In this market, how low is a "lowball" offer?

[jengen]

I did some searches, but couldn't find anything relevant to what I'm looking for. It is obviously a buyer's market right now. I live in one of the most expensive areas in the country but even here, most houses have been selling for 5% below the asking price.
We are considering placing an offer on a house that just dropped the price of her house $15,000 this weekend. Her house has been on the market since August. It's in great shape for the most part, but is old (1929), likely has lead paint which we'll need to resolve, and will need a new roof within 5 years. This is just the very obvious, in addition to whatever would come up in the inspection. At the open house, the realtor told us that she had previously received two offers that were really "lowball" and refused them because she was insulted. I have no idea what they were or how long ago that was, but this is a little old woman who lived in this house for 40 years, raised her kids there, etc and although she's now completely moved out of it, she still is very emotionally attached and knows she did a good job with upkeep. So, my thought is now that she's dropped the price it will go quickly. How low would you go with your offer below asking price? We wouldn't be devastated if we lost it, but it is the most promising thing we've seen come up in our price range in a while. TIA.

[jimmysgirl424]

If she just dropped by $15000, I don't think I would go over $5000 below her asking price. Admittedly, however, I know very little about the housing market.

[ThreeYell]

We've dropped our asking price a few times but would still at least counter an offer within $25K of asking. We have rejected one offer outright. She offered $100K less than our original asking price, $85K less than our asking price at that time which was also our tax assessed value - so not an unreasonable asking price. Our house has been on the market since September in Northern Virginia.

Can your agent run price per square foot comparisons on comps? I find that to be a really helpful tool especially when you're dealing with a house that hasn't changed hands in a while.

[~queen~]

You need consider not just the lowered price and the comps, but also your desire to have the house and your competition. You stated that you think the house will not last long, and it is the most desireable house you have seen in a while.

Due to those factors alone, I would suggest making an offer no less than 5% off of her current asking price and be willing to negotiate up. You can also make a full priced offer and negotiate hard after your inspection to get reasonable things fixed and ask for closing help. Those things may easily make up for the 5% directly off the price the house.

[jengen]

Thank you all for your input. We have only owned one home and bought it from our MIL and when we sold it, it was totally a seller's market, so don't have much experience in this area.

[IrishEyes]

It depends on the market. Generally speaking, an offer 10% and more below the list price is considered a low-ball offer.

If the seller recently lowered the list price, they may be less favorable to a low-ball offer based on that price.

We just sold our house and the offer we took was 12% below our list price. At first, we were upset by the offer, but we were motivated to move, and still got a reasonable amount of equity to invest in the house we purchased.

I agree with jimmysgirl on her suggestion. Now, if you find issues with the house after an inspection, if you get that far, then you can ask for them to be fixed by the seller if they affect your ability to live there (for example, lead paint). If the seller says no, and these are pricey fixes, then you can walk away.

[mamax2]

One of the major consumer market publications - I believe it was Money magazine - just published an article within the last couple of months talking about strategies for buyers and sellers. They indicated that going in 15% below asking was reasonable in this market. Now, I'm not going to say that's good, bad or otherwise, simply that a major, respected publication was telling buyers to go this route. We (Realtors) actually reviewed and discussed strategies for dealing with this during a sales meeting.

At any rate, I'd review the circumstances - does the seller NEED to sell? If she's pressed, I'd go 10% below asking (to account for the recent price reduction). Another strategy would be to go in close to asking and then ask for closing help (if closing costs are high in your area this is particularly helpful). As far as getting things fixed after inspection, just keep in mind it's an old house - everyone knows that and she's an older person. Her interest and capacity to fix things will be somewhat limited so I wouldn't put a lot of eggs in that basket. She may also be on a limited income and unable to afford a lot of upfront costs for repairs. However, you could always submit your offer with a description of the items you see that need addressing (like the lead paint, which has already been disclosed and therefore NOT likely to be fixed by her anyway) this way it's sort of a justification for your lower offer.

Also, in some areas with typically hot markets, it's not uncommon to submit a personal letter. It may not hurt for her to know you are a young couple starting out and want to raise your family in this home, etc. If she's emotionally attached, help her to see how emotionally-fulfilling it will be to see a new family grow in this home.

[mia's mama]

Such a good question, and great info!
I'm curious about this too...
We are moving accross the country in a few months and have been looking at homes via the internet (mls listings through a realtor that we plan on using). We'd like to purchase a new construction and MANY of them have been sitting still for 6 months to over a year. So is 15% below asking an appropraite lowball offer? I assume these builders are DYING to get rid of these houses- many of them are sitting unfinished (and therfore can be customized).

[TriSigmaNC]

Such a good question, and great info!
I'm curious about this too...
We are moving accross the country in a few months and have been looking at homes via the internet (mls listings through a realtor that we plan on using). We'd like to purchase a new construction and MANY of them have been sitting still for 6 months to over a year. So is 15% below asking an appropraite lowball offer? I assume these builders are DYING to get rid of these houses- many of them are sitting unfinished (and therfore can be customized).

this is my EXACT question too :)

[mamax2]

So is 15% below asking an appropraite lowball offer? I assume these builders are DYING to get rid of these houses- many of them are sitting unfinished (and therfore can be customized).

It really depends because in most markets, Spring is hot and they may be willing to wait it out since they know the winter is typically sluggish anyway. Also, the thing about new construction is that a builder has real, current costs to consider, not just equity. They have to pay for the materials and labor that have gone into the house thus far and unless they're really hurting, they won't want to take a loss. I have one new construction listed right now (since late August) and I KNOW the builder wouldn't take 15% below asking because I know his profit margin isn't high enough.

That said, since a builder isn't emotionally attached to a property the way a homeowner is they're not as likely to be 'offended' by a lower offer. They may, however, be more likely to give you 'free' options than actually lowering the sales price because they don't want to screw their comps for the rest of the neighborhood (if they're building out a whole community).

[~queen~]

Quote:
So is 15% below asking an appropraite lowball offer? I assume these builders are DYING to get rid of these houses- many of them are sitting unfinished (and therfore can be customized).


I think it may depend on the size of the builder. A smaller, more customized builder may not be able to lower the price that much as he has direct costs associated with the property. A larger scale builder (think KB Homes, KHovnovian, etc) can chew the costs and just want to get rid of the property and may be willing to negotiate - if not with price, then at least incentives. So, in a new construction situation, you can't just assume that they are all the same.

Also, keep in mind the that even though we are throwing out percentages here, they ARE regional. In my area, 10% can mean as much as $60k difference. That much of a price difference would be considered ridiculously lowball.

[mia's mama]

Also, keep in mind the that even though we are throwing out percentages here, they ARE regional. In my area, 10% can mean as much as $60k difference. That much of a price difference would be considered ridiculously lowball.

Yeah, I guess I should consider that. A 15% lowball in the area we are looking at will be up to a $95K difference...which probably won't fly, right? I don't want to offend anyone- even a builder, but I do want to consider the fact that these houses have been on the market for many, many months and just arn't going...

[Brady]

Like someone else suggested, I would first get some comps from your realtor (if you have one) for asking vs. sold prices of similar houses. Then I would come up with the figure that you think you are going to need to put into the house (new roof, and other things you saw needing attention, etc.) and subtract that from asking- that way your realtor can explain in the asking price why you are going xx amount lower and not insulting her.

What we did (we just closed on our house this past Oct.), was first look at recent sold comps, then subtracted what we saw as must-fix issues, THEN went lower than that knowing what our bottom line was. Our house was listed for $10K more than we ended up paying, we offered $18K less to start the "bidding", knowing what our final offer would be and being okay with walking if they wouldn't budge (our house had also been on the market 8 months and had been reduced $50K in that time). The condo we sold, we were at first insulted with the initial offer the buyers made us, but then in talking with our realtor, they were basing it on a similar unit's sold price that past week. Needless to say, we got them up a little higher and took it knowing that buyers doing their research were going to use that as leverage. Oh, and I also agree with the personal note, we did that with the first house we put an offer on and did have it accepted. It certainly doesn't hurt!

WHEW. ;) Not sure if that made any sense or was any help. I guess my point is- don't go too low if you *really* want the house. It's hard to say a set percentage. Good Luck.

[TriSigmaNC]

Great advice all. In our area this new construct area (smaller builder) has about 10 homes, half aren't sold, and the other side of the street may eventually be developed and there are lots across from it that we're currently looking at. We're also looking at one of the unsold homes, but would prefer the lot.

10% for that would be around $15-18k, so that would be reasonable. We're talking with our agent to see if she thinks that a first offer at $18k below what they originally stated would be laughable or ok.

Basically, the house currently built would be currently (after being reduced once) $24k below what the lot with the same house plus basement would be. Very high and ridiculous for the area. The agent told us the builder is quoting us VERY high.

[mamax2]

Yeah, I guess I should consider that. A 15% lowball in the area we are looking at will be up to a $95K difference...which probably won't fly, right? I don't want to offend anyone- even a builder, but I do want to consider the fact that these houses have been on the market for many, many months and just arn't going...

I'd negotiate for options/incentives if you're concerned about making an offer this low. This allows the builder to make his original profit margin but just lose out on some of the fluff. It's doable and, frankly, should be expected in most markets at this time. BUT, that's a huge caveat because you have to know what's happening in that area. For instance, in the past few months, I've seen condos lowered 50-100K (we are talking 1M+ units). And really, if you're talking a house that's listed for 1.2 and you're offering 1.15, well, it's not that crazy. Percentages DO matter.

[jengen]

Thanks again everyone for all of your input, especially mamax2. We were told that this woman has "no money" to put towards repairs and such, so we know we would get nothing further out of her. A huge issue that would need to be addressed is that she has an old oil tank buried in the back yard, which I'm not sure is even legal. Probably would have to be dug up, etc. So, definitely issues here and I think DH and I are both set on not going above X amount of dollars, which is a little more than 5% below her asking price. The house has been on forever and she's only dropped $15,000, so she appears to be pretty stubborn. I'm not sure we're even going to be making a bid on this property after all. We looked at a bunch of other houses in our price range today and some of them still seem so overpriced even after dropping up to $25K with all the work they need. Most of them have been on (and off) almost a year, because their disclosure forms were signed back in March and April. I think some of them are getting desperate and would accept a lower offer, recognizing the work that needs to be done. We'll see!
mamax2 a little off topic, but would you recommend jumping on something now before Spring comes and people think that they can get a better offer? Or waiting til Spring comes to see what's out there? My fear is that everything that comes on will be at it's absolute top dollar and people will be less willing to negotiate a better price, because it is prime selling season. Our rental lease is up at the end of May.

[CLW4KU]

We're in a smaller market, but our realtor told us last week that most of the houses are selling within 3% of the asking price. :( Oh well!

[mamax2]

mamax2 a little off topic, but would you recommend jumping on something now before Spring comes and people think that they can get a better offer? Or waiting til Spring comes to see what's out there? My fear is that everything that comes on will be at it's absolute top dollar and people will be less willing to negotiate a better price, because it is prime selling season. Our rental lease is up at the end of May.
I think it just depends on when you find THE house, kwim? You will certainly see inventory increase (even higher than it already is!) so your options will be greater and the higher inventory, the more power possessed by the buyer. Of course, the flip side is that we'll (*FINGERS CROSSED* for me ;) ) see more buyers so your competition will increase. Even still, we're looking at a neutral market at best, not a crazy bidding war market like we had a couple of years ago. I think seller's preparing for a Spring listing know it's been dry and I don't think anyone will be pricing over-agressively this year (at least not in the markets with which I'm familiar). So, all in all, I think you just keep looking and you base it on the house that best meets your needs.

Definitely do your diligence re: buried oil tanks, lead paint, etc. and give yourself options to get out of your contract if remediation is out of your budget or scope:

THE ENVIRONMENT
Buried Heating Oil Tanks
Stuart Lieberman, Esq., Stuart Lieberman.
A client recently approached me about a new home that is now heated with natural gas. However, he knew that at one time the house had been heated with oil and there had been an underground oil storage tank. The problem is that nobody had any documents indicating whatever happened to the old tank. Was it removed, or buried in place? Was there contamination, and if so, was it ever removed? He asked whether he should close on the house or take measures to protect himself. Or perhaps, find a new house to buy.

Heating oil tanks are structures that contain oil used to run a home furnace. Many were made of potentially corrosive steel and buried underground. Which means detecting sometimes costly leaks is very hard to do. Buying a house with a leaking tank can cost tens of thousands of dollars in extra costs, sometimes (though less frequently) even more.

This is a very common issue. Many houses have been converted from oil to natural gas. The conversion may have occurred recently, in which case documentation will likely not be a problem, or decades ago. Decades ago may be a problem because at that time people did not then keep the kinds of records concerning tank removals.

Home purchasing is often premised more on emotions than legal or historical considerations. People simply love their new home-to-be, and do not want to hear about the what ifs.

But everyone needs to understand that when they purchase a home, they not only purchase all of the desirable aspects of the home, but also all of the blemishes and liabilities. That means that any oil contamination which was not properly addressed before closing and still remains onsite becomes the responsibility of the new owner.

And heaven forbid what happens if the oil contamination has leaked into the groundwater. That can really become an expensive proposition to cleanup. It can also create legal liability in the even that neighboring properties become effected.

I once represented a homeowner who had a leaking tank and spent nearly $200,000.00 just to remove the dirty soil. While that was unusual, and most cleanups seem to me to be much less costly, the point is that this can be costly.

So, you can love the home you want to buy. But, buy the home with your eyes wide open. A purchaser of a home that once contained an underground storage tank wants to know with certainty that the tank was properly removed, that the tank was properly disposed of, and that all contamination was fully addressed in accordance with applicable laws.

Since tank issues can be important issues, legal advice in addressing this risk is appropriate. People may tell you that this is not necessary. If they do, ask them whether they will pay for the clean up if you end up making a bad call. The odds are that you will be fine. But, problems here can be costly. Skimping on legal advice doesn't make sense.

Absent strong documentation, which satisfies your attorney, that you have nothing to worry about, you might decide that some environmental testing is in order to determine whether any contamination is still present. In fact, you might very well discover that the tank itself is still present. Not long ago, the common practice was to abandon tanks in place by emptying them and filling them with cement or dirt.

It is possible that the purchase price may have to be renegotiated under the circumstances. It also possible that the walk away provision in your contract may have to be revisited. Or, money may have to be kept in escrow. Also, sometimes insurance may be purchased to address some of this risk.

The purpose of this article is not to cover every possible resolution to address this issue. The point is to simply red flag the issue so that purchasers make sure that it is fully addressed to the satisfaction of their attorney.

Underground tank questions should not kill a deal. You may very well get that home that you love. But get professional help and make sure that you are protected from the dreaded what ifs.
From: International Real Estate Digest (http://www.ired.com/news/lieberman/031109.htm)

[jengen]

mamax2 Thanks for the input!! Wow, ok, that article is definitely making me lean more towards a definite "no" on this house! :eek:

[mamax2]

jen ~ I didn't mean to scare you! I just wanted you to leave yourself an 'out' just in case an environmental inspection turned up anything unsatisfactory. If you are looking at older homes, it's likely this may be an issue for you again and tanks (like lead paint or asbestos) aren't inherently dangerous and long as steps have been taken to control and contain them.

Side note: FINALLY I get to use that Environmental Studies degree I earned in college. See, and I thought I'd never use it again in real life :p ;)

[jengen]

mamax2 no worries! :) SMIL is our realtor and has real "issues" with this house, so that is what is really driving us away. We have some time, so are going to keep looking. Thanks again for your input!

[IrishEyes]

Just a note on underground oil tanks... my parents sold their house in 2005, and they had an underground oil tank (they had switched over to natural gas). They had been told to fill it with dirt, which they had, but obviously there were concerns about leaks. I think the buyers' of their home were alerted to this issue by their inspector, and they added on to the sale contract that the tank would need to be removed. My parents realized that this would be an issue with any potential buyer, since the pipe to the tank where the gas was poured by the vendor was visible near the front entrance of the house (and they wouldn't lie about that anyway). I know it cost $5,000-10,000 for the removal, and they were lucky that there were no leaks.

I think it's also possible, depending on where you are, that abandoning an unused gas tank is not allowed.

I hope that helps to have a little more information based on real experience. I'm not sure you should completely give up on this house, unless you're sure the seller won't remove the tank. (We just bought a house where the seller had to do $3000 in septic system repairs.)

[justHB]

When we sold our loft this summer, we priced it well below what similar units were selling for because we wanted a quick sale. In looking at the comps, we could have easily asked for $15k more. Would we have gotten it? I don't know ... but people wouldn't have balked when seeing the price. The first offer we got was SUPER low ($20k below our asking, plus they wanted us to pay closing costs). The people thought that because it was a "slow" market, they could stick it to us. We didn't *need* to move; I just *wanted* to. I was really offended by their offer and it really soured my view toward them. Our agent went back to them with a complete denial and told them to not even think about writing up another offer unless it was closer to our asking. In the end, we sold to them for $5k less than asking, but I really hated working with them. All that to say, keep in mind that someone might not HAVE to sell and if you low-ball too much, they may decide not to work with you altogether.

[Renrel]

I don't know the answer to your question. We just made an offer this week. We also live in an expensive area. The house in question is the lowest priced house by far on a a very nice block in a very nice neighborhood. The house across the street comes up on Zillow.com as close to $2,000,000. The family needed to sell quickly due to a divorce. The house is accessed at $640,00, they listed it at $610,000 got two "good" offers, whatever that means within a few days. They called all buyers who had called about the home on Thursday stating they would show the house that night and take offers the next day. Make your best offer because they would decide before 5pm that day, no counter offers. We knew that there were 5 other offers on the table. We knew we would not get it for less than $430,000 based just on the intrest shown by other buyers. The question was how much over $630,00 to go. We went to bed planning to offer close to $650,000. We woke up thinking that we were being rushed and decided to come down to something more like $645,000. I though there was a good chance someone would offer $640,000. Then during the day I though, if we don't get this house over $2-3000 we are going to kick ourselves. This is the best value we have seen after looking nearly every weekend since Spring. It is not perfect but it iswould easily sell for over the $650,000 we were going to offer with just a decent paint job and a couple of thousand of updates in the kitchen. (It needs much more kitchen work than that, but just a minor overhaul would be a vast improvement. So we brought our offer back up, to a little under $650,000, picking a symbolicly lucky number. And we got the home.

We know we could have gotten if for less, but we don't know how much less. It would have felt great to have offered just $500 above the next lowest offer, but it would have been such a huge lost to have been the second highest offer. So we are content with our offer, providing we don't learn something awlful at closing. We paid an extra $3-5000 for insurance that we would be the high offer. My long winded point being, to be careful about being so intent on getting the best deal that you loss out on a great deal, particular when there are not many great deal around in the better neighborhoods.

[jengen]

Since I started this thread, just wanted to pop back in and share what ended up happening. Since we are spending a whole lot of money we decided maybe we were being too rash and decided to check out just a few more houses before making an offer on this one. Well, our realtor sent us the list and one popped up in our price range that hadn't been there the day before. We drove by it that night and decided to look the next day. Well, we REALLY liked it. Realtor was pushing us to offer $20K below asking price but we were really nervous we were going to lose it doing so because he'd JUST dropped the price. (same scenario as before) In the end, Seller's realtor said he's not even going to consider anything $10K below. Well, we took a chance and wrote up our final offer at $15K below asking price and he took it! I guess there were two other offers on the table - one higher than ours, one lower. Supposedly, the one higher than ours was not too much higher, but we apparently, we made the better candidates and won because his elderly brother is going to be our next door neighbor and he wanted really good neighbors!!! :p
We did take a chance and could have lost, but we told ourselves we wouldn't die if we lost it because there is so much more coming on the market now and we didn't have tomove yet. We are so thrilled that we got it at this price now and have money to fix our nice pink and black bathroom! :p
Our inspection also worked out well and he was pretty generous with some of the repairs he is going to make, IMO. This has all been so stressful, but I'm glad it's all finally winding down and we got a great deal. Thanks for all of your input and good luck to all of you!