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How Much Below Asking Price Should I Offer on a Home?
Old 10-09-2011, 03:49 PM   #1
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How Much Below Asking Price Should I Offer on a Home?

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.
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Old 10-09-2011, 04:10 PM   #2
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You really need to have information on what comparable homes have sold for in the last few months in the area that you are looking at. You also need to find out with foreclosures and shortsells if there is a 2nd lien on the property, you may not want to waste your time with those properties because the wiggle room likely is not there.

Use the resources of a local real estate agent(foreclosure list etc). You don't have to use them to buy the property but let them do some work for you on the market in general for your area.

Sometimes homes that have been on the market for a year or so are there for a reason, be careful. In my neighborhood in FL one such home is a short sale w/2nd lien holder who has nixed two or three sales so far.
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Old 10-09-2011, 06:25 PM   #3
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This weekend the Wall Street Journal had an article on "How to Make a Lowball Offer" on real estate. Here's the link: How to Make a 'Lowball' Offer - WSJ.com
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Old 10-09-2011, 07:10 PM   #4
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The answer is it all depends on the asking price relative to market. So don't get hung up on % off ask and focus on what any given property is "worth" relative to the current market.

And the only way to know this is to see a lot of properties (and know what others have sold for). At that point, you'll be able to see value. Then you can decide what a house is worth and make an offer accordingly.

If the sellers see it otherwise, move on to the next. And if your real estate agent sees it differently, move onto another real estate agent.
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Old 10-09-2011, 07:19 PM   #5
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Quote:
Originally Posted by LARS
The answer is it all depends on the asking price relative to market. So don't get hung up on % off ask and focus on what any given property is "worth" relative to the current market.

And the only way to know this is to see a lot of properties (and know what others have sold for). At that point, you'll be able to see value. Then you can decide what a house is worth and make an offer accordingly.

If the sellers see it otherwise, move on to the next. And if your real estate agent sees it differently, move onto another real estate agent.
Many times the realtors are trying to protect the values of homes in their area because that is where they live. I would not rely on their advice. I agree with your recommendations.
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Old 10-09-2011, 08:40 PM   #6
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If the sellers realtor is doing his/her job and if the home seller is realistic, the asking price historically was set about 10% above the expected transaction price. However those are two very big ifs. Many sellers can't get their heads around the drop in value that homes have had in the last few years.

Its a buyers market in most places. Figure out what a fair price for the home is by looking at comparables. A realtor can do this or you can get the data from local tax rolls. Figure a target price based on sales prices of similar homes in the area, size, and condition. Give the seller an offer that is a bit below your target price and see if they are willing to play ball. If they come back with a very high counter offer, then they don't know what the market is like or really don't need to sell. If that's the case, move on.

Remember, when and if you do sell, the next buyer will be doing the same thing. If you pay more than the home is worth because the current owner set the price too high, you'll be eating the loss, not the current owner.

The house I'm in now was not the first one we made an offer on in 2009. The owner of the first house thought it was worth a lot more than I thought it was so I walked away. I'm glad I did because if he'd bid me up, I would have overpaid. The owner of the second house I bid on was more realistic.

Lorne
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Old 10-09-2011, 09:02 PM   #7
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Figure a target price based on sales prices of similar homes in the area, size, and condition. Give the seller an offer that is a bit below your target price and see if they are willing to play ball.
So, you're saying your target price is the fair market price? But why would you want to pay a fair price? Surely, you'd prefer to pay a lower price. (I'm a low baller.)
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Old 10-09-2011, 09:24 PM   #8
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It all depends. Some listing prices are completely out of line, some are spot on.

I would leverage a realtor to run area comps on completed sales, current listings, understand price reductions, trend in area, ballpark on repairs needed, etc. If a foreclosure or shortsale, figure out the bank on file as an experienced realtor can offer advice on prior successful approaches.

YMMV as the market is ever changing.
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Old 10-10-2011, 09:40 AM   #9
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Originally Posted by Aiming_4_55 View Post
It all depends. Some listing prices are completely out of line, some are spot on.

I would leverage a realtor to run area comps on completed sales, current listings, understand price reductions, trend in area, ballpark on repairs needed, etc. If a foreclosure or shortsale, figure out the bank on file as an experienced realtor can offer advice on prior successful approaches.

YMMV as the market is ever changing.

But even if the price is 'spot on', you can make an offer lower than what is listed... if it is a buyers market (and it is in most places), there are not that many offers being made...

When I sold my house, the price was 'spot on' based on comps, other sales etc. etc... but there were so few people who were even looking (this was a couple of years ago) that almost all houses just sat... I got one lowball offer, but they made offers on 5 houses and accepted the one who came back first... it took another 9 months for the second offer which I took...

The house I bought I did the same... they were not 'spot on' at all, but reduced the house down to a more reasonable number... and I offered about 10% below that... they also accepted since I was the first offer they had in 18 months...


The seller does NOT have to take the offer and does not even have to counter.... but I bet almost all will at least try to hook any real buyer in today's market... the cost to carry a property adds up...
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Old 10-10-2011, 08:37 PM   #10
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The answer can also be highly dependent on the specific neighborhood as well. If you're looking in a desirable neighborhood you may pay asking.

We bought in Vegas almost two years ago. We came into town preparing to find slash and burn prices. We did, but not in neighborhoods that we wanted to live in.

The house we bought sold in 4 days and had two offers, both at asking price. Both the elementary and middle schools in our neighborhood are the best in town according to the state so the houses here didn't drop like other areas.

So, while we didn't get "a steal", should we have to move before the market turns around, our house will sell just as quickly as it did when we bought it.
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Old 10-10-2011, 08:50 PM   #11
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We offered about 15% below the asking price of the only house we have bought.

The counter offer was the original asking price. It turned out the owner had a buyout from his employer, so had no incentive to sell for less ... only for more than his employer buyout.

When the employer re-lo company got the house, we submitted our bid again. However, we asked our buyer's agent for the following information:
For every house sold by the re-lo company in the previous 12-months, what was the
1. Original seller's asking price and time on the market before re-lo got it
2. Re-lo's first asking price
3. Re-lo's final sales price
4. Total time the Re-lo company had the house

The longer the time the Re-lo had a house, the larger the drop from first ask to final sales price. But even for the short-times, the drop from ask to final was substantial.

So we knew this and used it in the negotiations. When the Re-lo company countered our offer with the statement, "This is our final offer!" We knew they were lying. And I loved the tactic of a counteroffer at the same price as our previous offer. It really focusses the seller's attention. It says we want the house at our price and not a penny more without stopping the negotiation by walking away.


Anyways, my point is to look for information any which way you can. Our buyer's agent did the leg work for us, but would not have gathered info without us telling her the info we wanted.
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Old 10-10-2011, 09:09 PM   #12
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It depends on how well the house is priced compared to comps. Back when the market was good (we were never in one of the bubble markets) I made an offer that was almost 20% below listing because the comps just didn't support the listing price at all. The seller chose not to respond which was his right (ironically after we were under contract on another house his agent contacted ours and asked if we wanted to make another offer).

On the house we sold earlier this year, we had had it on the market several months without selling (listed at a price recommended to us by the agent but which I realize now was too high). We took the house off the market a few months and then relisted. We really wanted to sell the house quickly so we chose to offer it at a price that was actually better than the comps (we think we could have sold it at a higher price but that it would have taken awhile). We had an offer within a few days at a price quite close to the listing price. My one fear in lowering the price so much was that people might think that they could only buy for X below listing price and would expect us to reduce the price 10 or 20% (which was common for completed sales) even though we had already taken those kind of reductions into account in setting our price.

There just isn't a rule of thumb for this since it depends on the individual pricing of the house.
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Old 10-10-2011, 10:56 PM   #13
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Quote:
Originally Posted by Lisa99
The answer can also be highly dependent on the specific neighborhood as well. If you're looking in a desirable neighborhood you may pay asking.

We bought in Vegas almost two years ago. We came into town preparing to find slash and burn prices. We did, but not in neighborhoods that we wanted to live in.

The house we bought sold in 4 days and had two offers, both at asking price. Both the elementary and middle schools in our neighborhood are the best in town according to the state so the houses here didn't drop like other areas.

So, while we didn't get "a steal", should we have to move before the market turns around, our house will sell just as quickly as it did when we bought it.
I live in, and invest in homes in, the Vegas market. I find it hard to believe your house hasn't declined in value in the last two years. And if you weren't implying that (how I took your last sentence), but merely talking about how quick it will sell, pretty much anything will sell quickly if priced right.
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