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December 11, 2007


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If you are able to get a great deal on a house, what will you do with the old house? Sell it or rent it? Just curious about your financial strategy here.

Bronco --

We have some options, but are not sure exactly what to do with the old house. We're in a position where we could carry both homes for quite awhile (renting the old house is an option), so we have some flexibility. Maybe I need to write a post on my various options...

Did the same thing a couple of weeks ago. A women real estate agent turned developer has had two houses selling since May that she developed. We know she is bleeding and made a big profit on the adjacent land she sold after purchasing an old home with a dividible lot. The listing said "bring offer!" The price of the one we liked had already dropped 200k from the original May asking. So we went in low becuase we knew she had a decent profitt off the land, but she asked our broker if it was even worth her countering. I still believe it will eventually go higher than we offered, but only slightly.

I understand if she lets one of the homes go for a low price it will hurt the value of the more expensive home next to it, but it is like you said...not the sweet spot and after a few days I felt a little better about not offering any more than we did. A bit of residual housing fever got me there for a night though.

Well, it's their right to laugh at your offer. And it's also their right not to sell their house because they won't get an offer for as much as they want. :P

FMF, yea, great idea to write a post on the options.


You guys have to remember that the people selling these houses our PEOPLE, not companies with huge bottom lines. Ridiculous low-ball offers are absurd FMF. Realize that just because the market is crap in most areas does not give you the go-ahead to undercut people like this. Trying to get a deal, yes, is a good thing and should be done. But what you did FMF is pathetic and sad - trying to take advantage of people because of the current economy. You should be ashamed of yourself - I would.

Just wait a bit longer...prices will continue to plummet...I am banking on it!

JD --

Unless I'm missing something, the "value" of a house is the point where one buyer and one seller agree it is. Currently they have a price that's way too high for the market -- at least that's what the market is telling them by no one buying it. What they're trying to tell me by refusing my offer is that my bid was too low. Where the "true" price falls in between is yet to be determined, but in a capitalistic economy, that's how the market sets the prices.

Are you suggesting that I (and anyone else) pay more on purpose than what the market price? Is this what you do? If so, I'd like to show you my older home that I could sell when I buy the new one. It would really help me out if you gave me $50k over market price for it.

Nice try, FMF, but it sounds like you really didn't want the house that much anyway. So maybe it worked out for everyone.

Yeah, Kevin, I think you're right.

Yikes! I think JD might have been a bit harsh, though I see where he's coming from.
I actually think you did the house sellers a favor, FMF. You said the house was over-priced and getting your low-ball offer hopefully made them realize that. Since they lowered their price soon after getting your offer, that very well may have been the case. They might thank you for it someday ;)

JD, spoken like a true realator, ie "used house salesman"

I still do not think my offer was anything against the seller. In my situation I saw how much she made off the adjacent land and I also saw how much of a loan was taken out. There is no way that it is worth what she initially was trying to sell for. The only reason my offer is thought of low ball is because the seller is asking way too much.

People do not get to make money off of assets quickly becuase they are people, there is risk involved. You can't simply profit from housing if you are not willing to hold onto the property for decent amount of time.

Anyone who bought 5 plus years ago could make money off of a rediculously low ball offer anyway. The majority of people are trying to make fast money. That is why they are over-extended.

Bronco (and others) --

Just wrote my "what I could do with my old hose when I buy the new one" post. It will appear on December 26. Yeah, I write ahead a bit sometimes -- especially when I plan on taking some time off, as I do in the next couple of weeks.

If the house is still on the market a month from now, I would offer the same $350k and keep offering it once a month. I bet they will give you the house for $350k if the house stays on the market for another 2 months.

JD, so along the same logic, PEOPLE who are buying the house are also PEOPLE. Jacking up the prices (which is obviously what happened since they dropped $100k and counter offered $49k less than that from FMF's offer), is equally pathetic and sad trying to take advantage. If the times were rich without the subprime, would you still be arguing the same logic? The value of the home is what the market will bear as FMF wrote.

JD's comment is the most idiotic and laughable one I have read in a long time...LOL....I still can't stop laughing.

How much does it cost to heat a house to 33 degrees to keep the pipes from bursting? I wouldn't imagine it would be all that much. The cost of the mortgage, taxes, etc. are the real drivers of a sale. Heating bill? Maybe if you're looking at a 15,000 sq ft house with no windows...

Kurt --

Ha! Not quite.

But I was assuming they'd want to keep the temp in the 55-60 degree range so people looking at it would at least be semi-comfortable (especially if they want people to remove their shoes before walking on the like-new carpeting.) This was the inside temp when we checked it out.

FMF & Kurt: Most of the houses I looked at last February/March had the heat turned "off" (somewhere below 40); but then again, several of them were bank repos.

If the home is empty, it's not worth it to keep the heat high enough for comfort, just high enough to keep pipes from freezing. A good realtor might turn the heat up a few hours before an open house, though.

I see nothing wrong with making a lowball offer. Truth is, they may look back sometime and wish they'd taken it. Real estate is not a sure thing. People buy low and sell high. People buy high and then the value plummets. Some people are boxed out of buying completely because they didn't move fast enough.

JD's comments are somewhat correct but flip the argument. If a hurricane blows through New Orleans should a business owner have a right to charge $10 for two double aa batteries? How about charging $20 for a gallon of clean water - hey the market is deciding the price right?

How about when Exxon raises the price of gasoline to $4 or $5 a gallon next hurricane season? It's the free market right? Price gouging is illegal in most states during times of disaster so the real question becomes what qualifies as a disaster?

Are mortgage foreclosures on a national scale a disaster? Should people have the right to "inversely" price gouge?

Where is the line between "free market" and "taking advantage/price gouging or price lowballing?"

Where is the line between "free market" and "taking advantage/price gouging or price lowballing?"

Why should there be one? You know what happens when Exxon charges $4 for a gallon of gas? It becomes more expensive to drive, people drive less and/or buy more fuel efficient cars, gasoline shortages are averted, and people with Exxon stock in their retirement accounts get to retire a couple weeks early.

When demand for clean water goes up, why shouldn't prices go up? When demand for AA batteries goes up, why shouldn't prices go up? Hiking prices means that the people who really need those goods the most have a better chance of getting them. The guy who just wants to replace the batteries in his camera or wash his face with clean water leaves the store disgusted at the gouging and emptyhanded, and the people who desperately need a drink or need to power their emergency radio in a life or death situation are glad that they are at least able to purchase the supplies they need. Sure they'd like to get them for cheaper, heck they'd like to get them for free, but the fair price is the price where supply meets demand, because that does the best job of getting the goods in the hands of the people who need them or want them the most.

Remember: BUYERS (not sellers) set the selling prices for homes. Sellers almost always overestimate the "value" of their home to others, due to the emotional attachment they have to it and often all the blood, sweat, and tears they "invested" in it. A seller shouldn't get offended at an offer they deem "too low", just as a car salesmen shouldn't. There is no shame for a buyer to offer a price equal to the value of a home to you.

At the end of the day a house is worth not a penny more than what the buyer is willing to pay.

There is absolutely no moral imperative to pay what a house is "worth" to the seller.

Let that seller sit with their "valuable" home until the day it falls down, harping on and on about it's great features and wonderful location. If they like it so much THEY should live there.

FMF should not feel bad for his bid. In free markets, buyers and sellers must act in their best interest. It is the only way the market works. Once, this principle is violated the entire market is out of whack.

We should not deviate from this principle because we feel bad for sellers. This attitude is why we end up allowing our government to bail out folks who make poor financial decisions at the expense of taxpayers.

FMF should not feel bad for his bid. In free markets, buyers and sellers must act in their best interest. It is the only way the market works. Once, this principle is violated the entire market is out of whack.

We should not deviate from this principle because we feel bad for sellers. This attitude is why we end up allowing our government to bail out folks who make poor financial decisions at the expense of taxpayers.

Good comment Kirk.

I'm confused. You own your house outright, and you don't really like the house you were bidding on. So why would you want it? Why not just wait until something that you actually *do* like comes along? The only way this really makes sense is if you plan on living in it until the market rebounds, then sell it, kick out the renters in your original house, and move back home.

Nickel --

Actually, at $350k, I liked it. ;-)

Here's the deal: the seller obviously bought the house at an inflated price (as was everything 2 years ago) and is probably totally upside-down on his mortgage. Your offer most likely didn't even cover his current loan. He wants to sell his home and not owe on his mortgage. So I understand why he balked.

But that's not your problem. You have every right to offer what you feel is fair for you. How the seller comes out of the deal is really none of your concern. You are looking to buy a house at a price you can afford.

Now the comps in the area are probably close to what you offered, maybe a little bit lower. But the seller can't see that: all he sees is what he owes (and I don't doubt he was looking to make a bit of profit, too.)

This just seems like you and the seller just weren't a good match, plain and simple. ;-)

If it were me, I'd offer to take over his payments before he fell into foreclosure. Then I'd lease-option the house until the market rebounded. But, that's what I do for a living, so it seems easy to me.

I say if you can carry both houses, do so: rent out the old one and by all means hire a property manager. For as little as 8% of the monthly rent, a management team can collect rent, fix toilets, answer late-night calls, and handle all the headaches people think come with being a landlord. It's money well spent.

And FMF, you really shouldn't be in love with a piece of property. Buying a house is a serious financial decision that shouldn't be clouded by emotions: that'd how all these sub-prime folks got into trouble.

Sammy, you're talking about Supply & Demand, which is a totally different that what happened here. In your scenario, prices get hiked because there is a high demand and limited supply. With the current housing market, there is a large supply and limited demand. Sellers need to sell, buy buyers really don't NEED to buy. So buyers are at the advantage.

Remember, when you're buying the house at auction on the steps of the state capital building (remember 1989-1990?), the only thing that matters is price. In some cases, property was going for 10-20 cents on the dollar. Not that this will get that bad, but a fair offer is at market.


When did buyers ever NEED to buy houses? It was more of a follow the trend thing. The Joneses just got a new house. I want one too! And now they're paying for it.

And supply and demand works both ways. Sometimes the seller has the advantage, sometimes its the buyer, otherwise your playing against a stacked deck.

FMF: I guess that's a difference between you and me. If I don't like a house, then I probably won't like it at any price (unless I'm buying it as an investment).

Your 'low ball' offer was realistic, and actually, a kindness to the seller. Many sellers today are still emotionally hanging on to the good fortune they saw others enjoy, and wrongly hoping they will 'win big' too, despite evidence to the contrary. An unscrupulous realtor, or worse, a not very smart one, "bought" the listing by accepting a too high asking price. You at least have helped them approach the real value, altho the longer they wait, the more pain they will know. I agree with the write who suggested trying again at 350 later. A better way would be to let them finance you on some or all of the 350. That way, you stop the bleeding for them immediately, and structure a refinance in the future(five to seven years).

Don't keep your old house as a rental. Get rid of it and replace with a different 'rental'. Reason, when a tenant ruins the kitchen floor with cig burns, etc. you will be emotionally enraged what they did to "MY" house. If it is a rental house, it is just another maintenance repair that comes with the territory.
I broke my own rule last year, and rented my personal residence while I was abroad, and the "/explitive" ruined my hot tub, trashed the carpet, etc. I hope I never see him. Other bad tenants are only that....bad tenants.

Don't forget about the "tax" issues that may now be encompassed in the new year. Capital gains and losses can be written off against each other during the tax year. So, if you make $100K on land sale, it's best to offset it with any losses to lower your net tax due for that year, and you have some profit left. Once the clock hits the new year, if you ONLY Have LOSSES for that year, you can ONLY write off $3,000 per year (for the rest of your life if the loss is big enough). So, any seller that has made a profit (and will legally declare it on taxes) would be more motivated to sell during a profitable year (for less money) to offset gains, and be done with any potential loss on the property for the following year (if a loss on the property were to be incurred at sale time). So, if sellers are expecting big losses for 2008, and ONLY have losses with no offsetting gains, they are best suited to sell in a year when they have some offsetting gains. Now that's it's 2008, they may be less interested in selling lower since they are at risk of having only minimal loss writeoffs.

My husband and I and 2 babies are looking to bid on a house in Mich that is brand new and only one of 3 built on what they had expected to build 8 houses on. currently there are 3 houses. theacant house and tons of land. one that never has been lived in(our interest) for $475,000. One next door that has been on the market for over a yr at $550,000(same size, new deck, emotional attatchment as stated earlier) and a third with a family of 4 still living there. Not sure what to offer. I mean "Diamond Court" is not much of a court yet. It would be us and the one other family and a vacant house. Not sure as we are first time buyers where to start. Any suggestions. I see there are alot of opinions, but mostly arguments about what the house is worth and if this is "taking advantage" of sellers. Since it is a builder and not a family the emotion is not as high for us as if a "family" was involved. It is tough for many in MI, but at the saem time my husband is an MD and I think they use that to their advantage as I try not to shoe too much enthusiasm for the house snce they know we can afford it. I do love this house, but do want to benefit form the fact that 3 yrs ago it was selling for $600,000...Thanks, liz

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