Reconsider before making a low ball offer

After previewing an exceptionally nice home in Cameron Park, I wasn’t surprised when my client said, “Let’s make an offer.”  It was a perfect match for John who was already pre-approved by a lender, comfortable with the price range and had long-term ownership plans. We would need to move quickly, however, before another buyer snatched it up. But then I was taken aback by his next statement. “But I’m not willing to pay full price.”

My immediate thoughts were “You have got to be kidding me! This is a great home at a terrific price. We should make a full price or better offer immediately and pray the seller accepts it.”

What I said was, “I understand. You want the best value for your money. Let’s review how this home compares with all the others you didn’t like and were priced higher.”

John was like many homebuyers who have not been paying attention to how the real estate recovery has shifted into high gear. That’s understandable, after all, over the last six years, all the news about the housing market has been pretty negative. Property values and sales activity finally started increasing during the second quarter of last year and the housing recovery is expected to continue into this year and next.

The Cameron Park neighborhood is a good example. In January 2012 the median price of a home in Cameron Park was $281,000 with the majority selling at 97 percent of their listed price. Last month the median selling price, same neighborhood, was $325,000 with the majority of homes selling at 103 percent of the listed price. The healthy 15 percent increase is still below the state’s median price increase that jumped 27 percent between December 2011 and December 2012.

Making an offer less than the listed price is natural when facing a buying decision. Offering less may be a hedge against uncertainty. We may not be absolutely certain the home is worth X but we are confident it’s worth X minus some dollar amount. With other buyers it is an ego thing. They see themselves as a Donald Trump deal maker. Some buyers offer less because they believe the seller anticipates offers for less than the listed price and have priced their home accordingly. Any of these buying strategies may have worked at a different time but they are not applicable today.

After previewing, John and I stopped for coffee and discussed the other homes we had seen over the past few weeks and the advantages this one offered. He really wanted to buy the home but at substantially under the listed price. Here were a few of our discussion points.

“A great deal isn’t a great deal if you don’t get the house.”

If the seller accepted a low ball offer, that would be great deal but it’s only an illusion. The seller isn’t going to accept it, opting for another higher offer. A lower offer often insults the seller or the listing agent and is often viewed as a waste of time and energy.

“Let’s look at what you’re saving at the risk of losing the home.”

The difference between what John wanted to offer and the listed price worked out to be $800 in down payment and $25 a month in additional monthly payments. Providing the actual dollar amount allows the buyer to make a completely informed decision as to whether the proposed discounted offering price was significant to the risks of not securing the property.

“Make your best offer your first offer. You can never count on another opportunity to go higher.”

John would frequently say, “Well, the seller can always counter.”

Although that’s true, there is no guarantee that’s going to happen. According to the California Association of Realtors, 70 percent of all listed homes have multiple offers within weeks of going up for sale. Most sellers and their agents prefer a simple full-price offer and acceptance, rather than the complexities of multiple offers and counter offers.

“How would you feel, if we later discovered the house sold at a price you were prepared to pay but didn’t?”

This question allows the buyer to question their feeling about the home selling at or above the listed price to someone else. It also prepares the buyer for the reality that they might not be successful in securing the property. If their response is “fine” or “OK” then when their offer is not successful it allows them to move on to other listings without any regrets.

“Let’s look at the sales activity and compare listing prices to selling price for the last few months.”

Reviewing the recent sales in the neighborhood offered clear evidence that the majority of homes were selling quickly at 3 percent more than their listed price. This wasn’t my opinion. I wasn’t offering advice. This was factual data. Most buyers are interested in making smart decisions and statistical data helps them understand that the market has shifted. If they are serious buyers, they will need to be more price aggressive with their offers.

Helping buyers understand the realities of today’s market isn’t about driving prices up or placing buyers in an uncomfortable price range. It’s about educating buyers that the real estate recovery is well under way and the game rules have changed. It is then their decision whether they choose to participate.

Ken Calhoon is a real estate broker in El Dorado County. He can be reached through his Website at kencalhoon.com.