I guess a little background is in order before my questions. I went over a guide I found and so far I have everything in order.
1) Know Your Budget
$160,000.00 is the max I want to put out.
2) Know What You Can Borrow And It's Cost
I was pre-approved for $140,000.00 and have around $35,000.00 cash for closing/down.
3) Get The Funding In Place
Done. Pre-approved at $140,000.00 with 5% down (putting more than 5%)
4) Get 3 solicitors quotes and decide which one you will use in preparation
5) Make Yourself Known To The Agents
6) Finding The Property
I found the house I want. It’s been on the market for 80 days now with a price drop from $179,900.00 to $169,900.00 about a week ago. It’s not the highest price house on the black but it’s near the top.
7) Pre Offer Information
The house was purchased is 2004 by the seller and her belated husband (died recently and she wants to get out of the house because of all the memories) for $155,000.00 and they put 20% down from what my agent said. To date the only changes done to the house was they covered the rear deck and replace a small propane room heater with a potbelly coal stove. I was lucky enough to find the realtor who sold the house in 2004 to the seller. He gave me a lot of background on the house. All the flooring is 8 to 9 years old and needs replacing. While the house seems in great shape it is a little dated and since nothing has been done to the house I am taking that into account.
8) Submitting The Offer
This is where I need help. I have purchased 2 houses in the past and negotiated a price on another till inspection killed that deal. I’ve done a good job in the past but to be honest I’m not sure where to start negotiating to get to my price. I know the seller paid $155,000.00 for the house and no one wants to take a loss but she got it at the height of the housing market and since then houses just aren’t worth as much. I have a feeling this might play a part of negotiating. Why the seller thought $179,900.00 was a good price for a house she only paid $155,000.00 for and did no upgrades I’m not sure.
9) Know Your Limit
My limits are clear and I have walked away from houses before because I hit my limits.
Now my question(s). If $160,000.00 is my max (this includes closing costs and all fees) and the seller is asking $169,900.00, where should my starting bid be? I was thinking $140,000.00 but that seems like a bit of an insult. I would be happy with $160,000.00 and seller pays all closing costs. With $32,000.00 down I could hit my 20% down and avoid PMI.
Well that’s about all the information I have, any advise?
What does your buyer's agent think? And, if you don't have a buyer's agent to represent your interests, why not?
I haven't talked to him yet. Our agent is not an "exclusive buyer agent" so I tend to take everything he says when it comes to money with a gain of salt.
Although understanding the sellers' basis in the property plus their cash position can help you as you negotiate a purchase, you need to review the appropriate comps to estimate the market value.
Moreover, sounds like you need to begin working with a competent buyers' agent. Sure this is the best home for you? Did you do a thorough search of all the available properties in your desired location, with any necessary attributes and in your price range?
Assuming this property was appropriately priced (a major assumption unless you're very familiar with the comparable sales) by the seller, your cash balance sounds insufficient, even if this seller covered 100% of your closing costs. (More importantly, from the limited information provided, I'm not convinced this is the best property for you.) Do you have a cash reserve to cover all the incidental costs associated with home ownership? You might incur utility deposits, moving expenses, ongoing unexpected maintenance, furniture purchases, small upgrades and/or repairs to only name a few -
A good buyers' agent can help you arrange financing, locate the right home, purchase it at fmv and tackle all of the other challenges associated with a home purchase and ongoing home ownership.
As usual, IMHO.
Best of luck!
ETA: Just saw the previous comment and your short response when I posted. If you don't trust your current agent and/or don't feel comfortable working with him, engage another agent.This message has been edited. Last edited by: RErocker,
It's not that I don't trust my agent it's that without them being an "exclusive buyer agent" they get paid based off the price the house is sold for. So while both agents want to make a deal both also would like the house to sell for as much as it can because their pay is based off it.
As for the house being the right one for me, it is 100% right for me. This isn't my first time buying and I have looked at other houses. In fact I was under contract for a house till inspection found a few things I didn't see and I walked away.
As for cash reserve, I have $45,000.00 saved to buy a house. This doesn't include personal savings I have. $35,000.00 was the most I wanted to put out of pocket so I had $10,000.00 in reserve.
I thought I gave enough information to see all my ducks are in a row. I have financing in place, I found the right home, I feel the house is just over market value and again I currently own 2 homes. I'm not new to home buying just asking a little advise since I believe the seller feels the house is worth more then it is and I don't want to over pay because of her attachments.
To me, your comments regarding the agents' commissions imply a lack of trust. If you consider a higher purchase price in say, 10K increments, the agents net only a very small additional amount on that increment. First, they must split with the agent on the other side of the transaction - then, almost all agents must split (again) with their office broker. On top of that, as independent contractors, agents must pay their ongoing business expenses. When you consider the additional time necessary to negotiate that incremental 10K of selling price, it usually makes far more sense to sell the property faster at the lower price.
Furthermore, IME, good agents prefer to develop a lifetime client relationship with you by helping you find the best home possible for your situation, within your price range and then - (hopefully) receiving repeat and/or referral business.
Going back to my initial suggestion, if you're unsure of the property's fmv, you need to both determine and review the appropriate comparable sales before making an opening offer.
WRT your cash reserve, I recommend you maintain 6-8 months of expenses on an ongoing basis. That's what we typically recommend to our clients and probably far more than 10K.
Good Luck!This message has been edited. Last edited by: RErocker,
I agree completely with RERocker's advice about trusting your agent.
The information we don't know is what are the comps for recent sales in the neighborhood? That
IOERROR, First, welcome to the Real Estate Boards!
I think you have done a great job completing your "homework" and posting the information here so good for you! While I do agree with earlier posters that getting accurate recent comps is a necessity, I'm approaching your inquiry from a different perspective - a psychological perspective given the information provided about the seller, the seller's situation, amount paid in 2004, original listing price, reduced price and days on the market.
First, very few homes will sell today for what they did in 2004 unless major improvements have been made which is not the case here. However, this seller may not understand that fact although she "may" be getting the idea since it was reduced by $10,000 after 80 days on the market with no sale. She also has an emotional investment (loss of spouse being the reason she is selling) that probably makes it even more difficult for her to grasp the reality that she not only is not going to make money but probably will up selling for less than they paid in 2004 especially if she continues to chase the market down as she has been doing.
So given those facts, I would start with an opening offer of $139,000 (not your $140,000) to get her thinking about the number three which makes it more likely that she will consider coming back in the 50s range rather than in the 60's. (Of course, make sure that is worth at least $139K but, given your posts, I think you believe it to be).
Once she gets over the shock of the amount of a "real" offer instead of "pie in the sky," hopefully, she will realize the reality of today's market and re-access her position. Next step many people have ingrained in the back of their minds is "splitting the difference" or "meeting in the middle" which very possibly will make her decide to counter back at $155,000 which is the difference between her $169K list price and your $139K offer.
She will be able to say to herself that at least she didn't lose money if an offer ends up around $155K, then you can negotiate to adjust the closing costs and fees to make sure that what you are paying is a fair price. Remember, the actual legal definition of "fair market value" is the price a willing buyer is willing to pay that a willing seller is willing to accept!
And, yes, everyone, I do know all about comps, sound business practices, etc. but as RErocker has pointed out on several recent threads, people - whether they are buyers or sellers - do not always react logically when buying or selling a house. And in that regard, IOERROR, please know that it is entirely possible that you are dealing with someone who says she wants to sell (but is emotionally unready to do so) so pricing the property too high is a feasible way to make the statement that she is ready to move on yet gives her a way out not to do so.
Bottom line, I would make an opening offer of $139,000 and see what happens. Let us know what you decide to do.
Thanks for the advise. I agree that she feels the house is worth more then it is. I guess people just assume a house is going to increase in value no matter what. Sadly for people who purchased when the market was booming and finding out thats not always the case.
I are going to look at the house again tonight and talk to my agent on what he things is fmv and the opening offer. I'll let you know guys know how it works out.
Thanks everyone for your input.
Sorry, but I must disagree. This is too broad of a statement. In order to say that with any certainty we would have to know the location and the home. There are still pockets of the country where prices did not go down.
We also do not know if the house may have been underpriced when it was purchased before.
As stated earlier you must know what the comps in the area have sold for. It does not matter what it sold for before, what it is listed for or what your budget is.
While I do agree there are still some areas that the market is still in demand, where I live is not one of them. As I said the house just up the street (4 houses on the opposite side of the street) is a nice house but has been on the market for 300+ days now. My fiance sold her house about a year ago and it sat on the market for a months.
Besides there is a better chance his statements would be true then not. Meaning most of the USA has a dead housing market.
Agree, I am working with investors on deals in several areas of the country that continue to experience strong appreciation. All RE is local so it's extremely dangerous to make generalizations.
WRT this seller's particular situation and the emotions involved, I certainly understand and appreciate Idaho's POV. I frequently work with clients involved in both estate situations and divorces. Both situations are extremely difficult and emotions often fluctuate wildly on a near daily basis.
WRT estates, sellers often become enraged at the typical, lowball offers received and believe buyers plan to "steal" their property. In addition, some of them have either very low or almost nonexistent carrying costs together with other assets received as part of their inheritance. They can easily sit out a poor market, even if they have difficulty renting the property.
So, the same emotions that encourage a widow/widower to liquidate an asset one day may fluctuate the very next day and result in them pulling the property off the market. Needless to say, I continue to believe you should review the comps with your agent to estimate the fmv and determine a reasonable opening offer, given the circumstances.
As usual, JMHO, YMMV.
I have ZERO intentions of trying to "steal" the property from her and I am completely sympathetic to her situation. With that said I would treat this deal as if it were any other from a business view point. If it doesn't happen it doesn't happen, no harm no foul. I hope we can strike a deal that benefits us both but that doesn't always happen.
I'm sure you understand that I was quoting what many bereaved sellers have said to me - I have absolutely no idea what your intentions are WRT this property or the seller. BTW, I would never advise anyone to offer and/or ultimately pay more than what any given property is worth.
I made the comment b/c your previous posts indicated a high degree of interest in the property. Didn't want you to lose it by automatically thinking estate sale and making an unreasonably low offer - as I've seen many potential buyers do over the years.
Unfortunately, for many sellers (and buyers, too), a home sale/purchase is not a straight business deal. If they were, my life would be far easier.
Best to you -
I wasn't accusing you of anything.. Hehe I was just making it clear. No worries.
I'm a pretty open person and have won and lost enough in my life to know that if I miss out on this house another will come along. It might not be today, tomorrow or even this year but someday. But I do agree I would hate to lose this house by coming in to low of an offer but at the same time, I would hate it even more if I thought for a second I paid too much for it.
OK - back to the business transaction, because I'm not sure why any of the history has anything to do with what your offer is - and I would just forget about it. I go back to what many people have said - I would ensure that you have a contract with an agent who is working for you. I would get the comps pulled and determine what the overall value of homes are that are similar, and I would then make an offer that you are comfortable with. Your agent has hopefully given you comps, and they are certainly a sanity check on your offer. You can offer whatever you want, and the offer then begins the business transaction... But I wouldn't focus on the history of the residents of the house, and I would only focus on a) having a great agent who is tasked with getting you the best deal (and all my buyer's agents have helped me get houses for less than they are listed) and b) knowing the value of the homes and getting the best value for your money. When I look at houses to buy (and I am in that process now), the only value of knowing what someone paid for it is to give you a sense of whether they are underwater or not - and it still wouldn't affect the offer I put on the house, it would just put a little flag in my brain that they may have issues that won't work with my offer..... I know of a house near me where the last "sold" price was about $24,000 because the guy sold it to his son. The house subsequently sold for about $610,000 - so it really does depend. Good luck!
I do agree about all of the suggestions re pulling comps and having a good agent in your corner but there is a particular art in negotiations which I was addressing in my earlier response to OP's main inquiry about making an initial offer.
If it was simply a numbers game and a business transaction, those things would be sufficient BUT many times in these types of situations that simply isn't the case. So, to be effective in negotiations, you need to understand the other party, where they are coming from and what motivates them which is why the "history" or background is important. Many times it is not the dollar figure as we might assume...
In this case, the seller might feel an obligation not to sell for less than what she and her late husband paid so work with that information and structure the negotiations accordingly. Knowledge is power, especially when negotiating. Yes, in most real estate transactions it simply comes down to dollars and cents - in this case, it might be more about the seller's "sense" so it is always wise to know the currency in which the other party is dealing!
So, IO, did you see the place again tonight as planned? What have you decided?
Admittedly, I have not read every word of every post, but what's wrong with simply offering your best price up front...here it is, take it or leave it? Why does everything have to be a negotiation? List all your reasons, including comps, and make your absolute offer. If your position is strong with regard to financing and contingencies, if the property has been on the market for a considerable length of time, there's no reason not to be upfront and firm.
I've bought and sold so many properties I've lost count....
**Life isn't about waiting for the storm to pass...it's about learning to dance in the rain**
I'm confused you have have your own agent - but not a Buyers agent? What? What capacity is sheHE working in? Choices are........... for the seller or........ transaction agent........ or buyers agent - she/he is compelled by law to disclose that to you and you would have signed an AGENCY DISCLOSURE" WHICH EXPLAINS WHICH!
CHARMING - DO YOU WANT TO CHIME IN HERE.
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