Offer, Offer, What’s Really an Offer?

In real estate, coming to the sale price vs. the listed price is the result of a negotiation. A fair market price is defined as that price at which a willing buyer and a willing seller agree. Negotiation is like tennis. The Seller “serves” a Listed Price. A buyer “returns” an Offer Price. The seller then “returns” a Counter Offer. The buyer then chooses to respond by either accepting the Counter Offer or “returns” their Counter Offer. It can go on and on until an agreement is reached or the process is abandoned. The same process also includes terms, such as closing date, repairs, allowances, occupancy dates and much more. Which is better, $700,000 “as is” or $725,000 with repairs? Ah, and you just thought it was about arithmetic!

Buyers tend to shy away from making an offer for fear of insulting a seller. Most sellers represented by a Realtor are shielded from the insult. They have a motivation to sell the home. Sellers should have an appreciation for any offer. It beats the parade of folks and their kids sweetly smiling and saying “that’s niiiice” as they parade through their home. An offer is a message of sincere interest. It needs to be viewed as the start of a dialog. But the buyer must be interested, since, once you accept their offer they are (generally) BOUND to buy you home of forfeit their deposit.

There are many kinds of offers. A full price offer is the seller’s best friend. But beware of any terms or requests for repairs that may reduce the net dollar value of the offer.

There is a “Low Ball” offer. Such an offer is a test to measure the seller’s motivation. It is a signal that a buyer believes (or hopes) the real value of the home is much less than the List Price. In today’s market, many homes are listed at 2005 prices and are not “priced to sell’ under current market conditions. They will remain for sale, and may not receive any offers until they become more aggressively priced. Buyers may be responding to their estimate of the changed market. There are other “bottom feeders” that are just looking for a bargain or a deep discount at a distressed seller’s expense. Normal and legal discriminatory issues aside, the thought that “it’s my home and I’ll sell it when and how I want to” is the seller’s right derived from private property rights in our Constitutions. But, a buyer is a buyer and we need to keep them in a dialog so they can be a buyer for OUR home. An offer is the first strep in a negotiation, no matter HOW low the starting point is.

We negotiate every day. We’re just not used to negotiating the sale of our largest asset, every day. An offer is a starting point. Just like in life, an outrageous offer gets a response that is the polite version for “and, just what kind of girl (boy) do you think I am!” Or, perhaps, we’re just fishing for a better offer so we send the “Oh, I’m sorry, but I wash my hair on Fridays” message. And maybe the old stand by, “I’m visiting my sick aunt that day, perhaps another time” gets us a faster close or a removal of a contingency or a better move in or out date.

The “Low Ball” offer causes much stress among sellers. But such an offer is easily qualified by a smart counter offer. When working with Realtors representing both parties, the personal feelings of buyers and sellers are insulated by their representatives. So, the insulting low ball offer is, at least, a starting point. The seller’s first response sets the tone for all negotiations.

The choices include outright rejection of the offer, rejection with guidance, a counter offer very close to the Listed Price or a counter offer at a percentage of the difference between the offer and listed price, all carry messages to the buyer on a seller’s expectations. And the messages aren’t just quantitative. For example, an offer must be evaluated along with the financial impact of the terms attached. An extra moth in closing means an extra month of mortgage payments, taxes, insurance and other costs. That’s a hit on the net final proceeds from the sale. Fence repairs may be $500 off the net proceeds to the seller.

Outright rejection tells the buyer and his agent that the offer price and the terms are too far apart from the seller’s expectations and continuation of discussions are unlikely to move toward an agreement.. The addition of guidance may tell which terms are unacceptable or how far apart the offer is from acceptability in the seller’s eyes.

 

The strategy of making a Counter Offer with a price gives hints to where the seller is on their price. A seller is always in the driver’s seat. Nobody can compel as seller to sell his home, even at full price. Negotiations can conclude at any time the seller declines to sell his home before an offer is accepted. Again, there are laws which can intervene if discrimination is involved but they don’t apply to price negotiations in general..

 

Negotiations are where Realtors earn their money. It is difficult to negotiate on your own behalf. In our culture, we are really well served by allowing intermediaries who are professionals in our area to shape an agreement and help the principals find agreement. With a “low ball” offer, the seller’s agent can quickly convey that their principal is not in distress and is very unlikely to sell at a deep discount and that the listed price is supported by recent sales activity. The buyer’s agent either will convince them that a more realistic price is in order or they will move on the next home for sale. This dialog is all but impossible between principals, and the thought of it gives many sellers a bad case of the “willies.”

The buyer’s equivalent is the fear of “leaving money on the table” or paying too much. Good negotiation strategies are characterized by putting yourself in the place of the other party. If you want a lower price, or a longer close or a fence fixed, then put your offer in a way that makes sense for the seller to accept it. We already know they want to sell. A clue to their motivation is that they have listed their home in today’s weak market, that is, a buyer’s market. Unless they are unrepresented or they are from Mars, sellers expect buyers to be looking for the best prices, and all they can get on terms, like closing date, repaired fences etc. However, contrary to the national press and media, today’s sellers are not in the mood to make a donation to a buyer’s net worth in return for being relieved of ownership of their home.

Be not afraid. A home that is priced to sell, verified with market statistics, in the Truckee, Tahoe and Reno market should sell within 95% of the listed price. A realistically priced home in today’s market will provide a buyer with a “market equity advantage” going forward. But, review my last post and you will see that waiting may not be the answer. I see the Incline and Truckee markets turning around and The North and West Shores of Tahoe and most of Reno not far behind. Buyers are in the unique position. By assuming an action bias and setting the “market price” of a home they like through well represented good faith negotiation. Earn you own “market advantage” today through sharp and courageous negotiations. Just remember that a seller of a well priced home is not a donor and a buyer is not a recipient. They are free acting participants in a transaction that represents hundreds of thousands of dollars and home that delivers benefits to your family and equity that in almost all cases will be applied to yet another home for your sellers. Wrapping dollars and the emotions invested in homes makes for very powerful feelings affecting negotiations.

 

For more tips, check out my posts on buying and selling right in a buyer’s market.

Remember, it takes economists at least six months to identify what was the top ot bottom of any market, real estate, included. Don’t let a TV analyst or Business Section writer make up your mind. Real estate is essentially local. Rely on your local Realtors, the credible and reliable professionals in your market.  

What is really an offer is the one that gets the negotiations started and creates a good faith dialog that ends in a happy and willing agreement of the parties. Buyers and sellers: sharpen your pencils! Get your good faith in order and get representation! Realtors, for the very most part, are in the “Dreams Come True” business. Get one of us working to help you get your market advantage on your dream home!

 

The Top Seniors Issue in Choosing a New Home

Where to Live in Retirement Principles of Universal Design Understanding Universal Design (UD) is essential for seniors evaluating their current home or who are shopping for a replacement home. Just because a community calls itself a Senior Community or an Active Adult Community doesn’t mean that they used the latest Universal Design Principles that make a senior’s life comfortable when the aging issues must be addressed. Here are the basic principles and examples of what to look for. Equitable use. All members of the household can use at lease one of each of the home’s amenities such as cooking, laundry bathing and toilet, outdoor access and indoor ease of movement. Flexibility and simplicity of use.  A fixture or appliance should be easily used; left or right-handed, reachable and give tactile and audible feedback as well as visual indications. Directions and labels should use large fonts that they are easily read and felt. Written instructions should include diagrams. Design should accommodate errors that might be easily made by impaired eyesight or hand tremor operating buttons and switches, Low physical effort.  A user should be able to maintain a neutral body position while operating to maintain balance. Minimize operating forces, repetitive action and sustained force. Examples are lever door handles, faucets and touch lamps and light fixtures, switches and plugs. Layout. Dwellings with a single story, hallways and doorways that accommodate wheelchairs with room to turn around at entryways and the garage.  While every dwelling may not have all of the latest UD features, be sure that it includes the highest priority features and can be easily retro-fit to accommodate an issue that arises later. Resources: www.aarp.com, www.abledata.com www.microsoft.com/enable/at/default.aspx

Seniors Real Estate investments

Real Estate is still a great investment. It combines intrinsic value-land they’re not making much more of it, and leverage. While there is a bit of turmoil in the mortgage markets, you can still get a loan for investment property that will allow you to invest a fraction of the total worth of a property and control the entire appreciation and income.

The first profit in an investment is made at the purchase. Buying right is essential. Take your time, follow the “buying right” rules and negotiate your best deal.

What not to buy:

1. Homes in a bad location.
2. Homes in a bad school district.
3. Homes that’s have negative cash flow.
4. Homes that need major work. Anything but a little landscaping and painting and window covering is MAJOR!
5. Homes that will be vacant for more than a month or two. At a good return on investment of, say 10%, one month’s vacancy represents nearly a year’s net income.
6. Homes more than a 45 minute drive from your residence. The prospect of driving a half a day and getting any painting done is NOT a good “senior moment.”
7. Homes where the market will take too long to rebound. We’re not getting any younger!

If selling your long term family home results in more cash equity than you need to re-invest in a new residence (or 2), real estate represents a great opportunity for that cash to continue to grow. Buy right, rent judiciously and sell on the next up market represents a great strategy for an active, engaged and savvy senior.

Real Estate Reality and the National Press

All real estae is bought and sold in neighborhoods or price ranges I call “micro markets.” It is difficult to interpolate median and average prices from a single MLS’s  report to these “micro markets.” At Tahoe, I have a cleint who is looking for an entry level condominium. The market has presented them with opportunities that were not in their price range as recently as 2 months ago. Great news! However, they asked if the “Countrywide Report” would predict prices falling further and should they wait. Here are some things to keep in mind about any national report:

1. If I can’t track relative market statistics within “micro markets” in my MLS without extra analysis, how can a national report be of specific use in predicting the movement in a “micro market?”

2. The national press, espcially the business editors, are sensitive to publicly traded securities like Countrywide or large builders like Lenar, KB and others. As any of these companies releases news (as required by the SEC) it is extremely germaine to the shareholders and possilbe buyers of the security that represents shares of that stock. They also reprint, practically verbatum the relases fron the National Association of Realtors without much analysis beyond the local MLS President’s most generalized quote.

3. How germaine is any national report to a buyer or seller of a home in a specific “micro market?” Not! For example, the Countrywide report  states that some “prime” (good credit risk) borrowers have increased their indebtedness to 100% of their home equity using Home Equity Lines of Credit (HELOC’s). If they, in turn,  have difficulty making their payments because of loss of a job, reduced earnings or illness, they become vulnerable to default. Because, in a declining price real estate market,  borrowers cannot refinance or sell homes that may be worth less than they owe. They are upside down!

4. We can point to some primary home owners in Tahoe and Reno who are facing a similar problem. I got a call from on just last week. However at Tahoe, where 70-80% of the homes are vacation homes, HELOC’s are a less attractive debt vehicle, and going to 100% is less likely. Secondly, vacation or 2nd home owners are generally more financially secure. Most live in diverse economies like Sacramento, the Bay Area or Southern California. So the market impact of a national report is far lower on entry level condos at Lake Tahoe than on entry level homes in, perhaps, Natomas, CA, Fernley or Dayton, NV.

5. I expect declining prices in most markets in Reno and Tahoe, and yes even the entry level condo “micro market” for the rest of 2007. How far will they fall? I dont know and neither does anyone else. But I do know that if you pick a price that represents your predicted low, and put it in the form of an offer, you will buy real estate in your “micro market” for less today than you ever thought you could yesterday.

Call your agent, find some homes, fall in love with one, in “like” with 2 others and make your own market of one! If you think the market is bloated, squeeze the bloat out on YOUR deal, and in the case of a Tahoe condo, start enjoying the beach before Labor Day.

Californis Real Estate Statistics and Craig’s view.

Here are the latest CAR stastics for all of California.  The message here is that this is a great time to buy. My motto: “Squeeze the bloat out of the market one deal at a time!” See my earlier posts on buying and selling right. As you can see, money is still pretty cheap and if you want to be REAL as a buyer and a seller, there are plenty of great deals to be had on BOTH sides of the transactions. Calif. median home price June 07: $594,260 (Source: C.A.R.)
Calif. highest median home price by C.A.R. region June 07: Santa Barbara So. Coast $1,375,000 (Source: C.A.R.)
Calif. lowest median home price by C.A.R. region June 07: High Desert $306,310 (Source: C.A.R.)
Calif. First-time Buyer Affordability Index First Quarter 07: 25 percent (Source: C.A.R.)
Mortgage rates - week ending 7/12: 30-yr. fixed: 6.73%; Fees/points: 0.4% 15-yr. fixed: 6.39%; Fees/points: 0.4% 1-yr. adjustable: 5.71%; Fees/points: 0.5% (Source: Freddie Mac)

 

C.A.R. REPORTS HOME SALES DECLINE 24.7 PERCENT IN JUNE
Home sales decreased 24.7 percent in June in California compared with the same period a year ago, while the median price of an existing home increased 3.2 percent, according to a C.A.R. reported today.

“The focus on foreclosures and subprime lending is ongoing and, coupled with higher inventories of homes for sale, is prompting many would-be buyers to play a ‘wait-and-see’ role,”‘ said C.A.R. President Colleen Badagliacco. “However, well-maintained homes with curb appeal that are priced for today’s market continue to sell. It’s often a matter of counseling buyers and sellers to set realistic expectations on both sides of the transaction.”

“First-time buyers continue to be impacted by tighter mortgage underwriting standards and the affordability challenge, which has not improved significantly despite price declines in most regions of the state,” she said.

Closed escrow sales of existing, single-family detached homes in California totaled 364,280 in June at a seasonally adjusted annualized rate. Statewide home resale activity decreased 24.7 percent from the 483,690 sales pace recorded in June 2006.

Living in a “Staged Home” Part 2, the Cocktail

Since we’re staged for sale, I thought thepillow pyramid were bad, pulling all of the coffee stuff out at 5AM was a little rough. I set everything up and started brewing when I noticed that the pot was missing. I finally found it with the pots and pans. Cleaned up dumped the water and grounds and started all over again. The day continued to be fine.

At the end of the busy day, I returned home and wanted a cocktail. The new routine is to take a glass, hold it under the ice dispenser, get a few cubes and go to the closet (the same one with the coffee pot and toaster, etc.) pour 2 fingers, place the bottle back into the wine rack, return to the fridge and dispense filtered water. Same for a refill after the news.

Growing up we had an aunt who my dad referred to as a “Clost Drinker.” Little did he and I know that a half century later I would take that term to new heights (depths?).

With the Scotch away, buyers can imagine their beverage of choice on the counter, see themselves living there and be ready to give me more money for the privilege. It is only fair for Realtors to put up with what we preach.