under $200,000. There are an abundance of first time buyers out there looking for affordable, move-in ready homes, and a well prepared and priced property can get an offer (or 2, 3 or more) in a matter of days. There are also many neighborhoods and communities in my this with a very small number of homes for sale.

Buyers often get advice from friends and relatives to never pay full price because "sellers always negotiate." In reality, many sellers will not negotiate significantly, and a "lowball" offer could put the buyers’ dream home purchase in jeopardy.

Here's how to come up with an acceptable starting point: 

  • Have your REALTOR® do a market analysis. 
When representing a buyer, I look up the recent comparable homes sold in the neighborhood before the offer discussion begins. In a low inventory market, a seller that lists at market value could still be in a multiple offer situation due to demand. If the home is properly priced and in a high-demand area, anything that is not close to full price could mean that the seller will wait for another offer. By looking at the neighborhood comparables, my buyers better understand what offer will be considered reasonable.
  • Consider the original list price.
If a seller started off too high and adjusted the price of the home, it could be priced right now. If a market analysis shows the current price of the home is fair, offering 5-10% less could be considered insulting. When a buyer has found the house and fallen in love with it, it might make sense to make an offer closer to the asking price rather than haggle and risk losing it.
  • What if the home is overpriced?
If the market analysis shows that home to be significantly overpriced and the offer will be more than 10% less than the current asking price, it may be helpful to have your REALTOR® provide the comparables to the seller and his/her agent. Sometimes when the offer is accompanied by documentation to back up the offer, the seller is less offended - a good REALTOR® will be careful not to overlook good comps to justify the offer. This strategy can be worse if not providing any documentation.
  • Consider plans to remodel and update. 
Some buyers think sending a long list of planned updates complete with associated estimates is a good strategy to negotiate a price reduction - but beware! If the updates are necessary due to age or wear, make note of the fact, but slamming a well maintained and updated home to justify a low offer is insulting and makes continued negotiations difficult if not impossible.
  • Avoid considering the price paid for the home.
I have come across a few buyers who research tax records to determine the price the seller paid for the property. They assume if someone purchased a home at a very low price, they have a ton of equity. This can be true, but it's not always the case. Some sellers have taken the equity out of their home for improvements or for other reasons - and if sellers do have equity, they usually don't intend to give it away. Keep the negotiations focused on the fair market value of the home.

Right now, sellers are excitedly anticipating a non-contingent, pre-approved home buyer willing write an offer for their home. In most cases, they understand the market and have worked hard to prepare their properties to entice a written purchase agreement (or several). Buyers must think through their offers and contemplate their negotiations carefully. Discussions can go south very quickly between buyer and seller when the initial offer is not on point.

In any case, this is a great time to buy or sell a home! Confidence is up, interest rates are still down. Many lenders can advise on programs that don't even require the past staple of 20 percent down! If you or anyone you know is need of a true real estate professional, please don't hesitate to contact me! I look forward to working with you!

Sources: Utah County Association of Realtors®, Teri Eckholm, Zurple