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May 06, 2008


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I know the feeling. Something you may want to check, if you have not already, are the county records. More often than not, the county assessor's office will have sale records you can use to your advantage. It will often help you get a glimpse into the issues the current owner is facing.

We had the same situation happen to us where we found a house that a real estate agent purchased to flip, found out their purchase price (not more than 6 months earlier), and offered them $5K above it (about the amount they invested in improvements), which was also $20K below their asking price. They balked at the offer. 2 months later, got a call from their realtor asking if we were still interested!

It's interesting to hear you've been looking for a year. We started looking in January. We're still looking.

So far, the places we've followed with interest have sold for at least 95% of the asking price, but properties have been sitting on the market for 3 or more months.

FMF - what percentage below the ask did you offer? The absolute dollar amount (in my mind) is about as useful as when news media reports the Dow was down 30 points...a percentage is more valuable.


RWH --

All the ones we've been watching have eventually sold for 20-25% below asking.

John --

Doesn't really matter. What does matter is that our bid was in line with the comp sales in the area. Even if the home was priced at $800k, the comps were at $200k and we bid $190k, we'd be much closer to reality than they were (and extreme example, I know, but it illustrates the point.)

Could be that the sellers are just trying to cover their current loan. They might take a while to come to grips with their situation if their house is worth much less than what they owe. Try putting the address into, they usually list when the house last sold and for what price.

Or they could simply think their house is worth more and maybe they either haven't done the market research or they disagree on the interpretation of the houses value. Does it have any unique or special features?


Jim --

Good idea -- I'll try that.

Like any home, the property has some good points and some bad points. I think the sellers are seeing the good, but not recognizing the bad.

This is actually pretty typical. I remember hearing a story on it on NPR a few weeks back. In general people will hold on to a home far longer than they should if it looks like they'll lose money on the house. It's just human nature. The pain of accepting such a large loss is so much that they're willing to put themselves through a lot before they accept the inevitable. Of course in a down market it's even more amplified because all the while they're holding onto that property the value is getting even lower and lower. Your offer was probably reasonable, and they'll probably eventually sell at that or even lower. But it will likely be months, if not years, before they grudgingly accept that.

I am considering looking to become a first time buyer upon relocating within 3-6 months. I am interested in your decision of offering 5k below market value.

I know you take the position that real estate is not an investment. But I'm sure you have at least slightly taken the housing market expectations for the next few years into your decision. What is your opinion on approximate timing of the bottom of the market (I understand it is impossible to predict) and how much the market will rebound over the next few years?

This is just one of several factors in my decision to rent or buy in the upcoming move. Whether it will help or hurt me over the next few years.

Angie --

Hitting the very bottom will be very difficult, so we're just trying to be somewhere near the bottom. It could actually be the bottom now (not likely), in a year, or in a few years. No one knows. Try to get a decent value based on what you can afford and what you like. And if you plan to live there for quite some time, you should be ok as prices will have time to recover/go up while you're there.

Two stories -

1) We looked at a house in pre-foreclosure that was listed at $187,500 on 4/18. It has already been dropped to $165,000. The previous owner bought it for around $215k in 2006 (top of the market?). I really wish the floorplan would have worked for us as the exterior & yard is gorgeous.

2) A friend of mine bought their house in 2006 (again at or near top of the market) for around $175k, they are now asking $220k with no major improvements made. I have no clue what their realtor is thinking.

The psychology of selling (or buying) a home is very complicated. It obviously is different from area to area. On the coasts in particular you will find many sellers who are upside down on equity. Here in flyover country prices are fairly stable. We didn't get the incredible spikes up so we don't have as many people freaked to find out their house isn't really worth $500k. The truth is a house (or a box of baseball cards or whatever) is only worth what a potential buying is willing to pay.

A good rule of thumb about how willing sellers are to negotiate is it increases a percent or so every month it is on the market. When we bought our current home in 2004 it had been on the market for 6 months and they had already reduced the asking price $25k. I offered $5k less and they jumped. 5 bedroom home on an acre of land for $170k. Not bad, but a lot of grass to cut.

You probably shouldn't be buying a crackhouse, methinks.

Angie and FMF - most of the analysts I've read make the bottom call in 2011/2012, but we'll effectively be at the bottom in the next 9+/- months (the remaining drop from next year to the end will be just a few percent.) I'm looking for a peice of land to retire to myself: at least 20 acres, lots of mature trees, rural, plenty of wildlife. But, my research has told me to start really looking in August with a target buy date of October to get the best quality-to-price ratio of riverfront property at $500-$600 an acre (I know - seems a bit outlandish, but I think I can get it. I'm seeing prices close to this now.) There will be a point where people will just hold the good properties and weather the downturn, leaving lower quality properties on the market to depress further.

Ultimately the value of the house is subjective based on what the seller thinks it is worth and ultimately what a potential buyer is willing to pay.

If you really wanted the house you'd create your best possible offer to get it--knowing what the sellers are valuing it at--you are in the driver's seat since you already know more about the seller than they know about you. If you plan to live in the house for 5, 10, 15 years or more spending a little more to ensure you get it won't have a material impact on it's value when you go to sell.

At this point you've made a low-ball offer (in the eyes of the seller). They may very well come back to you in time if they can't find someone who wants the house more than you do. Or, they may not care based on their financial situation and will let it sit or even rent it--that's part of the mystery of buying that you just won't have insight into. In the end, you may decide that you want the house more than your original offer suggested and offer more.

While market forces play a role in the "average" cost of houses in a given location, the reality is that this is an individual personal decision.

The question you have to ask yourself: will you and your family be kicking yourselves because you didn't get that house. Will some other house suit your family's needs just as well on both a functional and emotional level?

Why not just wait 30 days and if the house is still there, offer the exact same thing as a 'hi, I'm still here' kind of thing. If it sells in the 30 days, move on and wait on another, there will be plenty more where that came from.

Main problem I have is that if I buy now, I will need to relocate in 2-3 years again. So I don't want to buy without any rebound in sight. I have plenty of other loans I could put the money towards instead. But company home buying incentives make it a little more inticing.

rhw - "
It's interesting to hear you've been looking for a year. We started looking in January. We're still looking.

So far, the places we've followed with interest have sold for at least 95% of the asking price, but properties have been sitting on the market for 3 or more months.

Don't let this fool you into thinking that you should offer 5% less than asking. Only offer 5% less if the asking price is actually market value. For example, the house I rent is on the market for $350k. It is probably 40% overpriced. It has been on the market since early 2007 and maybe 3 people have come to look at it, and they all pretty much just laughed and left. Examples like this are in every market and they are never reflected in the statistics you mention because they simply don't sell.

I'm guessing a bitter divorce, and no one has the authority to lower the price.

The behavior of sellers is totally in line with the sellers of tech stocks during the 2000-2002 bear market. At first, people anchor to the maximum price. In the tech bubble, folks wouldn't sell a stock for $80 when they paid $120.

As time progresses, some realized they won't get $120 anytime soon so they sold. Eventually, all sellers capitulated realizing the price was falling rapidly. In a few months, we will start to see capitulation. We are at the beginning of acceptance now. A few sellers are taking lower prices. As more and more start taking lower prices then everyone will jump in driving prices even lower.

So hang in there.

FMF said: "John -- Doesn't really matter."

I think what FMF means is "John -- I don't want to tell you" ;)

Anyway, I think it is unfair to say the seller is "smoking crack". Sure, they may be asking 20k too much for their house, but it is their prerogative if they do not wish to budge on the price. They will either sell at that price or come to their senses in a few months and sell lower. Not everyone is in a rush to sell their house, and is, as a result, willing to wait until they get a deal they find acceptable.

That said, I think it was foolish of them not to counter offer.

My husband and I made a similar offer on a house almost two years ago - word came back that the sellers were "insulted" by our offer, which was in line with area comps. A week later they came back and asked if we were still interested, but we declined. The house was still for sale a year later.

We took a little time off from house-hunting after that. About a year later we bid on and bought a house for much less, with more square footage, in the area of town we most preferred. It was worth the wait - hang in there!

I know exactly what you're referring to; we just went through the process of buying and selling a home and we got lucky in that our asking and buying prices were pretty much right what the market was at. But sticking to your guns when you're way over what the market is likely to bear doesn't make sense.

You have to be flexible when you're selling your home on a few items especially price in a tough market.

Good luck in your continued search.


The key is I said "the houses we are interested in". Those are definitely selling for very near the asking price.


Are you planning on selling your current house? If so, won't the bottom of the market also work against you when you go to sell? That's our biggest concern.

RWH --

Yes, the market will work against me when I sell. But we're trading up, so we have more to gain than lose.

@Angie I was in a similar situation as you and decided to buy the main decider for me was that my company has good incentives to buy and sell. They pay up to 5% of cost on buying and 10% (to include real estate commission on selling) plus the corp. rate on my mortgages was about equal to them paying 3 points when I compared my quoted % with those available online. So I really will only lose if the price of my home drops, while it may I don't see it dropping by more than 1 or 2 % based on the local area. (Might be different if I lived near FMF in Michigan though). If your company is as generous I would say to seriously consider it.

My company pays all fees including commision, closing costs, admin fees. Along with providing a realtor. If the house sell for a loss upon relocating I am only responsible for 5% of the difference. Upon selling I receive a 5% bonus of the sales price. In not knowing whether the market will go up or down (After this move I will most likely move again after another 2-3 months) it is difficult to justify using saved money for a house or paying off my high interest student loans. As it is, I have been flip-flopping over this decision for the past year.

I just dread living in apartments.

Angie --

If it was me, I would not buy if I KNEW I was going to move in such a short time. Tell your company this, ask for additional compensation since you won't be costing them something here, and use that money to move into a nicer apartment or rent a decent house.

Sorry meant a second move in 2-3years. Doesn't make a huge difference though in this market.


Did you have a buyers agent for this? Did the buyers agent discuss with the sellers agent the expectation & range of the seller?

Sometimes that helps things get 'unstuck'. Failing that I'd recommend you keep tabs on the house and maybe offer 3k below market in 60 days to see what happens...


BC --

Yes, we have an agent -- but that's a long story for another post. ;-)

We just offered list price on a place, with standard terms and the seller asked for more time to really think it over...??? There have been no other offers on the place and it was on the market for 5 months. It's in San Francisco. It's clearly still a sellers market out here.

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