We submitted the purchase offer, utilizing the new strategy dubbed, “Tuna Melt”:
List Price: $2,375,000
Offer Price: $1,800,000, with $100,000 reductions each month. Offer good for 4 months.
I always like to include a compelling case to help justify the offer.
Evidence submitted:
- Sellers’ purchase price: $1,750,000, November, 2005.
- Zillow Zestimate: $1,295,000 (up from $900,000 less than a year ago).
- Tax Assessor’s Value: $1,600,000 (even number = re-assessed within the last year).
- House has been on the market since the beginning of 2008.
There has only been 4 sales in the last six months over $1 million. One of the four sales that closed for $1.3-something had mentioned in the remarks, “Was once listed for $3,500,000”.
I also said that it’s not just us, that all buyers would look at this evidence the same way, and expect to buy the house well under list. This was the response from the agent, who CC’d the sellers too:
Zillow does not know CRAP. The Sellers are not going to counter. The offer was too low, and the approach as to the $100,000 reduction per month was offensive.
Watch the creative techniques, sellers are sensitive enough.
Jim, this may be the most entertaining post you’ve ever made. I LOVE this technique.
Jim – As a unabashed value hunter, I am very proud of your approach grasshopper.
I have always felt that if my first offer/negotiation is accepted then I failed. I usually like get blown out a couple times so that I am sure I did not overpay.
Then as the market keeps degrading, I keep resubmitting my offer lower, and lower, and lower until the seller breaks.
Keep on them and just keep dropping your offer 100k and on the first of each month, like clockwork, offers keep arriving at the agents office.
It will drive him crazy, then the seller’s will break at some point.
If I was the seller, and some out-of-town bloke came up with this much research about the value of my house after a few minutes of basic internet research, I’d sign that offer and race it back to the buyers before they changed their mind.
That was the whole point of the ‘tuna melt’ – to try and get the sellers’ attention.
However, the ego is very powerful.
I did tell the agent to shove the offer in a drawer, and I’d call at the end of July to see how the “season” was wrapping up.
That was a solid offer with good backup.
If you’re not embarrassed by your offer then it’s not low enough.
Where’s the “Like” link.
(Reuters) – U.S. foreclosure activity fell in April as lenders repossessed homes at a record pace but started far fewer new actions against struggling homeowners, signaling a plateau in loan failures, RealtyTrac said on Thursday.
No meaningful improvement is likely this year, however, with mortgage modifications and high unemployment only delaying the inevitable for most of these borrowers, the Irvine, California-based real estate data company said.
But nationwide April foreclosure filings — notice of default, scheduled auction and bank repossession — fell 9 percent from March and 2 percent from a year ago.
This was the first year-over-year drop since RealtyTrac started tracking annual foreclosure rates in January 2006.
“What we’re really seeing is the effect of lenders slowing down the initial notices of default while they are processing what’s already in the pipeline,” Rick Sharga, senior vice president at RealtyTrac, said in an interview.
Lenders filed default notices on 103,762 properties in April, down 12 percent in the month and 27 from a record 142,000 one year ago.
Banks, meantime, took control of 92,432 properties in the month, a record, up 1 percent from March and 45 percent from a year earlier.
With notices on 333,837 properties, one in every 387 U.S. housing units got a foreclosure filing in April.
“The housing market is still in critical condition but is stable,” Sharga said.
Borrowers are increasingly tapping federal programs that encourage lenders to alter loan terms to help owners stay in their homes. Still, the overwhelming majority will wind up in foreclosure, he said.
A record 2.8 million U.S. properties got a foreclosure notice in 2009, according to RealtyTrac.
“We still have over a million properties in foreclosure, we still have about 5 million seriously delinquent loans and we’re ultimately going to have to work through all of those, so we’re not out of this yet,” Sharga added.
Come back 30 days later offering $1.7E+06. And then 30 days after that with $1.6E+06…
Given that the property has been on the market since early 2008, it seems they are in no hurry to do much of anything. But if nothing else, they’ll remember you.
Well, I can relate to the agent’s sentiment with respect to Zillow.
I think your buyer dodged a bullet!
I suggest offering $1.2 in a year or so.
Suggestion to buyer: Find a house you can live with in the $1M range, and stash the $800K in a stable investment. Let that spin off enough money to live off of.
-Erica
Any upgrades that would justify a higher price than they paid at the peak of the bubble?
They tried to sell in November 2006 at $1.97m with a different agent.
If at first you don’t succeed, raise the price!
“However, the ego is very powerful.”
Also, the fallacy of sunk costs. That one’s got to be sticking in all kinds of craws these days.
Way back in 1990 or so, we found a house for sale owned by 2 single woman who had a falling out (including one of them killing the other’s cat). We made a very lowball offer, and they let us know loud and profane what they thought of our offer.
Several months passed and I ran into one of the women in a store while shopping. Apparently, the relationship had worsened and as a result no one who looked at the house wanted anything to do with them. She begged me to resubmit our offer. So we lowered our price a lot, to the same amount as the first mortgage, and they accepted. Win-win.
Once you fall in love with a house, you will overpay. You must be willing to make an offer you can live with and be willing to walk away if it is not accepted.
You submitted 5 pieces of evidence, and their response is that one of them is crap. Uh, okay fine I agree Zillow generally doesn’t know crap, what about the other 4?
Twits. I give them until day 28 so that the 100k reduction hasn’t kicked in yet. or maybe day 30+ 28, so only one of them has.
@Jim,
I don’t see the point of mentioning either Zillow or the Assessor’s value.
Zillow is crap. I know that because I have been using it heavily to research both the sale of my house and the purchase of a replacement.
In Colorado, the assessed value is not even close to market value. In theory it is close, but reality is quite different.
“U.S. foreclosure activity fell in April as lenders repossessed homes at a record pace but started far fewer new actions against struggling homeowners, signaling a plateau in loan failures, RealtyTrac said on Thursday.”
I have no idea what the measure is here, but to suggest that foreclosures plateau only suggests that foreclosures are still very high. Also the number of foreclosures is bounded above, so we do expect some limit to the increasing rate–it could not increase forever, even if the market continues to collapse. In the end, similar to the unemployment rate, the rate of foreclosure is still very high.
Well Dave, like we’ve discussed before, it’s because you think you know it all, and just come in here to rain on my parade.
This is professional sales. I don’t just throw out a number and hope I get lucky, I write a clean offer and back it up. Apparently I think Zillow is crap too, because we offered $1.8 when Zillow says $1.295.
My point, completely missed by you and the sellers, is that ALL buyers these days look at Zillow, the tax assessor’s value, and any other data they can find to substantiate the most conservative offer price possible, because they don’t want to over-pay. Sellers who think they can just disregard this evidence need to furnish some of their own.
My response to the agent was simple. Substantiate your $2.375 and we’ll pay it.
I think it was a total waste of time. I agree with the sellers agent. I wouldnt deal with that offer.Its insulting
Thanks jeff. What’s your blog address?
Way to go jim.Like your aggressive approach!!!
Here’s another way to scare the pants off sellers…
1. Get a couple of friends together.
2. Have them each contact a different RE agent
3. Have each of your friends submit a HUGE lowball offer
4. About a week later you offer the seller a minor lowball
What happens is your friends offers shock the seller into being more reasonable. Then when you provide your offer the seller thinks you’re offer is a good deal.
This technique is not as ethical as Jim’s but it works just as well. It’s kinda like the reverse of when a listing agent tries to bump up your offer by telling you there’s a mystical counter offer you have to bid over to get the house.
The listing agent replied, “Zillow does not know CRAP. The Sellers are not going to counter. The offer was too low, and the approach as to the $100,000 reduction per month was offensive.”
I’m not sure if I should laugh or cry.
If Zillow suggested the value was $2.0M, would the reply have been the same?
Who does actually know the true market value? The seller? I know plenty of seller who think they know the value, but finding a buyer becomes a challenge. Some public assessor? Is that better than Zillow?
There is no price fixing agency in housing, so the value is set by the market–who knows if there is a better buyer out in the world.
JTR, “I did tell the agent to shove the offer in a drawer, and I’d call at the end of July to see how the “season” was wrapping up.”
I’d call just before the critical points. We’ve seen it time and time again, people wait until the deadline. If I were the seller, I’d wait until just before the deadline of the first $100k drop, or about a month from now. Excluding the possibility that the buyer withdraws the offer, why wouldn’t I wait for a better offer during the first 30 days? While I like the basic idea, I think this needs a $25k penalty for not accepting within 7 days:
$1,825,000 first 7 days
$1,800,000 remainder of 1st month
Then $100,000 reductions for next 3 months.
The message to the seller is clear: Not only do I want you to act today, but if you don’t, I’m looking elsewhere, and you’d better hope that the market goes up, and not down.
(I’ve made the basic assumption that the $25k, a premium of 1.4%, would have been worth it to the buyer to get the offer accepted within 7 days. If this is not the case, then $1,800,000 today, and $1,775,000 in 7 days. There may be some seller psychology involved here [=irrational behavior], so possibly the second strategy might be more successful.)
In the end, it’s my guess, and I really don’t have any idea what the true fair value of the place is, that this offer will go down faster than the market value of the property. For example maybe the property is worth $1,850,000 today, but the $1,800,000 offer is too low, so it is declined. As time goes on, maybe the property goes down in value by $50,000, but the buyer’s offer is going down by $100,000 per month. The chances that this gets accepted would go down as time passes, unless there was some sort of desperation by the seller.
Thanks for keeping us updated.
#22 is very likely illegal, and I doubt that any attorney would approve such strategy. At a very minimum, the people who make the low offers must be willing to buy at that price. And then there are price fixing problems. At the same time, I fully recognize that specific damages are going to be difficult for the seller to prove.
That said, excluding the areas where price fixing is legal, anytime you get together and discuss a specific market strategy between market participants, you’re very likely to have anti-trust problems.
JP2,
HaHa try and prove it.
The way real estate transactions are set up both parties are blind to the other. It would be really hard to prove that buyers are colluding. And realtors are sales people they don’t have the time or knowledge that it would require to put together a case.
Oh, just because it might be difficult to prove, then it’s ok? Now real estate transactions are Mafia style!
Once again, I follow the advice of a competent attorney, not some thug who suggests that a crime cannot be proved.
“#22 is very likely illegal, and I doubt that any attorney would approve such strategy. At a very minimum, the people who make the low offers must be willing to buy at that price.”
As long as they’re individually willing to buy for the price that they’re offering, I don’t understand how it could be. Do you think it would be illegal to make a series of offers by way of different proxies too?
NateTG- Since you don’t know the law, and you don’t know how to use Google, I’ll provide you a quick primer:
http://en.wikipedia.org/wiki/Price_fixing
In the United States, with limited exception, such as utilities, you cannot legally get a group of sellers or buyers together and develop a strategy to impact prices.
The offer communicates that you are willing to buy now at a certain price even though you think it is on the high side, you are communicating that your buyer has a time preference and is willing to pay for it. If the seller decides to wait they lose $$ because they do not respect the time preference of the buyer and as the months goes on it clearly demonstrates that the price was over market. The sellers are likely insulted because they think the offer communicates the buyer thinks they are under financial strain and will respond to the time pressure. 100K may be pocket change or at least they are insulted that anyone would think otherwise. There are probably ways to make this offer go over more smoothly. Explain the time preference. Explain the offer is high in the buyer’s eye. Tell them the buyer intends to come back with future offers but they will be lower, don’t tell them when and don’t tell them how much.
The bottom line is that anything is only worth what somebody is willing to pay for it. If there is no buyer for that house at $2,375,000 then it can’t be worth $2,375,000. It almost sounds to me like the buyer is only interested in selling if they can get their price – it’s a “make me move” deal. On the market since 2008 suggests they can hold out forever.
I guess we will see!
JP2,
“In the United States, with limited exception, such as utilities, you cannot legally get a group of sellers or buyers together and develop a strategy to impact prices.”
So using your logic wouldn’t a bunch of realtors working together to assist sellers in maintaining a high price be illegal?
Sounds to me like someone likes when they receive the benefits of collusion but cries like a baby when they work against you.
“So using your logic wouldn’t a bunch of realtors working together to assist sellers in maintaining a high price be illegal?”
REALTORs are not sellers, and they don’t collect them all in a room together and discuss prices.
Also there are buyer’s agents, and the buyer’s agents cannot get the buyers in a room to fix prices lower.
“Sounds to me like someone likes when they receive the benefits of collusion but cries like a baby when they work against you.”
You cannot fix prices higher or lower. If you are a seller, you seek to set prices higher, and if you are a buyer, you seek to set prices lower.
Why not go read some price fixing cases, or ask a competent attorney.
To review, the basic strategy is to get a group of buyers together and discuss a method to lower market prices. I am not an attorney, but from my non-attorney understanding of the anti-trust law, this sounds like a per se violation.
Everyone gets so emotional over the seller’s decision to not accept. So what if the sellers don’t accept, its their choice regardless of the price, logic, zillow, comps, etc.
That’s the beauty of this buyer’s market, there are tons of choices, just need to find the motivated seller (which this obviously isn’t) matched with a great property. If its not a motivated seller, don’t even waste your time give that they comprise 80%+ of the marketplace.
Not everyone is obligated to sell at ‘market’ value…their loss and their decision to make…next property please!
I’m not really sure what all the hubbub is. The seller is essentially running a dutch auction. A for effort. I wouldn’t say the approach is “offensive”, just sending a different signal to the market, as those above have noted. It could of course backfire, if potential buyers are offended, but I see no reason to dismiss the approach out of hand.
As for what the house is worth, which is the real issue, while all of the figures Jim noted in his original post have varying degrees of usefulness, in my mind the “once offered for” one is the complete joke. If I list my house, which I bought for $1M, for $4M based on the theory that a fool and their money are soon parted, that doesn’t mean $2M is a great deal.
“The seller is essentially running a dutch auction.”
Yes, and the seller expects that the buyers are all acting independently.
Zillow is crap, but I still use it. It gives you a rough idea of a neighborhood’s value. It doesn’t account for views, traffic noise, landscaping, property condition and numerous other things, but it’s a good starting point.
I can’t believe the sellers are holding firm. I sort of hope the housing market crashes again just to open their eyes.
LOVE it! Nice Response. Is the selling agent a teenager? Sorry you have to constantly deal with that level of professionalism. That’s probably the best offer they’ve received, and the reality of their situation is setting in.
I love how people say the offer is “offensive,” or “insulting.” This is a $1+ million transaction, not amateur hour. If you offered well above asking price would they tell you it was “flattering?” Maybe you should send flowers and fresh cookies with your next offer, Jim, to make them feel warm and fuzzy.
Again, WELL DONE.
“I am not an attorney, but from my non-attorney understanding of the anti-trust law, this sounds like a per se violation.”
Well I am, and I can tell you, this hypothetical is not actionable price fixing.
One of the central components of the Sherman Act is sufficient market power. Even if all of the other elements of price fixing are there such as (a) collusion among participants, and (b) price restraints, you must also have (c) sufficient market power in order to establish a violation of the Sherman Act.
In this hypothetical, you have established (a) and (b) but not element (c). Simply put, 5 people (or 10 or 20) is simply not enough market power to establish a restraint on trade.
If you got say 1,000 people or more doing this, then perhaps you could establish a violation of the Sherman Act. Moreover I cant tell you off hand where that fine line is between 20 and 1,000 people where you could or could not establish a violation (depends upon the situation). Still, for purposes of this hypo, this is not an example of illegal price fixing.
Jax-
“(c) sufficient market power in order to establish a violation of the Sherman Act.”
I hope you’d agree, that given the situation presented, the market power was established.
The author suggested, “This technique is not as ethical as Jim’s but it works just as well.”
If it actually works, which I assume to be true based on what the author presented, then there was sufficient market power. On the other hand, you might suggest that the end results were exactly the same as if the strategy were not used, and thus there was no market power.
“REALTORs are not sellers, and they don’t collect them all in a room together and discuss prices.”
Actually, they do. During the boom years in particular there were constant RE cheerleading events with speakers like Gary Watts. These “experts” would spew out their talking points (lies, damned lies, and statistics) to their underlings to regurgitate to the public.
Jax-
I guess I should cover both cases:
1. If the strategy works, then there is sufficient market power (prices were actually impacted).
2. If the strategy does not work, then there was not sufficient market power, but in this case the selling price ends up being exactly the same. If the selling price is the same, then why use this strategy?
KeithM-
The REALTORs don’t collect the sellers in a room and discuss specific pricing strategy.
The whole group of low-ballers thing is irrelevant in this case. Do you honestly think that over the course of TWO YEARS they haven’t gotten their fair share of low-ball offers? I would think one every three to four months.
The question is, are Jim’s buyers coming in just above that riff-raf, or does the LA think these offers are a dime a dozen?
Love how that offer was written. That is salesmanship at its finest. Few people “get” the sales process and even fewer perfect it. Any smart buyer would have Jim on their team.
any reference to zillow (imo) would make me not take any offer all too seriously. I’ve witnessed it work the other way as well, I was at an open house where the agent was bragging about how the price was 200k below the zillow estimate – BFD!
JP2 – interesting negotiation refinement…drop 25k in 7 days.
JtR,
Did you pull a preliminary title to see if the owners have refi’d or HELOC’d themselves into debt on the property that exceeds your offer? My observation has been that many of the cases of WTF pricing are driven by underwater/overleveraged sellers who can’t afford to sell it for what it’s worth.
is saying “i’m so offended” by an offer actually a tactic that works, relevant, or even appropriate? the other day, i heard the other side of my negotiation for something tell me, “they are so disappointed in me”. what, am i 12? it was hard not to laugh at their obvious lack of rebuttal, pulling the mommy card on disappointment. “is that the best you got?”
does anyone honestly think people care if offers offend or if my negotiation disappoints?
It hurts my feelings, too. Baby Jesus cries when you break the 7% threshold.
Right on, Jim! The only shocking part to me is that you went all the way up to 1.8!
Zillow is crap-frequently too high though. My favorite way to get a quick and dirty price estimate is to look at the house’s Redfin page, which shows five different automated price estimates (Zillow, eppraisal, cyberhomes, a number based on nearby similar listings (based on square footage), and a number based on nearby similar sales (based on square footage). If all five numbers agree, there you go. If one or two is high or low (especially nearby similar listings), throw them out or average them.
The best evidence that your offer was fair is that you are offering more than the 2005 purchase price. There are very few locations that are currently worth more than their 2005 sale price, so your offer might have actually been too high. This house will almost certainly never sell.
I hate to disillusion anyone, but Realtors do get together and discuss how “to keep prices up”. They also do a lot of other unethical things. I’m in the business & am no longer shocked by what I see. Jim is a rarity because he tells it like it is and isn’t afraid to speak out.
Haha, that was awesome. (But you shouldn’t mention the Z word, you’ll just get a knee jerk reaction and they’ll completely ignore the rest of your points.)
Definitely the sellers and listing agent will be kicking themselves in a year…
Jim,
I’m often surprised at how poor at customer service some agents are. This is terrible.
Why should a seller be offended that someone wants to buy their property. I’m sure that lots of people would love to own a 2010 Bentley for $100K.
One time, I went to an exotics dealership in SD. I love nice cars, and while they were too expensive for me to buy at the time, the salesperson offered me a water and talked with me about how business was, what his favorite car there was, and how I’d love to someday have one of their cars. Never did he deride me for not having the money to pay what they were asking, nor did he do anything but chuckle when I offered to take one of his Ferraris off his hands for $40K. He wasn’t offended, he just thought it was worth more.
People often get offended when cognitive dissonance sets in.
The reality is that you are offering ABOVE peak pricing in the WORST housing market in history. That’s gotta count for boatloads, but instead the agent, the seller, or both have their heads firmly planted up their rearends. People like that will not be successful in life because they’ll end up offending the people that can help them the most.
Chuck Ponzi
Jim, I’m curious if you’ve ever worked with the seller’s agent before. Has she sent emails like this before?
I’ve never understood why sellers get “offended” by an offer. An offer signifies that a buyer is interested in the property, and that first offer is the beginning of a conversation. It shouldn’t be taken personal.
I think the sellers should be thrilled the offer was more than they bought it for in 2005. But if it’s been on the market since 2008 and hasn’t sold, that should tell the sellers (and their agent) that they need to accept reality.
Let us know how this all turns out, Jim. And yep, I did crack up with the agent’s response.
#52 “Realtors do get together and discuss how “to keep prices up”.”
Remember JTR was scored lower because he was pricing too cheap to sell too soon?
Take a $500k home. Ask an agent how much would be the ideal price. The selling agents generally like lower prices to sell quick and easy, but they don’t want to give too low of a listing price so as to lose the listing.
So what would an agent rather have:
1. List at $450k and sell right away (and without any buyer problems).
2. List at $500k and sell in average time, with potential buyer problems.
3. List at $550k to keep prices high.
Yeah Jakob, dropping the Z-bomb is sure to set off a reaction.
Maybe I should have mentioned cyberhomes.com’s $783,863?
Susie,
This is the Lake Arrowhead girl, way out of my normal market, but my #1 client.
My response was literally, “prove it’s worth $2.375 and we’ll pay it”.
What does she do?
You’d think she’d get busy on producing her own facts and data package, and top it off with her being the local expert so she knows more than me.
Nope, she hasn’t responded to me, but she CALLS MY BUYER at 7:15 this morning to tell him the whole story about the Mrs. Seller being so offended, and then works HIM over on price.
This is my life, every day.
You’ve got to be kidding
#56 – when it’s in their best financial interest. Consider 2 scenarios:
1. Power agent & friends own several rental properties in a tract or complex. They certainly want comps high; they are the main listing agents and can exert a lot of control over a neighborhood by “preselling” within their nationwide firm.
2. Relocation situations where buyers are from out of state and deal is double-ended.
Not much of this going on now, but during the boom and even up to 2008, it wasn’t uncommon in my area.
“You’d think she’d get busy on producing her own facts and data package, and top it off with her being the local expert so she knows more than me.
Nope, she hasn’t responded to me, but she CALLS MY BUYER at 7:15 this morning to tell him the whole story about the Mrs. Seller being so offended, and then works HIM over on price.” (JtR)
*Chuckle* Maybe now you should call the agent back and tell her YOUR buyer is (rightfully) offended…
The joys of real estate land, eh? Um, Jim, you only have a CA real estate license, right?
Best post ever, cannot wait to see how this wraps up. Keep us updated!
Smart sellers never get offended by offers. Clever sellers will try to work up an unacceptably low offer.
Why not use uniquely Californian price range approach? “My client is willing to offer between $1.5mm and and $1.8mm for your client’s property.”
JP2,
I think listing agents should try to get the most for their sellers. The problem is their isn’t much counter-force within the REIC. The only real counter-pressure to prices going up is how much people can borrow (rational thinking has been slowly entering and lowering prices).
I think you are looking at it at a micro level, where I’m looking at it at macro level. Realtor minions get their marching orders from their overlords (NAR, NAHB, Bankers, etc) who then infest the public with the prices only go up meme. Therefore, I think they do try to keep prices up.
I want to clarify that I don’t mean to insult all Realtors by calling them minions. There are those that have the ability to take what they hear from others with a grain of salt and think for themselves, like our host. Ha, unfortunately, I think I’d classify my own mom as a minion Realtor. Makes for lively discussion when I visit and thankfully she has been getting better.
I didn’t dig into the whole legal debate, so maybe my comments don’t even apply 😛 I just read “REALTORs are not sellers, and they don’t collect them all in a room together and discuss prices.” and completely disagreed.
“Therefore, I think they do try to keep prices up.”
Well, yes, of course they want to sell for as much as possible, but every agent, individually and the collective whole, knows that lower prices will encourage a greater number of sales, given some unit of time. If the number of sales were constant over that unit of time, then yes, they would promote higher prices.
This whole idea that REALTORs don’t get sellers together to discuss prices is very similar to the price of a gallon of gasoline. The big oil players don’t sit in a room together, but those big signs in front sure announce pricing.
=================
Low price guarantee–
I’m sure you’ve seen one of these in the past, but here is one example that I obtained after a quick Google search:
“We will match 100% of a published price on a stocked item PLUS an additional 15% of the difference from a competing web site on any identical, in-stock item.”
Question: Is this a low price guarantee or an announcement to agree to keep prices high?
To: Jim the Realtor
“Nope, she hasn’t responded to me, but she CALLS MY BUYER at 7:15 this morning to tell him the whole story about the Mrs. Seller being so offended, and then works HIM over on price.”
Maybe you should call the seller direct and berate him over the asking price. lol
Jim, that was a great approach. It sounds like the other realtor needs a reality check.
I’m shocked anybody’s asking more than 2005 prices in Arrowhead. It’s an absolute bloodbath up there. For comparison, see 1424 Innsbruck, which sold at $785,000 in 2005, then got home-ATM’d all the way up to $1.375 million, lingered as an REO for 6 months, then finally went for $525,000.
Nothing moves over $1 million up there.
You tell’em Jim!!!
An offer is an offer. Anyone “insulted” shouldn’t be in the business; a good seller’s agent should just politely say “no thanks” and move on… after presenting it to the seller along with their recommendation (since *every* offer should always be presented).
Personally I also think:
A) Zillow is a great data source but Zestimates are almost always too HIGH! Cyberhomes is much more accurate.
B) The offer was extremely generous, and the seller’s agent will probably come crawling back to you in the not-so-distant future.
C) This whole incident is hilarious.
I think another big problem is that too many people are realtors as a hobby. They’re not professional salespeople. They may or may not need the money. They may think trying to be friends with their client is paramount. They may think they have a duty to “protect their client.” Or they may be just plain bad salespeople.
Any realtor who thinks their time is worth something would decline representing this delusional seller.
the great thing about zillow isn’t the zestimate, but all of the other info that’s readily available:
03/10/2010 Reduced to $2,375,000
02/12/2010 Listed for $2,450,000
02/29/2008 Listed for $2,690,000
10/11/2005 Sold $1,750,000
06/26/1989 Sold $1,100,000
The main question here is what in the world did the seller do within the 2 years and 4 months after acquiring the property to justify a $1 million increase in the price of the home?
The seller’s mindset right now is, I’ve already lowered my expectation by $300k! of course she is going to be insulted at the $1.7 offer.
I would ask the agent: So what kind of improvement did she make to the house that would justify that initial $1 million profit request in 2008?
btw, Jim, what is your buyer thinking offering at 2005 peak pricing level?
Zillow used to have a feature called home Q&A where you could ask sellers what they were smoking with that listing price.
Pity they took that away.
“I would ask the agent: So what kind of improvement did she make to the house that would justify that initial $1 million profit request in 2008?” (ocrenter) (#71)
Best question! Put the ol’ ball in the seller’s court!
Jim,
Your approach was perfectly logical and fair. The sellers are going to regret being “offended” when their house is still for sale in a few years.
Just tonight, I was watching a first-time seller on an HGTV show. She was selling in Denver after buying about three years ago for ~$180K. She thought she could get $260K because she put in an additional $15K in improvements and “lots of sweat equity.”
Her agent (bless her soul) tried to tell her that she should list at $225K, based on local comps, and even at that price, it was a bit high.
After sitting on the market for over three months, they get an offer from a cash buyer for $200K and the seller said something along the lines of, “He doesn’t know who he’s messing with.” She didn’t even want to counter or deal with him at all — she was really angry! After her agent pushed her to counter with a lower price, she countered back at $224K ($1,000) lower. Naturally, the buyer walked, and the show ended without a sale.
These are the fools you have to deal with, Jim. They have heard for years now about the declining market, but their house is “special” and only goes UP in a declining market — so, they naturally deserve above-peak prices.
The delusion is thick out there. I really feel for you.
“The seller is essentially running a dutch auction.”
Yes, and the seller expects that the buyers are all acting independently.
JP2 | May 13th, 2010 at 7:32 am
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JP2,
I can see how it would be collusion if the buyers paid the listing agent to keep all other offers off the table except for this group of lowballers. Without that happening, there can be no price fixing. Any other “real” buyer is perfectly capable of coming to the table and offering more. If they don’t show, then the list price is wrong.
As long as ALL offers are presented to the seller, there is no price fixing, IMHO.
The property will sell for whatever the market will bear. If the only offers coming in are “lowball” offers, then that IS the market price.
BTW,
The act of “keeping homes off the market” by banks and the govt is a much clearer form of price fixing.
If anyone should be upset about collusion or price-fixing in this market, it’s the buyers.
Jim,
Holy crap. She called the buyers? At 7:15 AM???
WTF? Proves one thing. Desperation. 28 days, you’ll have your contract.
She would not have called if she didn’t (a) know these were “real” buyers, (b) need someone on the hook badly.
But yeah, that she went the manipulative route first in email and again over the phone, without even attempting to build a persuasive case (I mean she must have arrived at the list price somehow…. musn’t she? If not she’s had two years to think of one….). If the seller’s want a penny over 1.8 million, you’re absolutely right to make them prove it.
I would find the $100k price drop piece offensive – I think that sets you up for the reaction you got and I personally wouldn’t be comfortable with that strategy. But everything else is 100% legit including using Zillow as one of 5 data points.
What I wonder is whether the seller really is offended – or is it just the agent – who clearly has her head in the sand. Maybe she promised or assured the seller that she could get that price. Big mistake obviously. The whole “reply all” email claiming to be offended is just a tactic or an indication of naivity or insecurity. She’s protecting her own ego – nothing more.
If I were the Seller’s agent I’d do exactly as Jim asked – I’d try to prove my price was right. If I couldn’t I’d share my research with the Seller – the market is the market and the greater fool theory doesn’t work anymore because there is no longer is a greater fool.
My prediction – the seller will capitulate on day 28, or the Seller will fire the clearly moronic agent on day 58. So while the $100k threat may be offensive, I am predicting 50/50 that it ends up working. Good luck Jim – I do love the post – oh so interesting.
CA renter-
Two observations:
1. You wrote, “Any other “real” buyer is perfectly capable of coming to the table and offering more. If they don’t show, then the list price is wrong.” You make the assumption that there are plenty of other market players to take up the slack. In other words, you are essentially making the argument that even if a few people collude together, it really does not matter. This is essentially the same argument that Jax made–essentially that there is no market impact.
At the same time, let’s note that W.C. Varones wrote, “Nothing moves over $1 million up there.” This suggests that the market is very narrow.
This is exactly where the price manipulation is most likely to take place. When you have a very liquid market, then the impact on the market is minimal. In a illiquid market, it does not take much to manipulate prices.
While I do not have sufficient evidence to know if the price was ultimately affected, I have seen this strategy used by a group of buyers. I suspect that the strategy did work.
Also remember that Standard Oil would advertise against itself. Standard Oil owned both stations on a corner, but advertised as if only one was owned. The consumer was then tricked into thinking they were doing business with a separate entity. This was not viewed favorably during the breakup.
The essence of all of this is how much is enough influence to impact prices? If the market is narrow enough, it may be the case that it only takes two market participants to get together to significantly influence the market.
You wrote, “If the only offers coming in are “lowball” offers, then that IS the market price.”
My question: How many low offers would it take before you’ll admit that there is market manipulation? If I organize all the buyers, I hope you’d be quick to admit that there is market manipulation, even if there is very few offers.
2. JTR has discussed instances where only the low offers were submitted to the seller, but the collusion was vertical, not horizontal.
#77 CA renter-
“The act of “keeping homes off the market” by banks and the govt is a much clearer form of price fixing.”
If the banks gathered up in a room and have developed a strategy of keeping certain homes off the market, you are 100% correct. The problem with this is that the banks probably have not discussed this strategy.
In #38 Jax outlined three requirements:
“(a) collusion among participants, and (b) price restraints, you must also have (c) sufficient market power in order to establish a violation of the Sherman Act.”
Given the basic claim that banks are keeping properties off the market to keep prices higher, we have (b). Given that the nature of the housing market, it probably would only take two medium banks to impact the market, or two small banks that have a concentration in a small geographic area, so it would not take much to establish (c).
The big issue is whether or not the banks are colluding. Do you have any evidence of collusion among banks?
I haven’t decided which is more entertaining – the Ol’Tuna Melt or the barrage of comments after the fact. Either way, keep up the good work Jim, and do keep us posted on any and all further developments in this regard.
JTR- Isn’t the direct contact with your client an ethics violation? I think Cara at #78 is on track. Smells of desperation.
JP2,
Check chart 2:
http://www.standardandpoors.com/ratings/articles/en/us/?assetID=1245206147429
Foreclosure moratoriums don’t indicate withholding of supply to you?
I can go on, but if that doesn’t convince you, I don’t think there will be anything that will.
KeithM-
I think we are discussing two different things here.
Every single house, even just one, withheld from the market will result in increased pricing, all other things being equal.
That said, let’s assume I want to sell a house today. Of course I want to sell today at my desired price. If I look out and see prices that I consider to be too low, then I won’t put my home on the market, and it becomes part of the “shadow inventory,” at least for this discussion. (Consider that I own a very small bank, if necessary.)
That said, if I think prices will go lower, then I might list today to realize the best price based on the time value of money.
Furthermore, I have seen plenty of lender owned homes that are not for sale. It’s my guess that some lenders are hoping for prices to go higher soon enough to pay off.
With all that on the table, I’ll go back to my original question:
Do you have any evidence of collusion among banks?
For the activity to be illegal, we need to establish that the banks are colluding together for this price restraint. Just a single player acting in his or best interest is not enough to establish collusion.
Yeah, like I said previously – “I didn’t dig into the whole legal debate, so maybe my comments don’t even apply”.
I also said I think I’m looking at it at a Macro level, where you are looking at it a micro level that can be part of an actual lawsuit.
In any event, I don’t think 2 wrongs make a right anyways 🙂
KeithM- I generally consider things at a macro level, but when you make claims about price fixing, we must identify specific parties.
Do you have any evidence of collusion among banks?
For the activity to be illegal, we need to establish that the banks are colluding together for this price restraint. Just a single player acting in his or best interest is not enough to establish collusion.
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Some of us are trying to work on getting this evidence together. What we DO know at this point, is that the government/regulators have indeed instructed the banks to keep inventory off the market by not foreclosing on home debtors. As I mentioned above, even Barney Frank had mentioned something about the POLICY of banks keeping homes off the market.
That sounds much more like collusion than what the lowball buyers’ group would be doing.
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1. You wrote, “Any other “real” buyer is perfectly capable of coming to the table and offering more. If they don’t show, then the list price is wrong.” You make the assumption that there are plenty of other market players to take up the slack. In other words, you are essentially making the argument that even if a few people collude together, it really does not matter. This is essentially the same argument that Jax made–essentially that there is no market impact.
If there aren’t any offers at the list price, then the price is wrong. These sellers have been trying to sell for YEARS without a sale. THE PRICE IS WRONG.
There is no such thing as an illiquid market…and “illiquid market” is a sign that prices are too high. Drop the price, and you’ll be surprised at how quickly that liquidity can be found.
Just wanted to add…
The banks have been instructed to hold inventory off the market **specifically** “to keep prices up.” This was the explicitly stated reason for keeping properties off the market. That much is a fact.
Do you not think this is collusion? I certainly do.
The govt/banks have far more control over prices than any lowball buyers’ group.
Again, buyers cannot control prices unless they alone control the market or the distribution channel (though it IS price-fixing when certain groups work together to defraud banks — as with the “contingent”/”pending” listings that were never marketed to the public — but the agents/sellers are almost always involved in these transactions). That is not the case with the above tactic. Unless buyers are restricting other buyers from presenting their offers to the sellers, there is no price-fixing.
Issues that are within specific public policy, such as Utilities, banks being instructed to delay foreclosures, and so on, are all excluded from price fixing. Yes, such activities all impact pricing, but it’s not illegal, and furthermore, everyone knows what’s happening.
I heard this over drinks tonight. “Big oil is keeping gasoline prices higher, blah, blah, blah.”
All I could think was that it was essentially this conversation: “Banksters are keeping housing prices higher.”
You might not like that it’s a public policy to promote higher home prices, ownership, and so on, but at least it’s legal, and everyone knows what’s going on.
You posting on a public forum should be illegal.
JP2,
Your logic is amazing.
If you’d like I could lend you a snorkel. It’s gotta be hard to breathe with your head that far in the sand.
Lake Arrowhead is the Roach Motel of real estate markets: buyers check in, but they don’t check out!
shadash-
It’s really quite simple: If you think prices are high, sell. And if you don’t own, continue to rent.
(See also: the strategy of buying high hoping to sell higher.)
@ Previous poster who said: “Come back 30 days later offering $1.7E+06. And then 30 days after that with $1.6E+06…”
HAHAHAHA
I can’t believe you used engineering math notation on this blog. Next thing you know, people here will be using simple algebra to demonstrate severe lack of affordability even for high income households and general over-exuberant pricing compared to basic financial ratios. Can’t have that! Everyone still needs to believe the illusion that “real estate is a good investment”.
REGARDING THE TUNA MELT
Does this work on lower priced properties?? (Oceanside; San Luis Rey) My experience says No. It would seem the lower priced properties are flying off the streets with plenty of all-cash offers. (I heard an anecdote recently, 3rd hand, that goes like this: “I know a woman who obviously has a lot of money, and has been flying to vegas a couple times a month to buy up vacant homes. She just told me she wants to go back to buy three more, so she obviously has the cash, and she’s planning to sell them when the price recovers.” From this story, all I can say is this: There hasn’t been a CAPITULATION in real estate YET. And until there is capitulation, proper fair-market pricing can not be established, since faulty math has not been corrected. So I wonder where & WHEN this hypothetical woman-with-a-lot-of-cash-and-willing-to-spend-freely-in-vegas will learn her hard lesson, that homes have not historically appreciated more than 4% per year long term; while the stock market offers far higher returns over the long run)
So much for real math! $1.6E+06 here we come!
I love your blog and videos JTR.
My thoughts:
1) I don’t think the threat of dropping the price is worth making. It just confuses the issue. If they want to sell for the 1.8 they will. I think you might put more pressure on them by saying the offer expires in 5 days. They are likely not getting many offers and that might put pressure on them to act.
I think your other comments were great points to make in terms of getting the seller to realize they are asking way too much.
2) On the whole discussion on price fixing, that whole lowball strategy is not even close to “price fixing.” Maybe it violates some other law on the books, but it sure isn’t that one. In the above scenario, only one person wants the property. If they want to ask someone else to make an offer they can. If they want someone else to make a low ball offer they can ask them to.
I doubt the banks need to call each other to decide they aren’t going to throw all their foreclosures on the market at once. It’s common sense they need to stagger them.