By Amy Hoak, MarketWatch
RISMEDIA, Aug. 22, 2007—(MarketWatch)—Home sellers are not automatically turning up their noses at offers that come in far below their asking price these days as prices stagnate and the inventory of homes for sale remains elevated in many markets.
But buyers who do ask for deep discounts still risk offending sellers to the point where they quash any deal. So before making an aggressive offer, some homework is in order, real-estate professionals say. Further, buyers need to effectively explain why the price of a home should be lower.
That’s what Pat O’Heron did recently when buying a home in Ann Arbor, Michigan. He was able to negotiate a steep discount with a seller who relocated for a job, in a neighborhood that had two year’s worth of inventory on the market.
Before he even made an offer, the asking price had already dropped by about $80,000, he said. After O’Heron made his case why the cost should be even lower, he eventually bought the home for $270,400, with about $11,000 in other credits. The net price ended up being $115,000 below the initial asking price.
O’Heron was able to take advantage of a market in which buyers decidedly hold the upper hand, with its excessive for-sale inventory due in large part to job losses in the area. Even though housing is in a slump in many parts of the U.S., those tactics won’t work in markets that remain healthy.
And in any location in which an aggressive offer is attempted, there is always an inherent danger in going too low. There’s a real risk the offer will insult the seller to the point that they’ll refuse to counter, Realtors say, and the seller could easily make the assumption that the buyer isn’t committed to making a deal.
“There’s a danger of them taking it too personally,” said Jon Boyd, O’Heron’s agent and president of the National Association of Exclusive Buyer Agents. “When you’re making the offer, if you justify that offer with outside data, then it’s much less likely to be perceived as being an insult or (the buyer) not as serious,” he added.
Heed these three guidelines on how — and when — to make an aggressive bid for a home:
1. Learn how motivated the seller is to make a deal
Certain sellers are going to be more willing than others to negotiate a low offer, and there are several giveaways that might indicate more leeway on the issue of price.
For instance, if the sellers have already purchased another home and that sale has closed, they’re likely to be more willing to make a deal, said Dick Gaylord, president elect of the National Association of Realtors and a broker with Re/Max Real Estate Specialists based in Long Beach, Calif. And certainly if the property has been on the market for a long time, sellers will be interested in entertaining any offers, he added.
To get at as many seller details as possible, Gaylord gets in the ear of his or her listing agent. The nuggets of information he gets can be clues as to what kind of offers they’ll consider.
Overall local market conditions also play a role. The housing market in which O’Heron bought, for example, was sluggish, and the home he bought had been on the market for about a year. Because of the job relocation, the seller needed to move and wasn’t in the position to take the home off the market until conditions were more favorable, O’Heron said.
2. Make your case with hard facts
When putting together an aggressive offer for a client, Boyd doesn’t just hand the seller a purchase agreement with the price the buyer is willing to pay — he creates a cover letter explaining exactly where that number came from.
In addition to citing comparable sales in making the offer, it also could be important to include details regarding the amount of inventory in the immediate surrounding area, he said.
“If we just looked at the relative values of the houses that sold, we would end up paying too much for that house because we know that the values are going to fall,” he said. “If we see two years’ worth of inventory, we should be buying five percent, potentially 10 percent less than what houses have sold for in the past year in the neighborhood.”
Buyers may even personally write a letter to the sellers to make their point, as they did when the market was hot and they aimed to stand out from the crowd, Gaylord said. That way, they can detail what they like about the house but express their fear of future dropping values.
That’s still not to say the seller will respond positively.
“The difficulty we’re having in my market right now… sale prices are not dropping, things are staying on the market longer,” Gaylord said. “Buyers read about how terrible the market is; sellers don’t want to budge because they’re reading that prices aren’t falling.”
3. Prepare for the possibility of rejection, or negotiation
Ultimately, a real-estate agent working on behalf of a buyer needs to honor and facilitate the offer that the buyer wishes to make — even if it seems to be too low.
Gaylord offers a word of warning to buyers making very low offers, pointing out that the seller might refuse to negotiate. On a “super aggressive offer,” Boyd might tell a client “there’s a one in five chance there will be a positive response.”
Still, there’s that potential for a seller to counter-offer, especially if there hasn’t been many other bids. Danielle Kennedy, a real-estate sales coach and author based in Pacific Palisades, Calif., advises sellers not to think of a low offer as an insult but as “a sign of interest.”
“And it begins the dialogue regarding the purchase of your house,” she said in an e-mail interview. “They should make every effort to be grateful that an offer has come in.”
Also, not all hope is lost even if a seller doesn’t bite immediately.
Sometimes after time elapses, the seller comes around and decides to negotiate, Boyd said. Or new information — such as the sale of a comparable home at a lower price — can nudge a seller to give an aggressive offer a second look and open the negotiation process.
Amy Hoak is a MarketWatch reporter based in Chicago.