2007 has been an interesting year for us.  The first half of the year was extremely strong and then it cooled down, almost to a stop, through the summer.  Every single title company and Realtor we have talked to has said the exact same thing happened to them.

There is no doubt the sub-prime worries and buyer difficulties with procuring lending were the reasons for this.  I always felt this area of the metroplex and our price points would be insulated from what is happening in other parts of the metroplex (not to mention other states), but this year has showed me differently. 

What this means for us is our homes are taking longer to sell, but it doesn't mean their values have declined.  Every report I have seen says the same thing ... values are actually increasing slightly, but homes are on the market longer.  I cannot speak for other Realtors or their sellers, but I can assure you, our sellers are not giving away their equity because of this blip in the market.  In fact, we are seeing Spring-like activity on our listings with showings, so the cloud already seems to be lifting.

The newspapers, Internet news services, and television are all reporting that the residential market is falling to pieces, so it's no wonder we are starting to see ridiculous offers on some of our listings ... especially from out of state buyers. 

The Vultures Are Descending

I had my first "lowball" offer in a long, long time submitted via a letter of intent about a week ago.  When I see a letter of intent, it tells me the buyers themselves didn't even want to waste their time with a formal contract knowing it probably wouldn't be accepted.  They are out fishing for a panicked seller, so that same letter of intent probably went out to 50 other homes with a 30% discount on each. 

I was taught early on in my career by a very shrewd buyer/seller investor never to get offended by a lowball offer.  I tell the sellers the same thing, and how we handle them will be shown below.

"Wouldja Deals"

I had another recent situation where a Realtor, who was working with an out of state buyer, called me up asking if the seller would consider a very, very low offer.  Why did she do it verbally?  The agent knows the seller is probably not going to even consider an offer in that price range, so she didn't want to waste the time drafting a formal offer.  She decided to call me to see if she could get some confidential information about the mindset of the seller  If she picked up any indications that the seller is getting panicked, they would have submitted the offer.  I call these "wouldja deals". 

As listing agents, we never, ever tip our hand to the buyer agent ... unless, of course, the seller tells us specifically to do so.  In this case, I told the buyer agent not to waste her time drafting a contract.  I then told the sellers about the conversation and suggested they not waste any time even thinking about it because those are not the buyers for their home.  I think the buyer agent genuinely felt bad about having to make the call, but as she said, she takes her directions from the buyers.  I certainly understand her dilemma.

How We Handle "Lowball Offers"

If we receive an offer that we believe is totally out of line and cannot be supported by any stretch of the imagination, we will present it to the sellers, and then advise them not to "counter" or even respond to it.  We thank the Realtor and buyer for their time and tell them we are just too far apart.   If the buyer is looking to pick up a home on a firesale, that is usually the end of it.  But if that buyer really has a sincere interest in the home and they are willing to pay a market price for it, they have just created two big problems for themselves ...

1. They have insulted the seller and

2. they are now negotiating against themselves because the seller is not going to respond.  All the buyer can do is continue to raise their offers until the seller finally says "OK" or, of course, the buyer can walk away from the home. 

In either case, this is NOT the way to start serious negotiations on a home from the buyer's standpoint. 

Commercial real estate is very "black and white", "nuts and bolts".  Either the numbers work or they don't.  Both buyers and sellers look at the transactions purely as a business proposition.  But most residential sellers I have dealt with feel their homes are an extension of themselves, whether they admit it or not.  If you submit an insulting offer on their home, you are insulting them personally.  Never a wise thing to do.

So how does a buyer or their agent know where to make the offer? 

There is no "hard and fast" rule for this, but any offer should be given careful consideration by the buyer and their Realtor.   The buyer agent is obligated to submit any offer the buyer wishes, but we believe it is also the agent's responsibility to explain to the buyer what might happen if the offer is so low that it cannot be supported by comparables.  If we find ourselves working with a buyer who establishes a pattern of doing this, we will discontinue our relationship with them.  There are other Realtors who are more than happy to bottom-fish with their buyers; we just don't work this way.

How We Establish Our offering Prices

Traditionally, about half of our sales volume every year is derived by representing sellers and the other half by representing buyers.  We are just as tenacious in working with our buyers as we are our sellers, however our goal, no matter which side we are representing, is to strike a fair deal for our client.  One that we can substantiate and support with good comparables. 

We don't pay a lot of attention to listed prices, except out of natural curiosity.  Listed prices are kind of like MSRP's on cars (Manufacturers Suggested Retail Prices).  I like to see if the other Realtors out there are in line with our thinking on valuations.  Sometimes they are and sometimes they aren't.  We understand the seller wants to get as much for their home as possible.  And of course, we will take note of the listed price, but we darn sure aren't going to be intimidated from submitting an offer we feel is reasonable, even if it is much, much lower than the listed price. 

We establish our own opinions of values based on sale prices, not listed prices.  If the seller and their agent don't see where we are coming from on our opinion of value, we will even share our comparables with them.  Hopefully we can compare notes and find out if we might have missed a sale or if their Realtor missed a sale that would influence the pricing.  If there is still no common ground, we will suggest our buyers move on to the next home. 

Even though buying and selling a home is a very personal, emotional decision, we have to remind our clients that it is also a very important business decision.  It is our job to keep our clients level-headed and not let their emotions outweigh good, common sense.  If they overpay when they buy the home, they may love it while they are living there, but end up hating it (and resenting us) when it doesn't sell years down the road because they are still "upside down" on it.  I believe the market will eventually catch up with just about any home value no matter how overpriced the home was when it was purchased, that can sometimes take many years.  If the buyer is forced to sell the home they overpaid for before the market catches up to it, they will be going to the closing writing a check, not getting a check back.

I have often said that pricing a home to sell is an art, not a science.  That also goes with submitting an offer to buy a home.  As the buyer agent, you don't want to make your offer so high that it costs your client money, but you don't want to make it so low that it offends the seller and makes it more difficult to bring the parties together.

One last thing ... when a buyer thinks they overpaid and the seller thinks they undersold on the same home, sometimes that means it was a pretty fair deal for both.

Tom Grisak Estate Homes Realtors, Inc - Texas License # 0329533

Your realtors for Allentexas, Celinatexas, Fairviewtexas, Lucastexas, McKinneytexas, MurphyTexas, Parkertexas, Prospertexas, Richardson