How to make successful low offers
Real estate agents are like most other professionals; honest, hard working and committed to helping their clients; but having said that, some are better at their job than others.
Some agents know how to look for properties that can be bought using a low offer and some don’t. Some agents know the process of making successful low offers, but don’t like making low offers. It is far easier to make a deal if the buyer offers near or at the listing price. Low offers require more work and the ability to negotiate, without offending the other agent and the seller.
Once the buyer has identified a property they would like to buy, they should have the following information before they decide what to offer.
- How long has the property been listed?
- Have there been any price reductions, if so how many and when?
- Has the property ever gone active to sold pending inspection, how many times?
- What did the current owner pay for the property and when?
- How much does the current owner owe on the property?
- Is the property vacant?
- Is the owner/seller local or out of town?
- What is the current market value, they agent for the buyer must do a CMA.
The ideal seller for a low offer would be an out of town owner/seller, with a high mortgage payment on a vacant home. The home has been on the market over 90 days and has been through one sold pending inspection and then came back on the market. This means the buyer disapproved the inspection. We don’t know why, but we do know the seller lost one deal after thinking they had their vacant remote property sold.
Finally, the delta between the list price and what the owner/seller paid should be large, and the delta between the list price and what the owner/seller owes is large.
The seller can sell for far less than the list price and still make a profit.
While it is rare to find a property with all the above conditions, all you need is a few to decide to make a low offer.
How the agent buyer explains the low offer to the agent for the seller is extremely important. He must state some or all of the following.
- The buyer(s) love the home and plan on living it the home forever.
- The buyer(s) are not going to resell the home and make money off the lower price they are offering.
- The buyer(s) is not trying to swindle the seller. They just can’t pay more because they have limited funds.
- The buyer wants the seller to know they will not ask for money to correct the items the inspection finds need repair or replacement, unless they are critical to the safety of the home.
- The buyers are ready to close ASAP.
I often ask the buyer(s) to write a personal letter to the seller that includes the above, and attach the letter to the offer.
Let me say you can never lie or misrepresent. You can’t say the above if it is your intent to resell the property, or if you have unlimited funds.
One way buyers can use a low offer is to reach up for a property they otherwise couldn’t afford to buy. Let me use an example.
The buyer is qualified to buy a home with a sales price of $350,000, with 3.5% down, using FHA financing.
Their agent sees a property listed for $385,000 that meets or exceeds all their requirements. The owner/seller paid $185,000 and owes $200,000 on a refinance that is costing the owner/seller $1,200/month. The property is vacant, the owner/seller now lives in a different city and the property has been listed for 110 days. The agent has done a CMA on the home and finds the market value at or a little above the list price.
I would have no problem with an offer of $340,000. I would ask the buyers to write a letter telling the seller how much they love the home and that they plan to raise the children in the home. Again this must be true, no lies allowed.
The reason I wouldn’t offer the $350,000 is you always need room to negotiate. The buyer can’t go above $350,000, but they can come up to $350,000 if they need to, in order to show the seller they really want the home.
Many agents wouldn’t even show their buyers a home outside the purchase price they are qualified for.
I certainly wouldn’t make a low offer without some of all of the characteristics described above. After negotiating hundreds of deals in the corporate world, I can assure you, you never know what a seller will do unless you ask.
If you are going to buy in the Edmonds area give me a call. If you use me as your agent to buy any home listed by any agent, if the home is listed on the MLS, I will give you 30% of my commission, paid through escrow when the deal closes. Mike Mitte 425-876-1921