This is my column this week from the Arizona Republic (permanent link):
How low can they go? Negotiating a real estate bargain
Everybody wants a bargain. The question for homebuyers is, how do you get one?
I was in a property last weekend with a buyer. The home was listed for $450,000 and the buyer asked, “Do you think they’d be willing to cut the price by $100,000?”
Stranger things have happened, but I’d bet against it.
Here’s why: Let’s assume the monthly payment is $2,000. The seller could afford to wait four years for a better offer before slashing the the price by $100,000 would make sense. There are other factors to consider in real life, and this kind of analysis is best done on a spreadsheet. But a lot can change in four years.
You certainly don’t want to pay any more than you have to, but you cannot possibly pay less than the seller will agree to.
What can make sellers particularly negotiable? A new job out of state and they can’t qualify for two mortgages. A new house under contract with a hefty non-refundable deposit. No one likes to think about profiting on the misfortunes of others, but sellers who are facing foreclosure are likely to be ready to cut to the quick.
In other words, sellers who have a strong motivation to sell now are going to be a lot more willing to negotiate price cuts than people who kinda-sorta want to move, provided they can get their price.
But even if you find a motivated seller, there’s a complicating factor: That seller has to have room to negotiate — equity in the home. If the house is encumbered at or near the list price, there’s a limit to how much the sellers can cut the price, no matter what their motivation. To go further would result in a short sale — the sellers would come to the closing table “short” of the full amount they owe.
Short sales can be great bargains, too, but, since you’re negotiating with the lender more than the seller, they’re a chancy proposition at best, and they can take a long while to work out.
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Brian W. Barringer says:
>In other words, sellers who have a strong motivation to sell now are going to be a lot more willing to negotiate price cuts than people who kinda-sorta want to move, provided they can get their price.
I agree that’s why a lot of homes in my market collecting dust. The homes with motivated sellers are forclosures, divorce, relo, and probate. When one of the above is also a fixer, then you got a real winner.
I got my current/first home is a probate/fixer….assessing seller motivation is important.
November 3, 2007 — 11:20 am
Chris says:
This drives me nuts, buyers think everything is overpriced. I got an offer on one of my listings for $100k less than asking, I laughed. The buyer thought since its a new house the builder must be going bankrupt, because in the paper…. I hate having my time wasted, these people need to stop reading the paper so much.
Mind you this house is already priced $25k lower than the competition, because the area is tough and we want it gone. Its next to a gas station.
November 3, 2007 — 12:14 pm
Geno Petro says:
Greg, I have two listings where the clients have both been relocated out of the area. Because I mention in the MLS remarks that a Relo Rider is involved the only interest lately has been along the lines you described in your first two paragraphs, i.e. very low offers. Not even offers. Inquiries. I’m getting a lot of very low inquiries.
‘What if’ situations posed by the buyers agent on behalf of their clients. I’m going to use your line next time it happens.
“Stranger things have happened…” then I’m going to wait until the very end of the conversation and tell them the other half…”but I wouldn’t bet on it.”
November 3, 2007 — 4:27 pm
Robert Kerr says:
Mind you this house is already priced $25k lower than the competition, because the area is tough and we want it gone. It’s next to a gas station.
$25K lower? Immaterial.
If you can’t sell it, it’s priced too high.
And any buyer who asks an agent for feedback about a lowball proposal doesn’t understand that he’s the only one at the party playing the “lowest price” game. Everyone else walks away neutral or wealthier with a higher sale price.
November 3, 2007 — 6:03 pm
Dan Gobis says:
Tough market. Price is everything, good market or declining market. I have a foreclosure, listed at $319k, $40k below the 2 other homes in the same neighborhood, $70k below assessed value.
I’ve had 3 offers, all below $290,000.
My recommended list price 3 months ago was $280k.
The lender gave the previous owner an $80k 2nd mortgage, even though the previous owner has had 5 foreclosure actions filed against them since 1995.
They wonder why I question their list price. I took the listing ass-u-me(ing) they were a motivated seller.
Eventually, I hope.
November 3, 2007 — 7:07 pm
Will Farnsworth says:
>No one likes to think about profiting on the misfortunes of others, but sellers who are facing foreclosure are likely to be ready to cut to the quick.
How about the misfortunes of those who are priced out of this market due to the “cheap money” policies of the Federal Reserve during the last 5 years?
I don’t feel one damn shred of pity for sellers who can’t get their asking prices in this market and are crying foul because they get offers that would be closer to the true value of their homes had this artificiality of the market not been brought into existance.
Mr. Kerr, that is a great line: If you can’t sell it, it’s priced too high.
Get real, people. This isn’t 2004.
November 3, 2007 — 8:28 pm
John Wake says:
The psychotic, “Let’s just try offering $100,000 less than list price” buyer is the flip side of the psychotic, “Let’s just try this price for awhile and see what happens” seller.
Neither are serious. Both are huge time wasters.
November 4, 2007 — 11:51 pm
Chuchundra says:
Thing is, in my experience, it’s rare to find a current listing that’s not overpriced.
Greg’s point that some sellers, especially those who have bought in the last few years, may not be able to come down into the proper price range is true, but irrelevant. Why do I care what the financial situation of the seller might be. I’m certainly not going to pay over market for a property because the owner paid too much for it or is HELOCed to the gills.
In this market, buyers should make offers based solely on what they think a particular house is worth. This offer should be based on solid fundamentals and very recent comps, not guessing games, concerns about the seller’s financial position or asking prices of similar, unsold listings on MLS. Truthfully, this price may only have a passing acquaintance with what a seller thinks it’s worth or an asking price printed on the flyer, but this can’t be helped.
November 5, 2007 — 9:08 am