Monday, June 21, 2010

A Low Offer is usually not the best strategy for a home buyer making anoffer.

[This article first appeared in the Chattanooga Times Free Press]

Q: Should I start by offering a low price when making an offer on a home?

A: An extremely low offer is not usually the best strategy in a real estate offer. In a buyer’s market such as ours in the Chattanooga area, sellers have become aggressive in their pricing. A realistic seller is listening to his or her Realtor (and the market) and setting a listing price for the property according to market value. The seller who prices his or her property so it is priced competitively and accurately in the current market expects to receive a reasonable offer from the potential buyer.

For the past two years, the Chattanooga area has closed home sales at a consistent average of 96 percent of the listing price of the home. In other words, the selling price accepted by home sellers has only been reduced from the asking price, on average, by only 4 percent. For a buyer to expect an offer to be accepted by the seller at 70, 80 or even 90 percent of the asking price for a properly priced property should not be a reasonable expectation when making an offer. You are better to offer a price that has some shred of reality to it.

Sometimes, the “low ball” offer can work out, but more often than not, they can backfire miserably especially if the seller feels insulted. Sellers who have priced their property fairly tend to simply reject the “low ball” offer. It usually does not send a message to the seller that you, as a savvy buyer, are a tough negotiator. It can simply send the message that you, as a buyer, are not in touch with the current market.

Other things a buyer should consider when making an offer is seller concessions. If you’re going to ask the seller to reduce their price and pay your closing costs, you need to consider that as a net offer price to the seller … because they sure will. Buyers should know what’s most important to them because an offer too low may not find a willing seller to pay anything in concessions such as closing costs, home warranty or repairs.

Buyers should strengthen their offer with clear and concise approved financing terms, adequate earnest money, realistic inspection periods and quick closing dates. Also, excessive contingencies do not allow the buyer to negotiate from a position of strength. So, eliminate as many contingencies from the offer as possible without being reckless.

Get answers to questions you might have about real estate from Randy Durham, who is president of the Chattanooga Association of Realtors and a broker with Keller Williams Realty. His column appears on Sundays. Send your questions to Business Editor John Vass Jr. at jvass@timesfreepress.com.

Some of the material in Mr. Durham’s column that appeared June 6 came from an article by Rambod Jacoby, founder of iLegent Inc., and posted at EzineArticles.com website. Mr. Jacoby’s full article is posted under Chattanooga Diary of Business at timesfreepress.com.