Timing Your Low Offer

by Jim the Realtor | Apr 23, 2012 | Tips, Advice & Links | 4 comments

Seen at the latimes.com:

WASHINGTON — It’s not something that economists routinely track, but it provides a rough sense of what’s happening in local real estate markets. Call it the low-ball index.

A year ago, according to researchers at the National Assn. of Realtors, 1 out of 10 members surveyed in a monthly poll complained about low-ball offers on houses listed for sale.

In the latest survey — conducted during March among a sample of 4,500 agents and brokers across the country and not yet released — there were hardly any. Instead, the focus of volunteered comments has shifted to declining inventory levels — fewer houses available to sell — and multiple offers on well-priced listings.

Full article here:

http://www.latimes.com/business/realestate/la-fi-harney-20120422,0,7259627.story

CR coverage:

http://www.calculatedriskblog.com/2012/04/housing-survey-fewer-low-ball-offers-in.html

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In these days of additional transparency, making a low offer has become more scientific – and it is based on timing.  You can gauge your chances of a successful lowball by how long the house has been on the market:

First 7-10 days on market – The sellers have confidence in their agent, who has convinced them that the market is hot and their price is good (we can always go down, right?).

But the internet has changed everything.

Buyers don’t have to wait until Sunday’s full page ads or their agent to receive the next MLS book – they use the auto-notifiers to be alerted to the new listings.

This has greatly enhanced buyer awareness and education – plus they are the people who have seen the comps.  By now, they have seen enough of them fly off the market in the first day or two that they are paying close attention, and drop everything to go see a new listing.

This early rush of prospects spoils the sellers – and they usually think that they priced it too low!

Thus, your chances of a low offer working in the first couple of weeks is remote – the sellers are too enthusiastic, and hold out.  The properties that sell in the first week at a big discount were more likely a result of the sellers getting worked over during the inspection period (your second chance to get a better price), or an insider deal.

After 2-3 weeks – Once the initial euphoria is unsuccessful and begins to wear off, sellers start to wonder, “what happened?”  They had a parade of people early, and perhaps a couple of lower offers, but now only an occasional visitor.

They are quick to recite the usual excuses:

1. We just started, these things take time.

2. The selling season just begun.

3. We don’t have to move.

4. I’m not giving it away!!!

You can tell the sellers who are motivated by their price reductions.

Have you seen those who reduce their price in the first day or two?  Those are fake reductions, and are just trying to draw more attention to them early on.  Those who substantially lower their price in the first 1-4 weeks have sincere motivation.  Wait a week after the first reduction – so the next round of doubts can set in – and then submit your offer.

To be taken seriously, your lower offer must be accompanied with a solid case of why it should be considered.  The listing agent has to be convinced too, so get his/her opinion on possible hot buttons to help guide the presentation.

After 2-3 months – If a seller hasn’t lowered their price after a couple of months, then they probably are wishers, not sellers – or they are due.  By then their agent will tell you what has worked, and what won’t.  Usually they have received offers and rejected them, thinking it will get better later (it won’t), or they made a deal but it failed for some reason.

How do you know how much to offer?

In the eyes of the buyers, the amount that they are willing to pay is dropping about 1% per week. After 2-3 months on the market, they consider every listing to be at least 10% too high on price.  Sellers are smart to lower their list price by 5% each month to find what the market will bear – they stay at, or ahead of expectations.

In the end, it always seems like the squabble is over ego, not money.

Any decent-looking home priced within 10% of being right should find a way to make a deal (with competent agents).  For those sellers who aren’t close to striking a deal after 2-3 months on the open market, your price is 10% to 20% wrong….at least.

What about the over-encumbered sellers?

The sellers who have little or no equity have given up the thought of getting rich, and are now hoping to just get out with enough for a steak dinner at the end.

They are going to be reluctant to enter into a short-sale, because the banks aren’t pressuring them, and/or the payment pain isn’t quite enough to surrender…yet.  Besides, they think that it might get better someday soon!

You can figure that the mental battle of having-to-sell-due-to-bad-decisions-in-the-past has caused enough arguments already, and many people on the market today really don’t want to sell.  Buyers must be patient, and hope that a catalyst happens that causes the over-encumbered to give up the fight, and covert to short-sale mode.  You’ll want to be around when that happens – stay in touch.

Making a contingent offer?

Contingent buyers are considered ‘B-level’, and the only way to elevate is to offer higher, not low.  Sellers would be crazy not to consider your contingent offer at the right price – can’t we work something out?

Buyers will have much more negotiating power if they wait until their house is in escrow, and past the contingency period to have assurance that you need to move.

Low offer and bidding wars?

If you aren’t the only offer, your other terms have to be spectacular to get the sellers’ attention.

a) Make your deposit higher – it’s refundable for the first 17 days.  b) Have your lender contact the listing agent to support your qualifications – and hope that they might know each other.  c) Have your agent produce their qualifications (sales history) to support that they know how to close a sale.  d) Offer the seller free rent for a month or two after close (but be careful).

Offending Sellers

Sellers are offended by offers thrown at them – it seems like you don’t really care, and may be throwing them at every seller.  If you and your agent take the time to present a solid case in writing that looks like you spent hours preparing, they won’t be offended – they might perk up.

Include the whole case with the offer as one attachment, in case the listing agent is lazy and just forwards the whole package direct to the seller – it is your best chance to get your case heard by those that matter most, the sellers.

You know that the listing agents regularly filter the case out of shame – he/she doesn’t want to be that wrong.  Bundling it up in one attachment makes them earn it.

Go easy on the comps though, because they are open for interpretation.  If you base your entire case on a couple of bad sales, and the sellers don’t agree, then case is closed.  It needs to have several components – your qualifications, timing, education on market conditions, etc.

Best of luck, and get good help!