Experienced real estate friends, a question for you

[AuntieM]

We are looking at purchasing a home that has been on the market for close to a year. There have been no offers on the house. We understand the reasons that the home has been sitting that long (has a lot to do with school districting) and would definitely have thorough inspections written into any offer to purchase.

 

My husband's question is this: *generally speaking*, what percentage of asking price is the lowest you can go for a house that's been on the market this long?

 

I really do understand how vague this question is... Let me give you some numbers... If the asking price is $240K (lowered once from the original list price of $260K), the house needs lots of work (including updating the kitchen and refitting the master bathroom tub, but mostly cosmetic), it's been on the market for almost a year with some lookers but no offers, could we enter the negotiating process at $180K without so offending the sellers that we lose any hope of working something out in the end?

 

If you are an agent, how to you present such a low offer to your client? The owner of this home is selling it for her now deceased parents, and lives on the same street, so I know she wants to see property values stay high. A house across the street just contracted for $235K, but they are currently negotiating repairs so the effective purchase price will be lower (though we know this may not be truly reflected in the stats after closing).

 

Just trying to figure out how low to go, because we know we'll need our cash for updates and also want to hold out some for upcoming high school/college/nursing school tuition payments.

 

Thanks for even thinking about this! All replies will be greatly appreciated!

[Margo out of lurking]

If you are an agent, how to you present such a low offer to your client?

. . .

Thanks for even thinking about this! All replies will be greatly appreciated!

 

To answer your question about how low you can go--the percentage is irrelevant. Your offer is based on what the market will bear. They can ask anything they want for the house, but the bank won't give you more than it is worth (okay, in theory anyway, right?). If they can afford to accept the market price, then you're good. If they can't afford it, they won't accept it, and they might never sell. In your case, the seller might have other debts to cover with the money expected from the sale. You know she has an interest in keeping neighborhood sales high. But she's paying upkeep and property taxes (and possibly a mortgage).

 

We bought a house with a similar background last year, except that it had been bought as an investment property. The owners paid a premium price ($250K) right before the market crashed, and then put $80K into the house, intending to "flip" it.

 

They listed it for $300K, already accepting a hit on the house. When we looked at it, it had been up for sale for a year, and the price was down to $270K. We offered $250K, and along with our offer, we submitted a list of similar homes for sale, and made comparisons against the house we wanted. We listed every negative, based just on a brief visual inspection. The house still needed major driveway repair, and a new deck. The updated kitchen lacked (regionally preferred) stainless appliances, and the basement was not finished.

 

The sellers were quite insulted. We figured they would be, but we knew they had to be desperate at this point and did not want to face another spring/summer with not selling the house. We also knew that they didn't have a personal investment in the house; we weren't rejecting their home full of family memories.

 

We waited a month and offered $10K more, and we settled on $262K. Our inspector came up with a long laundry list of "repairs." Against our realtor's advice, we only asked for radon remediation, and we submitted the list so they could see everything we were not asking for. We believed everything else was insignificant and to make further demands would not be in the best interests of either party. It helped ease some of their bad feelings about the deal.

 

In all honesty, we knew we were paying several thousand more for the house than it was worth, but it was well worth it to US. It was the only house (out of hundreds) that had every.single.thing. we wanted (except a fourth bedroom). We did not have to sell our current home; we never even looked at another house IRL (just online).

 

Making for a sticky situation is the fact that the sellers live a few houses away. We discovered that their realtor lied to them about information pertaining to the closing, and we are quite sure they do not know about that. Between the work they had done, the interest they made in house payments, and their realtor's fees, they lost ~$100K. I do feel badly for them, but it's not like anyone else wanted this house.

 

Sitting here in my kitchen a year later, I'm still loving it though!

[justasque]

We are looking at purchasing a home that has been on the market for close to a year. There have been no offers on the house. We understand the reasons that the home has been sitting that long (has a lot to do with school districting)...

 

Before you buy, do remember that although you aren't actually using the schools yourselves, the school district will factor in significantly when you decide to sell. Houses in "better" districts (whatever that means; that's a whole 'nother post) hold their value better and are easier/quicker to sell. I've seen friends with *lovely* houses become totally stuck because of school district issues.

[susancollins]

I would talk to your agent and see what he/she says. I would get your agent to have comps in the area to justify the price you are offering.

[G5052]

I would talk to your agent and see what he/she says. I would get your agent to have comps in the area to justify the price you are offering.

 

You agent may be able to "off the record" see what is reasonable. In our experience, there are many, many variables. Some buyers will turn their back on your completely if you low-ball, and some will seriously consider a low-ball offer. Houses can be on the market that long because the seller is unreasonable, or just because the market is slow for that area.

 

When we sold my MIL's house we told the agent what we considered an unreasonable offer, and offers below that were never even presented. That house was way out-of-date, in a bad neighborhood in terms of crime/schools, and it took 9 months, but we ultimately got better than we expected. It was bigger than most and had been maintained well, so we held to a certain figure that was below asking and just waited.

[missmoe]

It depends on a variety of factors. How much does the seller "need" to make on the sale? How much emotional attachment is there?

 

I would say 25% below asking may be considered insulting. Exspecially with a contract across the street for much more than you are offering.

 

I know many people (myself included) that have decided to rent houses instead of taking a large hit on a sell of a house.

 

 

And I must say to the pp that I would have been hugely insulted, if I was approached by a buyer with a list of faults and a lowball offer. There would not have even been a counter offer. There is always a respectable way to do business, and I don't think that was respectable in any shape or form.

[Impish]

Real estate is a business. If they don't like the offer, then they don't have to accept, but I really don't understand how an offer is insulting.

[Lisa in Jax]

We are looking at purchasing a home that has been on the market for close to a year. There have been no offers on the house. We understand the reasons that the home has been sitting that long (has a lot to do with school districting) and would definitely have thorough inspections written into any offer to purchase.

 

My husband's question is this: *generally speaking*, what percentage of asking price is the lowest you can go for a house that's been on the market this long?

 

I really do understand how vague this question is... Let me give you some numbers... If the asking price is $240K (lowered once from the original list price of $260K), the house needs lots of work (including updating the kitchen and refitting the master bathroom tub, but mostly cosmetic), it's been on the market for almost a year with some lookers but no offers, could we enter the negotiating process at $180K without so offending the sellers that we lose any hope of working something out in the end?

 

If you are an agent, how to you present such a low offer to your client? The owner of this home is selling it for her now deceased parents, and lives on the same street, so I know she wants to see property values stay high. A house across the street just contracted for $235K, but they are currently negotiating repairs so the effective purchase price will be lower (though we know this may not be truly reflected in the stats after closing).

 

Just trying to figure out how low to go, because we know we'll need our cash for updates and also want to hold out some for upcoming high school/college/nursing school tuition payments.

 

Thanks for even thinking about this! All replies will be greatly appreciated!

 

In this market, with a house that's been for sale so long and needs work, I'd think they'd be glad to get an offer. They might reject it, but they might counter. The worst that can happen is that they'd say, "no," right? What's the harm in asking, if you like the house and you're offering a fair price?

 

To find out if your offer *is* fair, though, look for sales of similar houses over the past year. If you can find a house or two with similar features (kitchen/baths not updated, similar school district, etc.), look at the sales price per square foot of living space. If you can justify your ~180K price by saying, "the most recent sales of houses a lot like your house (needing a kitchen, etc.) have sold for X per square foot, and we're offering a similar dollar amount per square foot for your house," they may be more open to your offer.

 

Your realtor will give you the "comps" of recent sales and will inform you how they compare (for example, if one comp has a pool, you'll deduct a specific amount for the house you're looking at if it doesn't have a pool). Once you have the comps, you can see how the per square foot price compares and make adjustments, if necessary.

 

We've been looking at properties lately, and a house we saw this week was listed at $222 per square foot. That's REALLY high, based on the amenities of the house and the recent sales of similar houses, which sold at $130-$160/s.f. So, if we were to make an offer, we'd say, "Our offer is X, which is $145 per square foot. We based our offer on these 3 comps which had an average per square foot price of $145." Using the per square foot price might make our offer MUCH less than their listing price, but that's not relevant. What's relevant is what the market has shown to be the going rate for similar houses, what we're willing to pay for that specific house, and whether the sellers will agree. ;-)

 

Lisa

[Happy]

Real estate is a business. If they don't like the offer, then they don't have to accept, but I really don't understand how an offer is insulting.

 

Because a house is not just stone, wood, nails, and appliances. A house is your home....and thus full of memories and emotion. Even when it's on the market. I had sellers last week who were insulted by their full price buyers requests for (too many) repairs. Their house is well maintained. My seller's believed not one thing was wrong with her house. Nothing major was. We had to negotiate, sure. But my first job was to get my client past her deeply offended feelings. That took two full days--and I got chewed out more than once. My job is to help my sellers keep their eyes on the goal.

 

As far as AuntieM's situation...your 'comps' should be of homes SOLD in the last six months in your neighborhood. It doesn't matter what anyone is asking, find out what someone paid. Ask what will it appraise for if you have to get bank financing. Naturally finding comps where the house is in the same condition is a good idea, too.

 

I think an offer with a list of proposed remodeling might bring a seller some clarity. Only include the big things--redo kitchen, etc. Don't nitpick.

 

And if you can have your agent tell the seller how much you will love on the house...I think in an estate situation that might be important. I know it was when I sold my mom's house. IF they are looking for a specific bottom line, it might take more time for them to come to their senses.

 

Good luck to you! I hope it all works in your favor!

Edited April 16, 2011 by Happy

[Cera]

If you can present concrete evidence for why you think the house is only worth $180,000 then I would make that offer but 25% under asking price is very low. I also think there is a psychological factor involved when making an offer under a major price point (in this case dropping below $200,000). I would probably offer $204,000 (15% under asking) and plan to pay around $210,000.

 

eta: The fact that it has been on the market for a year with only one price reduction makes me think they aren't really desperate to sell and most people know that summer is the prime time for real estate to sell so are less likely to take a low offer at the beginning of the season.

[AuntieM]

Thanks so much for all the input, I appreciate the time it took to share some of your long answers!

 

... Your offer is based on what the market will bear...

 

...We offered $250K, and along with our offer, we submitted a list of similar homes for sale, and made comparisons against the house we wanted...

 

...In all honesty, we knew we were paying several thousand more for the house than it was worth, but it was well worth it to US...

 

...Making for a sticky situation is the fact that the sellers live a few houses away...

 

Now that's making a deal! I'm happy you are happy in your new home! I agree that it's not really about the list price, but about what the market will bear. I will get more comparables from the realtor, but so far we can justify going quite a bit lower than the asking price. The question is, just how low. The sellers will be future neighbors and I want to be able to develop a good relationship with them (once the business part is over with).

 

Before you buy, do remember that although you aren't actually using the schools yourselves, the school district will factor in significantly when you decide to sell. Houses in "better" districts (whatever that means; that's a whole 'nother post) hold their value better and are easier/quicker to sell. I've seen friends with *lovely* houses become totally stuck because of school district issues.

 

So true! While we aren't interested in the schools there for our children, it is definitely a point for resale. That, as we see it, is definitely affecting this home's market value.

 

...

And I must say to the pp that I would have been hugely insulted, if I was approached by a buyer with a list of faults and a lowball offer. There would not have even been a counter offer. There is always a respectable way to do business, and I don't think that was respectable in any shape or form.

 

Actually, our realtor has suggested that along with our low offer, we submit a list of major items that will demand our cash. So I think it may be just part of doing business in real estate these days.

 

In this market, with a house that's been for sale so long and needs work, I'd think they'd be glad to get an offer. They might reject it, but they might counter. The worst that can happen is that they'd say, "no," right? What's the harm in asking, if you like the house and you're offering a fair price?

...

We've been looking at properties lately, and a house we saw this week was listed at $222 per square foot. That's REALLY high, based on the amenities of the house and the recent sales of similar houses, which sold at $130-$160/s.f. So, if we were to make an offer, we'd say, "Our offer is X, which is $145 per square foot. We based our offer on these 3 comps which had an average per square foot price of $145." Using the per square foot price might make our offer MUCH less than their listing price, but that's not relevant. What's relevant is what the market has shown to be the going rate for similar houses, what we're willing to pay for that specific house, and whether the sellers will agree. ;-)

 

Lisa

 

Yes, it's true that they can always say no. I hope that they will understand that the offer we make is the place where we'd like to *start* negotiations. I just want them to know that we really are nice people that aren't trying to "steal" the house from them. We just want to be able to have the cash flow to make it nice and still meet the educational goals we have for our family.

 

We will also get out the calculator and crunch the square footage numbers, thanks for suggesting it.

 

Because a house is not just stone, wood, nails, and appliances. A house is your home....and thus full of memories and emotion. Even when it's on the market. I had sellers last week who were insulted by their full price buyers requests for (too many) repairs. Their house is well maintained. My seller's believed not one thing was wrong with her house. Nothing major was. We had to negotiate, sure. But my first job was to get my client past her deeply offended feelings. That took two full days--and I got chewed out more than once. My job is to help my sellers keep their eyes on the goal. Wow, you actually brought your sellers a full price offer in today's market? Can I list my current home with you, SuperAgent??!!!

 

As far as AuntieM's situation...your 'comps' should be of homes SOLD in the last six months in your neighborhood. It doesn't matter what anyone is asking, find out what someone paid. Ask what will it appraise for if you have to get bank financing. Naturally finding comps where the house is in the same condition is a good idea, too.

 

I think an offer with a list of proposed remodeling might bring a seller some clarity. Only include the big things--redo kitchen, etc. Don't nitpick.

 

And if you can have your agent tell the seller how much you will love on the house...I think in an estate situation that might be important. I know it was when I sold my mom's house. IF they are looking for a specific bottom line, it might take more time for them to come to their senses.

 

Good luck to you! I hope it all works in your favor!

 

Okay, we will not nitpik - there are enough "big" items to make a good list! Have any of you ever seen/heard of a buyer submitting a nice letter with their offer to purchase? A "this-is-who-we-are, please-don't-think-we're-crazy, we'd-love-to-come-to-win/win-terms-on-this-property" kind of letter?

 

If you can present concrete evidence for why you think the house is only worth $180,000 then I would make that offer but 25% under asking price is very low. I also think there is a psychological factor involved when making an offer under a major price point (in this case dropping below $200,000). I would probably offer $204,000 (15% under asking) and plan to pay around $210,000.

 

eta: The fact that it has been on the market for a year with only one price reduction makes me think they aren't really desperate to sell and most people know that summer is the prime time for real estate to sell so are less likely to take a low offer at the beginning of the season.

 

That's a good question - why they have reduced it only once in a year. I think I'll see if my realtor has a clue about that. You'd think if they wanted to move it, there would be more aggressive marketing. I think maybe they don't realize (or don't want to acknowledge) the amount of work the house needs. But of course I can't just call 'em up and tell 'em that!

 

Thanks again for all you've shared. We'll follow up on your suggestions. Though we have purchased 9 homes, we've always bought new or nearly new. We've never gone the older home route. We have asked a lot of questions and sought advice from many, and understand what we'll be taking on with an older home needing repair. We've just never had to negotiate the purchase of one before!

Edited April 16, 2011 by AuntieM

[justasque]

Have any of you ever seen/heard of a buyer submitting a nice letter with their offer to purchase? A "this-is-who-we-are, please-don't-think-we're-crazy, we'd-love-to-come-to-win/win-terms-on-this-property" kind of letter?

 

ABSOLUTELY. It's what got my sister her house, despite not being the highest offer. It is the norm in some real estate markets.

[Blackacre Farm]

We just made an offer on Thursday on a house that had been on the market for over 400 days (and is empty). They had reduced the price a few times over that period and so it is currently listed for about $36,000 less than last year. Not a drastic difference, but I guess they are not desperate.

 

Anyway, we offered about 15% less than asking price and thought that was a reasonable starting point for negotiations. They countered at their SAME list price and just a few thousand to us in closing costs. We were shocked.

 

I think you just never know what people are thinking. Clearly, even after 400 days, our people are not that motivated to sell their house. Everyone has a different situation though.

Good luck!

[cdrumm4448]

Houses sell based on price and condition. It doesn't matter what the sellers need to net; it only matters what a buyer is willing to pay and a lender is willing to approve. You can offer anything you want to. Just be prepared for a rejection (in which case you are free to make another offer, usually higher) or a full price counter (in which case you have p*ssed off the sellers and they're making a point). I had a deal where the sellers countered full price every single time we countered.

 

In my experience, sellers really believe their houses are gold. Buyers, on the other hand, are looking for items to bring the list price down. It's business. It's the seller's agent's job to get their clients past the emotional attachment/reaction and concentrate on the deal.

 

The worst thing that can happen is your offer gets rejected. Go for it.

Edited April 17, 2011 by cdrumm4448

[Tap]

Unless these are cosmetic issues that you can fix, I would proceed cautiously.

 

My sister bought a house that was a Great Deal.....LOL It was on the market for a long time, when the market was good (a year plus) and the price was dropped several times. They loved the house and thought it was wonderful. They thought they got a steal on it. To hear her describe the house, it was wonderful and just beautiful. It sounded perfect. When I walked in the first time, I could see the things she loved.....but I didn't like the house, at all. To me it was oddly proportioned with a ton of wasted space. Not family friendly and had some architectural features that didn't fit the space. It had absolutely no appeal to me, and I could see why it hadn't sold.

 

They relocated due to a job promotion, and the house has been on the market for 2 years now. Sitting vacant, ready to show at a moments notice. They are paying someone to maintain it, so it doesn't look vacant. No OFFERS.

 

Houses are sitting longer that they used to, but I would also talk to the realtor and try to get a honest opinion on the house and the market it is in.