How NOT to Make an Offer on a Home

It’s an exhilarating experience. You and your buyer’s agent have been touring homes for several weeks and you’ve found THE ONE! After planning and saving for quite some time, after getting the lending pre-approval, you are ready to make an offer. Buyers have two thoughts pulling on them: 1. You want to make sure your offer is considered and you get the home, and 2. you don’t want to overpay. It’s a chess match. You don’t want to lose your queen. Here’s how NOT to make an offer on a home:

Subtitle:  How To Antagonize A Seller in One Easy Step

Step 1:  Submit a lowball offer.

Unfortunately we see this far too often. These are the worst times to submit a lowball offer on a home:

• After your Buyer’s Agent has advised you, “All the comparable homes indicate that this is a great price.”
• After the seller has reduced the price by $30,000. (10%)
• It’s a seller’s market. (Is it a buyer’s market or a seller’s market?)
• When there is great interest in the house.
• When prices are appreciating…

This is what will likely happen when you submit a lowball offer:

• The seller will more than likely be insulted.
• The seller will probably be antagonized.
• Most of the time the seller will most likely ignore your offer.
• You should probably consider this the “scorched earth” method of making an offer, and move on.

I understand your reasons… at least I understand what you are thinking:

• I can’t afford to pay the list price and also do all the upgrades that the house “needs”.
• I’m at the top of my budget.
• I just don’t think the house is worth that much.
• I read somewhere (someone’s blog?) that I should be able to get a home for X amount. I’m sticking to that amount.

The above scenarios are all true stories from 26+ years of real estate sales. The truth is none of these reasons matter.

These reasons have nothing to do with market realities.

In most markets today, the chances of finding a steal are slim. As Eileen Anderson, real estate blogger in Connecticut, points out in her tips for first time buyers, sellers also have real estate professionals working for them. If you really want the home, you’ll fare much better by making a realistic offer that the sellers can work with.

How To Determine True Value of a Home

When you are evaluating a home to purchase, the market value is very important. Home values is determined by what buyers are willing to pay, based on comparable homes in the same market. A qualified buyer’s agent will run a comparative market analysis on the home in order to help you determine the best offer price. They will take several things into consideration:

• Recent sales of comparable homes
• The market trends in the community and neighborhood
• The average time to sell a home in the community
• The typical closing cost assistance
• The updates in a home compared to like homes
• Their own experience with home sales in the neighborhood

If you want to do updates to make the home suit your tastes… updated flooring, countertops or appliances, for example, that is a very subjective issue. Most of these types of upgrades do not affect the market value of a home. You must determine if you have the funds to pay for those upgrades yourself.

If a home is severely outdated, or in bad condition, it will not be compared to a home that is in great condition when your agent does a comparative market analysis.

Consider the Home Seller’s Mindset

If the seller has reduced the list price, it is already an indication of their mindset and motivation. When a seller lists their home, they often are trying to find the true value of their home within a range, and making price adjustments based on feedback from buyers and other agents, with the help of their listing agent. If they’ve already made adjustments to the list price and their home is placed correctly in the market, then a lowball offer is insulting.

Emotional Stamina in Home Buying and Selling

Buying and selling a home is emotionally draining. When you first start the process it’s exciting. Most often, when you unpack the boxes, you’re exhausted. Whether buying or selling, consider your own emotional stamina.

Buyers need to look at houses in their price range. By looking in higher price ranges, you run the risk of being outbid, or of writing more lowball offers. You will waste time and energy, not to mention emotional stamina. Most importantly, you will probably antagonize people, truth be told.

Don’t make the mistake of underestimating the effects of the emotional state of a seller when they are selling their home. Nor should you ignore your own emotional stamina as a buyer. The first rule in negotiating…don’t let emotions get out of hand. This is where an experienced buyers agent and listing agent will be valuable, taking much of the emotional stress off of your shoulders. Remember, agents negotiate every day, 365/7.

Antagonizing the seller is NOT a smart step in the negotiation process in my experience.

You can decide to use your agent as a trusted adviser, or as just a useful idiot.

How to Make Sure Your Offer Succeeds in One Step

Step 1: Listen to your buyer’s agent.

Home buyers must do their due diligence when purchasing a home. As Bill Gassett, Metrowest Massachusetts area Realtor, points out in his excellent article, one of the roles of an exceptional buyers agent is to help buyers get what they want – the home of their choice for the best possible price and terms. Your buyer’s agent is there to help with all aspects of the home purchase, and none more important than making a successful offer.

Here is true story about a successful purchase in Frederick Maryland:

After much looking, our buyer has found the home she loves in downtown Frederick. It’s probably the only one which meets her criteria. The home is priced at $325,000, after a 5% price reduction. We can see this is a fair market value, based on the comps and the market. As the market is tight, with low inventory, (a seller’s market) and values are on the rise. This home will not sit for long.

Our buyer’s maximum budget is $320,000, with closing cost help. Instead of starting at $300,000, giving herself “negotiating room”, we advised her to offer her maximum, letting the seller’s agent know it was her maximum. There is a possibility that she will be outbid. There is also a possibility that the seller might hold out for a better offer.

One thing we know…the seller is motivated. That’s what a healthy price reduction tells us.

If our buyer had come with a lowball offer, we believe she wouldn’t even stand a chance of consideration in the current market. Current market conditions are critical to a buyer’s offer strategy. 

Given that sellers are getting an average 97% of list price in the downtown Frederick community, this offer, with closing cost help, is a good offer. With the subsidy, which is average for the recent comps, it comes in at 96% of list price.

**UPDATE: Yes, our buyer got the house. 🎉

Price is Not the Only Consideration in Your Offer

Eric Jeanette has an excellent article with 25 great tips for first time home buyers offered by agents and lenders. Out of all of this wisdom, I think having a great offer strategy is one of the most important things. Your offer includes much more than price. It concerns timelines, closing cost help, loan product and details, pre-approval, which contingencies to include, and much more.

A real estate deal has many moving parts. My friend and fellow eXp agent John Cunningham has some great advice in his video:

 3 TIPS TO MAKE YOUR OFFER STAND OUT

To Sum It Up… 

Use your agent as a trusted adviser. As buyers agents, we are negotiating with your best interest in mind. We are steeped in local market conditions day in and day out. Agents study statistics, know the trends and market conditions. We are your advocate, experienced, skilled and motivated to get you the highest and best.

Contact Chris Highland and ask about Buyer Representation: 301-401-5119

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