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December 01, 2011

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We put a 'low ball' offer on a house just last week and as I go through the list above we did everything that was relevant. However, the points FMF brought up are almost more important than the other ones. Don't fall in love with a place- you have to be willing to walk away. This was hard for us. More importantly, all the research and data in the world does not help if the sellers are irrational. There seem to be so many irrational sellers out there. We ended up too far away on price from the sellers and just walked away.

Anyone have any thoughts on how to deal with irrational sellers? For now we're just waiting it out.

I'd also be interested to hear people's thoughts on how much of your non-retirement, non emergency fund assets should be put into a house. How do you balance liquidity with getting a lot of equity in your house? If you can pay cash for a house should you just go for it even if it would wipe out your liquid savings?

Great post! The more you put in your mind that you are buying a dream home rather than a home the less you will be able to walk away from the table. Set a firm upper limit ahead of time to avoid indecision.

@notrustfund it depends on several factors namely your job security, insurance coverage, age to retirement and its total assets, emergency fund strength, cost of home and its relation to the amount put down, etc.

Knowing the market is so important, whether low-balling or just trying to buy a home. (Low-balling doesn't work so well when it is a seller's market, although who knows when we will see that again.)

When we bought our current house, the price just jumped out at me because I knew the area well, the school district, etc etc. Even if you can't 'lowball', it is great to get a good deal nonetheless.

Don't EVER fully trust your agent... EVER. Never tell them where you will really go on an offer or sale price. No matter how much you like them or 'think' you trust them they will always go to the edge so they can either get a better commission or just get the deal done.

I would also add to make sure to avoid taking it personally if the offer is rejected. I had a buddy who was looking to buy a house, and he would try to low-ball, then get mad when they rejected without a counter-offer. I tried to explain to them that they had the right to do so, and if they weren't willing to play ball with a low offer, he needed to accept it, move on, and try to find someone who was.

The first thing to understand is what a lowball is. Lowballs are only possible if the listing price is too high. You can rarely buy a property for considerably less than market value, only for less than the irrational price the seller wants. If comparable properties are selling for 200k and you think you can convince someone to sell you theirs at 160K or even 180K pray tell what amazing powers of persuasion and hypnotization you have that would convince any sane person to sell to you for that price? Most sellers think their property is worth more than market, not less. Along those lines a better strategy is to try to find properties that are priced closer to market than to try to lowball properties that are considerably overpriced. Paying sticker is a good deal if the sticker is right.

The second thing to understand is that you can't reason with irrational sellers. Very few of the things on this list will do you any good with an irrational seller. Someone asked about tips for dealing with an irrational seller. Here it is, find another seller.

The things on this list are decent but if your goal is to purchase for less than ask then there is really one item that is most important and it's not on this list. That item is time on the market.

Sellers pick a price for a reason. The reason is often entirely invalid but they don't believe that. Only time will show them that their price is wrong. The longer a property has been on the market the more likely it is that the seller will realize it is mis-priced and be willing to accept lower offers. This is of course no guarantee with an irrational seller but it is the number one indicator to determine how much below ask you can offer.

If it is a bank owned forclosure property time on market is almost the only thing that matters. Banks are basically computerized in this respect. You can watch them drop the price on a schedule until they find the price at which the market will bring in buyers.

There is one other thing that can get a lower priced offer accepted, perhaps even below market. That is if you find a seller who is desperate. Perhaps someone going through divorce, or who needs cash to save a business that is squeezed or some other personal problems that require cash. If someone is desperate they are going to sell quickly because they need to. This is the only situation where someone is going to sell to you drastically below market. Why else should someone sell to you considerably below what other houses are selling for. If you think you can purchase a property far below market value you better be willing to offer on 100 houses to find the one seller who is desperate or get prepared to be regularly disappointed.

Drastically below market deals only happen on late night real estate shark commercials. And none of those are real.

this is all helpful as we dip our toe in the water of a potential first time home purchase. Anyone have any good books to recommend on home buying?

Good analysis Apex. Your last point regarding desperation is the situation we experienced when we bought our new house (exactly 1 year ago yesterday.) The seller was going through a bitter divorce. They hated each other but priced the house high and it was on the market for 3 months when we showed up (which is a long time in our area). When we looked at the house a neighbor was doing yard work and filled us in on some things including the divorce. This was critical information for us as we used it as leverage on the “low ball” offer. We knew that they’d be sick of living together by then and would be motivated to get out of the house no matter what.

We also had a lot of leverage since we were in a great financial position – no debt and having a house nearly paid off. Since we didn’t have to move, our attitude was a “take it or leave it”. The agent saw this attitude and knew our offer was serious. The sellers didn’t like the offer at all but their desperation to get out of the marriage overruled not accepting the offer. So my point is that as a buyer you increase your leverage based on your cash & debt levels. Having this along with a detachment on emotion provides a lot of confidence and increases your odds in negotiations.

@texashaze.

That is an awesome story. Did you seek the neighbor out to try to fish information or did you just happen to talk to him and s/he just happened to offer that info? Certainly this kind of information is very valuable and your story is a good indication that talking to neighbors to get any inside scoop can be valuable.

We bought a house in September. And we had a great realtor, I have known her for years and she truly listened to what we wanted, but also helped us to see the big picture and where to compromise. I never felt we were pushed into anything. But there are those realtors out there who just want a good commission.

My number one advice it to figure out what you can truly afford, and make sure to factor in utility and repair costs. We called the utility companies beforehand and got the average monthly costs, talked to friends and family of what their costs were, etc and plugged that into a budget. So when we came to the table with our offer we knew where our top was. And we came in with a reasonable offer. We were lucky enough to have a seller who was willing to work with us, and we got a great deal (and the only "perfect" and traditional sale house we looked at!)

@ Apex - The funny part is that I was shocked they took the offer. When we learned about it my wife and I looked at each other and said “looks like we’re moving”! We didn’t steal the house but got it at about 18% below true market value. On the back end we were able to price our house to sell (which was right at market value not the typical higher 110% number). It sold in a few weeks and it all worked out.

@ Apex - neighbors were pretending to do yard work... they were being nosy and just so happened to be pulling weeds next to our parked car. We chatted with them when we were leaving.

I'm not SUPER experienced with it, but I've been around quite a few real estate agents and watch way too many house hunting shows LOL. If a house has been on the market for a long period of time, they're more likely to accept your lowball offer. If you've noticed, many houses have reduced their asking price because the house just isn't moving. Trying to lowball a home that's new on the market and has a lot of interested buyers probably isn't going to work without a super ninja agent.

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