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Excerpted from Dow Jones Market Watch
How to make a lowball offer a home seller just might accept
By Amy Hoak, Aug 19, 2007
Home sellers are not automatically turning up their noses at offers that come in far below their asking price as prices stagnate and the inventory of homes for sale remains elevated in many markets.
But asking for deep discounts may still offend sellers to the point where they quash any deal. So before making an aggressive offer, some homework is in order.
Buyers, with their agents, need to effectively explain why the price of a home should be lower.
In Ann Arbor, Michigan, Pat O'Heron was able to negotiate a steep discount with a seller who relocated for a job, in a neighborhood that had two year's worth of inventory on the market.
Before O'Heron made his offer, the asking price had dropped by about $80,000. After O'Heron made his case why the cost should be even lower, he eventually bought the home for $270,400, with about $11,000 in other credits. The net price ended up being $115,000 below the initial asking price.
However, even though housing is in a slump in many parts of the U.S., those tactics won't work in markets that remain relatively healthy (which includes Southern Marin, San Francisco, San Jose, and other cities around the Bay).
There is always an inherent danger in going aggressively low and offending the seller to the point where they will not even counter. On particularly low offers, sellers may assume that the potential buyer isn't serious and is unwilling to negotiate to a price agreeable to both parties.
Justify the offer with outside data. Work with your real estate agent to gather as much information as possible to:
- Learn how motivated the seller is to make a deal. Indications of possible leeway with the selling price include:
- Sellers have already purchased another home and that sale has closed;
- Sellers have had a job transfer and have to move quickly;
- The property has been on the market for a long time;
- Overall local market conditions: how many houses on the market, have other homes sold for less than asking, etc.
- Make your case with hard facts, work with your agent to create a cover letter explaining the amount of the offer. Consider including details regarding the amount of inventory in the immediate surrounding area. The informal "formula" is depends on the amount of inventory, i.e. if there are two years' worth of homes on the market, offer 5% or 10% less than what houses have sold for in the past year in the neighborhood
- When multiple offers are possible, buyers often wrote a letter to make their offer stand out; this should be applied now to explain why your offer is lower than asking.
- There's still a possibility that sellers won't budge: Homes in Southern Marin, for example, are sitting on the market longer, but prices are not dropping appreciably. All reports are that the market is terrible, but that prices are not falling.
- Prepare for the possibility of rejection, or negotiation.
Ultimately, the buyer's real-estate agent needs to honor and facilitate the offer that the buyer wishes to make -- even if it seems to be too low.
Even though a low offer may seem an insult to the seller, it is a sign of interest and a counter-offer may be made, if not initially, then after a cooling-off period. New information -- such as the sale of a comparable home at a lower price -- can nudge a seller to give an aggressive offer a second look and open the negotiation process. |
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