Need advice on putting in 'low ball' offer

jenny_from_the_blockAugust 4, 2009

Need some advice on putting in what may seem as a "low ball" offer but I donÂt think it is, IMO (of course, that is my opinion, and why IÂm seeking advice :-) We are looking to buy a home in a small-ish eastern town (which I donÂt want to name at this time) which has been fairly stable IÂd say job- and housing-wise. We are looking to move into town to be very close to work and nice schools.

Larger houses in town can be expensive due to location, and I understand that (Nothing is really old enough to have any particular historical value). But I think the prices on some of the homes weÂre looking at are astronomical. The town has a nice searchable online database where you can find dates and prices of house purchases, as well tax documents with assessed value. The only downside really is that it doesnÂt include square footage. Homes on the same street can vary considerably in size.

IÂll give a few examples of homes we are looking at  one we are looking at was built in the 1950s and nothing has been updated since then. The most recent comp I could find on the same street sold for $440K in 2007, and its 2009 assessed value is $416K. The $440K previous sale appears to be about the same sq footage as the one we are looking at, approx. same amount of yard, and it appears to be somewhat newer of a home. The house we are looking at today is listed at $565K! The most expensive recently sold houses I could find on neighboring streets went for $375K, $365K, and lower $300K in 2008. There is another house in the same neighborhood listed at $600K, but its been on the market for a little over a year now.

Two other houses we are looking at today have similar scenarios. We are looking at a second that is listed at $459K, I think because the people refinished the hardwood floors and probably upgraded the baths and kitchens. (IÂll find out more when I see it). But they bought a virtually identical house next door for themselves to live in for $300K last year.

Another older house we will be looking at today is listed also at $565K, but the most expensive recent sale on the same street for a comparable house was in 2007 for $250K (I need to check the sq ft of this one). The most phenomenal older house on the street is assessed at $400K.

If I wanted to put an offer in on one of these houses, should I feel any angst about putting it in a good bit lower than the asking price (especially since they all would likely need some fixing-upping or upgrading)? More in line with what I see to be the more recent sales and assessments? Granted, these houses havenÂt been on the market for a huge length of time (a few months), but the one has been on since February. There are other examples I could come up with that have been on the market longer. I havenÂt brought this up with our BA yet to get her opinion but I wanted to see if anyone out there has any insight or thinks IÂm missing something in my "analysis".

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jenny_from_the_block If I wanted to put an offer in on one of these houses, should I feel any angst about putting it in a good bit lower than the asking price

Of course not. This is business. You should not have any qualms or guilt about putting in a lowball offer. But, do not be surprised if the homeowners are "insulted" by your lowball bid and refuse to counter back. Just because you see it for what it is, business, does not mean the sellers see it the same way.

Are you working with a Realtor? If so, they will have current sold comps as well as square footage and house condition. If you have supporting documentation to back-up your low offer, that might make the homeowners less angry and more willing to counter your lowball offer.

Depending on where you live the town's assessed value can mean nothing. In my area reassessments are done yearly so assessments are fairly close to reality (within 10%) but not all areas assess as often or use full market assessments.

    Bookmark   August 4, 2009 at 1:04PM
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Most towns do a horrible job with assessments, so I would toss those out the window.

As for the comps you are pointing out, they need to be recent. Sales from 2 years ago are not good guides. If you have an agent, they should be able to help you out with pricing. A general strategy is to find recent homes that have sold in the area and calculate the price per square foot. That should give you a range for "reasonable" prices.

As for strategy, there is no downside in making a fair offer. If the owner doesn't think your fair offer is in the ballpark, then you are going to be a match. A"lowball" offer is where you purposely give them a below market offer to see if the are desperate. That does have the potential to backfire because the owners may be insulted and unwilling to negotiate back towards a fair price. If your idea of fair and their idea of fair are nowhere close, no amount of strategy is going to make a deal happen.

Also of note, if you are looking in "transitional" neighborhoods where people are making major improvements to older homes, it is not unusual to see a renovated house going for say 500k+ while the houses that haven't been renovated sell at half that. This can be confusing for both owners and buyers in terms of pricing.

    Bookmark   August 4, 2009 at 1:49PM
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Thank you guys/girls for the input.
There doesn't seem to be a lot of stuff moving, so I can't always find something that came up for sale recently on the same street. There is that online database where I can look up recent sale prices for addresses.

Just to clarify, we aren't thinking about a low offer just because - the price range I am considering is to be within our budget considering some of the places could easily absorb $100K in repairs (like moss growing on the roof, rotting windowsills, etc). For something that needs that much work I guess that why is I have such sticker shock.

We are working with a buyer's agent. She hasnsn't mentioned pulling comps for me at all. She did make a few loose recommendations, such as one property we looked at she cautioned about "over improving" it. Otherwise she pretty much just shows us stuff that I see on the internet and we ask to see. We did work with her to put one offer on a fabulous house (again it needed a ton of work) but unfortunately the sellers pulled it off the market at the same exact time we put our offer in to them. Apparently they had rented out the place they were going to move into, and didn't tell their realtor til he presented our offer. >:-(

    Bookmark   August 5, 2009 at 9:33PM
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Go to your agent, asking for recent comps, any good agent will know exactly what to give you. The agent probably knows all the comps, then can tell you how comparable they are to adjust your offer. Have you told her you want to make an offer, she should be pulling comps for you right now? Don't give your agent too much info, don't say you will go higher than what you decide to offer. Just work to come up with a reasonable price, tell her to present. A place may need $100k in work, but it may already be reflected in price, we have no way of knowing that. Have you agent assist you, just don't give her any personal information about you. There is not reason for the agent to know that.

    Bookmark   August 5, 2009 at 10:22PM
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What cmarlin says is very good advice.

Also realize that there is a lot more to comps that pulling what sold on the same street.

    Bookmark   August 6, 2009 at 9:17AM
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Make your agent work... demand those comps, have her drive you by those comps to see the condition they are in compared to your subject. You will never get the right answer here.

    Bookmark   August 6, 2009 at 9:30PM
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I flat-out asked, and my BA provided me with a list of all all houses sold in the area we are looking in since January of 2008 to present. The list she sent me has pics, list price / sale price, square footage, lot size, etc. It is really helpful. I can be more comfortable making a lower offer (nothing selling in that price range had a house that needed anywhere near as much renovation as one we are considering putting an offer on), who knows though what the sellers will think though. I guess you can but try.

    Bookmark   August 8, 2009 at 10:09PM
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