Ask Brian is a weekly column by Real Estate Expert Brian Kline. If you have questions on real estate investing, DIY, home buying/selling, or other housing inquiries please email your questions to [email protected].
Question from Skylar in MA: Hi Brian, I’m feeling lucky because the real estate agent that I talked to today says that home prices in the Springfield, Massachusetts area have gone down a little compared to last year. This is happening at the same time my loan application was pre-approved. I’m not happy about the interest rate but I am feeling a lot more confident about being able to buy a house than I was a month ago. In fact, after learning house prices have gotten a little lower, I’m rethinking my strategy. With everything that I’ve read, I thought I’d be heading into multiple bidding wars and have to pay above the asking price. Now, I’m thinking that when I find a house that I want, I should make an offer below the asking price. This is an entirely new thought for me. How low of an offer do think might be acceptable? The houses that I’m looking at are listed slightly above $200K.
Answer: Hello Skylar. There is not a universal or even general answer to your question about how low of an offer is likely to be accepted. This type of situation depends on what is happening in your local area. I suggest you have a detailed conversation with your agent including asking for assistance determining what a reasonable first offer should be (after you find a house that you want to buy). What I can do is give you some general thoughts about the subject of purchase offers below the asking price. This should help you have a more productive and informative conversation with your agent.
Skylar, it does sound like you understand that your local market might be shifting from a seller’s market towards a buyer’s market as indicated by falling house prices. Another point you should keep in mind is that you have your mortgage pre-approval. The higher interest rates are knocking a lot of buyers out of the market. It might not yet be a buyer’s market (something to talk to your agent about) but it is becoming more of a balanced market. That is when careful negotiations can get you a better price or overall deal.
In a balanced market, the listing price is just the starting point for what a reasonable seller should expect the final price to be. Two important considerations are the condition of a specific house and the number of days that house and other houses in the neighborhood have been listed for sale (days on market). However, there are many other factors to consider such as the number of beds/baths and the desirability of the floor plan. For instance, if one house is only in “fair” condition and another with basically the same floor plan is in “good” condition, buyers are going to pay more for the house in better condition. Unless there is some other mitigating circumstance such as the “good” house being on a high-traffic street. It gets complicated.
Some people think that a lowball offer is anything below the asking price but that’s not true in a balanced market. Generally, I think that anything up to 10% below the asking price lets the seller know the buyer is open to negotiating a final price. Anything more than 10% below the asking price is probably a true lowball offer unless there are mitigating circumstances like an unreasonably high asking price to begin with.
Skylar, you want to talk to your agent about comparable sales in the area and the average amount of time that houses are taking to sell. Also, you want to know specifically how long the house that you are about to make an offer on has been on the market. If the house has only been on the market for a week, the seller is not likely to take a lowball offer seriously. If it has been on the market for two months, the seller might be getting anxious to sell before prices go down even more. And you shouldn’t be making a full-price offer if you think prices are going lower.
On a $200,000 house, an offer 10% below asking would be $20,000 less than the asking price. Once you make that low offer, you wait for the seller to reply by accepting it or making a counteroffer. A counteroffer will give you a good indication of how flexible the seller is. If the seller comes back with a price that is a few thousand dollars below the initial listing, then they are more likely to accept a lower offer and remain open to negotiating than if they only reduce the price by a few hundred dollars. If the seller counters at several thousand less than asking, there will probably be another round or two of offers until both of you agree on a final price.
However, the sales price is not the only thing that you can negotiate for a better deal. For instance, try to learn what closing date would work best for the seller. Maybe they need to move fast because they have a job waiting in another city or maybe they need to wait a month longer because a new house they are having built isn’t quite ready. There can be several other ways that you can make the sale at a lower price easier for them. Also, look at their disclosure list and consider the professional inspection that you will need to have done. There might be something on the disclosure that makes the sale more difficult, but you that are willing to live with, without requiring repairs. Same thing with the professional inspection that has not been done yet. You might indicate that you’ll accept needed repairs up to a specific dollar amount. Or you could ask that appliances that normally are not part of the sale remain with the house if you pay a little more for the house. There are many ways to negotiate a better deal for yourself beyond just the sale price.
Skylar, I hope this is useful to you and that it helps you have a productive conversation with your agent. The good thing is that you are in a position to negotiate, which very few buyers have been able to do for the past few years.
What can you add now that negotiations are beginning to become more common? Please leave a comment.
Our weekly Ask Brian column welcomes questions from readers of all experience levels with residential real estate. Please email your questions or inquiries to [email protected].