I am looking to purchase real estate in central New Jersey, Middlesex or Somerset County. I am not in a rush to buy, I want to get the best price I can when I find a home that is suitable for me. How much below the asking/list price is reasonable and still likely to succeed? If the home is in foreclosure or a short sale, does that make a difference? Also, if the home has been listed for more, or less, than two months, does that make a difference?
How can I find out more information about foreclosures and short sales in my area? When I look at Zillow.com or Realtor.com I cann see properties that are in foreclosure or subject to short sales, but photos, descriptions and asking prices are often not available. There seem to be sunscription based websites that have information on foreclosures and short sales, but I am trying to avoid the website fee and I question their reliability.
I am just trying to figure out how to get the best deal possible, particularly since I am not in a rush to close the transaction. Thank you for your advice.
How Much Below the Asking Price Should I Offer on a Home Purchase?
It really depends on how you are going to pay for the purchase and who owns the property.
If its a bank and you stand there with CASH in hand for the whole thing you should try for 25% off the asking price and you need to know the answer in a day or two as your are looking at other properties.
They will probably say Yes and just go after the previous owner in court for the deficiency over what they are owed.
I know a gentleman whose son wanted to get into the nursery business and the local bank had a rather large one with about 4 acres of greenhouses they had forclosed on...the original asking price was $40,000 (in 1970's) and the gentlemen was going to buy it at that price...it was a bargain but decided to try a lowball figure and offered $25,000 cash...just when he thought he'd blown it and his son would be PO'd the bank said Yes.
Its now a very well run nursery (has been for 30+ years) and the son pulls about $200,000 out for himself every year and the facility could be sold for at least $750,000 today.
If its a bank and you stand there with CASH in hand for the whole thing you should try for 25% off the asking price and you need to know the answer in a day or two as your are looking at other properties.
They will probably say Yes and just go after the previous owner in court for the deficiency over what they are owed.
I know a gentleman whose son wanted to get into the nursery business and the local bank had a rather large one with about 4 acres of greenhouses they had forclosed on...the original asking price was $40,000 (in 1970's) and the gentlemen was going to buy it at that price...it was a bargain but decided to try a lowball figure and offered $25,000 cash...just when he thought he'd blown it and his son would be PO'd the bank said Yes.
Its now a very well run nursery (has been for 30+ years) and the son pulls about $200,000 out for himself every year and the facility could be sold for at least $750,000 today.
*How much below the asking/list price is reasonable and still likely to succeed?
-Probably 20% max... If it's bank owned more doesn't hurt, but you won't be able to submit another offer for a while. Like Zen said, cash is preferred.
*If the home is in foreclosure or a short sale, does that make a difference?
-Not really... I have no experience with short sales, but I imagine most people won't take less than they owe, regardless of the current market value.
*Also, if the home has been listed for more, or less, than two months, does that make a difference?
-The longer it has been listed the more likely the seller to lower the price and accept a lower price.
*How can I find out more information about foreclosures and short sales in my area?
-Some counties keep public records about sale prices, most do not... I think all the sites have a recently sold, I know Zillow does.
-Probably 20% max... If it's bank owned more doesn't hurt, but you won't be able to submit another offer for a while. Like Zen said, cash is preferred.
*If the home is in foreclosure or a short sale, does that make a difference?
-Not really... I have no experience with short sales, but I imagine most people won't take less than they owe, regardless of the current market value.
*Also, if the home has been listed for more, or less, than two months, does that make a difference?
-The longer it has been listed the more likely the seller to lower the price and accept a lower price.
*How can I find out more information about foreclosures and short sales in my area?
-Some counties keep public records about sale prices, most do not... I think all the sites have a recently sold, I know Zillow does.
Great thread as I am currently looking at buying a place myself.
If I offer cash, can I really get a place at 25-30% of asking price? I'm not doubting anyone's advice, this is just really great news for me as I want to avoid financing if I can.
I could swtich my search to a cheap condo instead of a house and offer $20k in cash and maybe get a place that listed at $60k?
I guess it is like anything on the market and the worst is that they could reject my offer.
I've also heard that it's "insulting" to offer a very low bid on a house, resulting in the seller not looking at any more offers from you. Anyone experience this? Or is this simply the real estate agent trying to get a higher comission?
If I offer cash, can I really get a place at 25-30% of asking price? I'm not doubting anyone's advice, this is just really great news for me as I want to avoid financing if I can.
I could swtich my search to a cheap condo instead of a house and offer $20k in cash and maybe get a place that listed at $60k?
I guess it is like anything on the market and the worst is that they could reject my offer.
I've also heard that it's "insulting" to offer a very low bid on a house, resulting in the seller not looking at any more offers from you. Anyone experience this? Or is this simply the real estate agent trying to get a higher comission?
Some of this depends on local custom. Right now, in many markets, a 10% discount offer is almost assumed. The "insulted" routine is often just drama, truly felt or not. One technique that I have seen work is, if you really want the property, to insist that no insult was intended and you will hold the cash offer open for X weeks/months to allow the seller to try and do better. Market reality takes the edge off of the feelings, and gives them a chance to view it objectively as a market proposition.
It depends who is the owner, the bank asset manager won't take a low offer personally... If it's a big bank odds are that the number is just entered into a computer which will decide... >20% off list I think is rare in such cases, except perhaps for very inexpensive homes.
If it is an individual owner lower bids are often not accepted. One, they are likely emotional about the value/worth of their home and two, they are probably ignorant of the market.
I'm sure there are some very motivated sellers as well; divorcees, inheritors, people moving for employment, recently unemployed, short sales, so on.... In my area most of the short sales owe more than the home is worth. And they are unwilling to sell and then turn around and pay even more to close their loan, so they usually end up in foreclosure.
The length of time on the market is very important. If a property has only been on the market for a few months it is unlikely they'll accept much below list... A friend of mine just paid 20k for a house that was listed at 38k, but it had been on the market since 2007.
If it is an individual owner lower bids are often not accepted. One, they are likely emotional about the value/worth of their home and two, they are probably ignorant of the market.
I'm sure there are some very motivated sellers as well; divorcees, inheritors, people moving for employment, recently unemployed, short sales, so on.... In my area most of the short sales owe more than the home is worth. And they are unwilling to sell and then turn around and pay even more to close their loan, so they usually end up in foreclosure.
The length of time on the market is very important. If a property has only been on the market for a few months it is unlikely they'll accept much below list... A friend of mine just paid 20k for a house that was listed at 38k, but it had been on the market since 2007.
I think the key is not to focus on feelings -- most of all your own. Never fall in love with a property. There is no property that you "have to have."
The question should never be "How much do I need to offer to get an acceptance?" It should be "How much do I need to offer to have a 10% (or some other low percentage) chance of success?" You WANT to have a high chance of rejection -- it means you will be getting a good deal if it comes through.
Mathematically, if you make seven offers with a 10% chance of success each, you have a greater than 50% chance that one will be accepted.
If the seller is insulted, just say "Well, get back to me if you change your mind or you want to make a counter-offer." And walk away.
"If you love a piece of property, low-ball it. If it returns to you, it was meant to be. If it doesn't, it was never yours to begin with."
The question should never be "How much do I need to offer to get an acceptance?" It should be "How much do I need to offer to have a 10% (or some other low percentage) chance of success?" You WANT to have a high chance of rejection -- it means you will be getting a good deal if it comes through.
Mathematically, if you make seven offers with a 10% chance of success each, you have a greater than 50% chance that one will be accepted.
If the seller is insulted, just say "Well, get back to me if you change your mind or you want to make a counter-offer." And walk away.
"If you love a piece of property, low-ball it. If it returns to you, it was meant to be. If it doesn't, it was never yours to begin with."
@JohnnyH-Thanks for the advice. It looks like a bank-owned property would have a higer chance of accepting a low-ball offer. If I choose to go this route, I'll look for REO stuff that has been sitting on the market for a long time.
@Dragline-Love that quote. As a first-time homebuyer just beginning to look with the Boyfriend in tow, it's hard not to get all warm and mushy about the process. Good thing the Boyfriend used to be in real estate and seems to enjoy bursting my bubble
@Dragline-Love that quote. As a first-time homebuyer just beginning to look with the Boyfriend in tow, it's hard not to get all warm and mushy about the process. Good thing the Boyfriend used to be in real estate and seems to enjoy bursting my bubble
Funny, I just saw this a couple minutes ago:
http://www.marketwatch.com/story/six-lo ... genumber=1
I view this as the kind of bad advice propagated by the real estate industry, who are mostly interested in generating as many transactions as possible. The article -- like most of its ilk -- assumes the false premise that the primary "goal" is buying a particular property in a particular time frame and not getting the best deal possible. For real estate agents is all about getting to "yes". For you and me, it should not be.
http://www.marketwatch.com/story/six-lo ... genumber=1
I view this as the kind of bad advice propagated by the real estate industry, who are mostly interested in generating as many transactions as possible. The article -- like most of its ilk -- assumes the false premise that the primary "goal" is buying a particular property in a particular time frame and not getting the best deal possible. For real estate agents is all about getting to "yes". For you and me, it should not be.
-
jacob
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I notice places like Redfin and Zillow typically post two price curves: a listed price and a sold price.
New that makes for some technical analysis For instances, in most places I look the sold price has turned by the list is still dropping. Oscillator! In any cases, it seems that sold is about 10% under list. Surely there must be a Bell shaped distribution.
New that makes for some technical analysis
For instances, in most places I look the sold price has turned by the list is still dropping. Oscillator! In any cases, it seems that sold is about 10% under list. Surely there must be a Bell shaped distribution.-
jennypenny
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It depends on the area also. We are in the middle of a couple of real estate transactions in a (primarily) second home market. Houses there are selling between 60% and 70% of list. Less if it's a short sale or foreclosure.
In my town, people are very reluctant to take even 10% under list. The house next to me is currently vacant because they won't take less than list. From what I've gathered, families are mortgaged up to their eyeballs and can't afford to take less for their homes. (I remember when we took out a HELOC for some construction--they offered us up to 125% of our home's value!). People may want to accept a lower offer but can't.
In my town, people are very reluctant to take even 10% under list. The house next to me is currently vacant because they won't take less than list. From what I've gathered, families are mortgaged up to their eyeballs and can't afford to take less for their homes. (I remember when we took out a HELOC for some construction--they offered us up to 125% of our home's value!). People may want to accept a lower offer but can't.
I don't think list price should factor into your offer price. There's little connection between what the seller thinks the property is worth and its actual value.
It's the actual value that you need to figure out to determine what your offer should be. Unfortunately, that's a lot harder than taking their list price and knocking off x%.
For rental properties you can come up with a value by combining projected rent prices, projected expenses, and a goal capitalization rate. I personally intend to value my personal residence like a cash flow real estate investor would.
Another way to value a property is based on comparable properties that have recently transacted.
PS: I might be forgetting again that not everyone is a robot like me.
It's the actual value that you need to figure out to determine what your offer should be. Unfortunately, that's a lot harder than taking their list price and knocking off x%.
For rental properties you can come up with a value by combining projected rent prices, projected expenses, and a goal capitalization rate. I personally intend to value my personal residence like a cash flow real estate investor would.
Another way to value a property is based on comparable properties that have recently transacted.
PS: I might be forgetting again that not everyone is a robot like me.
I pulled up Bellevue, WA (random, guessing overbuilt/overtaxed suburb) and there is a 12-25% difference between list and sold. Pretty substantial...
EDIT: I think I'm reading too much into the data. My guess is all it is saying is that less expensive homes are more likely to sell. That is well documented everywhere post 2008.
EDIT: I think I'm reading too much into the data. My guess is all it is saying is that less expensive homes are more likely to sell. That is well documented everywhere post 2008.
I have a good deal of experience with this. It can be problematic.
If you're using an agent, the agent has to know what your plan is-- otherwise he/she will get frustrated or, more likely, not even know how to help you.
Many realtors work on this premise: Seller asks X. Get buyer to offer slightly less than ask. A few counter offers where we haggle over what is typically a trivial amount of money, and the deal is done. If you want to offer $200k on a $300k house, most realtors will look at you like you're from mars, and many sellers will simply say no. The agent doesn't want to show you 50 properties and have you low ball them all and walk away. The agent just wants you to buy something, anything.
Getting a seller to really come down on price is quite difficult. The reason is that there are several different types of sellers:
1.) The owner. Owns the home outright, no mortgage, or has a mortgage with substantial equity. Probably your best bet to get a good compromise-- because they can afford to make the deal. Unfortunately, many haven't yet come to the realization that their house is worth 75% of the current listing. If they have had this realization, they would change the price. Convincing someone that $100k is actually $75k in 48 hours is hard to do. They've either got to really want the $75k, or you hit them up at a time when they were already reconsidering the value of the property.
FWIW, when buying from owners, I've had scores of offers rejected and thought of as insulting. I even once had my real estate agent refuse to submit my offer, and I rarely offer less than 10% below asking (just too much time wasting). The one my agent refused to offer was $331k on a $355k. I'm glad she refused actually- it sold for $315k. I would have overpaid!
2.) The financed home. Mortgage with little equity. Very little incentive to sell you the home for less than the current mortgage balance (+ 6% to cover agent costs). Also very few people have cash on hand to bring to closing if they accept an offer for less than the balance on the mortgage. Short sales do happen, but it ain't easy.
3.) The bank owned property. Very little incentive to compromise. If the bank owns 100 houses in your area, worth a total of $20million, holding onto a single house (the one you offer on) for another few years is a pretty insignificant concern. The bigger the bank, the more insignificant your $25k (or whatever) becomes. Also, the people making the call to sell or not sell are paid to get top dollar, and they've had some experience (now they have at least!).
Best of luck to you in your hunting. One tip-- if you're in the game for the long haul, just spend the first few months watching the listings every few days. You'll learn what's out there and what's moving. A house that drops its price twice within 6 months and is not bank owned may be owned by someone who has some ability to negotiate.
If you're using an agent, the agent has to know what your plan is-- otherwise he/she will get frustrated or, more likely, not even know how to help you.
Many realtors work on this premise: Seller asks X. Get buyer to offer slightly less than ask. A few counter offers where we haggle over what is typically a trivial amount of money, and the deal is done. If you want to offer $200k on a $300k house, most realtors will look at you like you're from mars, and many sellers will simply say no. The agent doesn't want to show you 50 properties and have you low ball them all and walk away. The agent just wants you to buy something, anything.
Getting a seller to really come down on price is quite difficult. The reason is that there are several different types of sellers:
1.) The owner. Owns the home outright, no mortgage, or has a mortgage with substantial equity. Probably your best bet to get a good compromise-- because they can afford to make the deal. Unfortunately, many haven't yet come to the realization that their house is worth 75% of the current listing. If they have had this realization, they would change the price. Convincing someone that $100k is actually $75k in 48 hours is hard to do. They've either got to really want the $75k, or you hit them up at a time when they were already reconsidering the value of the property.
FWIW, when buying from owners, I've had scores of offers rejected and thought of as insulting. I even once had my real estate agent refuse to submit my offer, and I rarely offer less than 10% below asking (just too much time wasting). The one my agent refused to offer was $331k on a $355k. I'm glad she refused actually- it sold for $315k. I would have overpaid!
2.) The financed home. Mortgage with little equity. Very little incentive to sell you the home for less than the current mortgage balance (+ 6% to cover agent costs). Also very few people have cash on hand to bring to closing if they accept an offer for less than the balance on the mortgage. Short sales do happen, but it ain't easy.
3.) The bank owned property. Very little incentive to compromise. If the bank owns 100 houses in your area, worth a total of $20million, holding onto a single house (the one you offer on) for another few years is a pretty insignificant concern. The bigger the bank, the more insignificant your $25k (or whatever) becomes. Also, the people making the call to sell or not sell are paid to get top dollar, and they've had some experience (now they have at least!).
Best of luck to you in your hunting. One tip-- if you're in the game for the long haul, just spend the first few months watching the listings every few days. You'll learn what's out there and what's moving. A house that drops its price twice within 6 months and is not bank owned may be owned by someone who has some ability to negotiate.
I submitted offer of 52% of list, they (HSBC) countered with 100% of list!
Ended up going for 63% of list at auction (not me)... Set a zillow alert on the property to know if a deal went through. Only in my area, sale prices are not included on public record so post auction negotiation is somewhat likely.
Ended up going for 63% of list at auction (not me)... Set a zillow alert on the property to know if a deal went through. Only in my area, sale prices are not included on public record so post auction negotiation is somewhat likely.
+1 akratic
I have seen houses sell far above or below asking. You really have to know the value in your particular market, as well as how much things are worth to you.
We offered more than 100k above asking price, and we got a great deal. They had 9 offers in 2 days and I know we could have turned around and sold it for a higher price the next day.
The agent just priced it low for a very quick and easy sale... it was an estate sale and the out-of-town kids selling the house weren't familiar with prices around here.
And of course we've all seen houses go for much less than list price... often after a long and costly process of educating the owner about market realities.
I have seen houses sell far above or below asking. You really have to know the value in your particular market, as well as how much things are worth to you.
We offered more than 100k above asking price, and we got a great deal. They had 9 offers in 2 days and I know we could have turned around and sold it for a higher price the next day.
The agent just priced it low for a very quick and easy sale... it was an estate sale and the out-of-town kids selling the house weren't familiar with prices around here.
And of course we've all seen houses go for much less than list price... often after a long and costly process of educating the owner about market realities.
Right, it's hard to get details on foreclosures from Zillow, etc., but you can get full details on HUD foreclosures from HUD's web site. Also, you can get full details on bank foreclosures from the banks' websites (might have to dig a bit or call the bank to get the site; I did).
I put three successively lower (all cash) offers on a vacant Bank of America short sale over a 24-month period. I ended up getting the house at 43% off the original short sale list price. (Which was 72% off the 2005 sale price!) Had my inspections and closed in 14 days - Sep. 2011. Central east coast of FL. Like several others have said, you've got much more negotiating power if the purchase is all cash.
Also, I didn't use a buyer's agent; just dealt directly w/ the listing agent. I think that gives the listing agent some incentive to get the deal done and reap the whole commission.
I put three successively lower (all cash) offers on a vacant Bank of America short sale over a 24-month period. I ended up getting the house at 43% off the original short sale list price. (Which was 72% off the 2005 sale price!) Had my inspections and closed in 14 days - Sep. 2011. Central east coast of FL. Like several others have said, you've got much more negotiating power if the purchase is all cash.
Also, I didn't use a buyer's agent; just dealt directly w/ the listing agent. I think that gives the listing agent some incentive to get the deal done and reap the whole commission.