With Terry Story, 30-year veteran Real Estate Agent with Keller Williams in Boca Raton, FL
Lowball Offer On House
Today’s talk with Boca Raton real estate agent Terry Story begins with a question from Steve about the wisdom of making a lowball offer on a home you’re interested in buying. Terry states unequivocally that lowball offers are a bad idea all the way around, particularly in today’s seller’s market when a majority of listed properties receive multiple bids. Not only are these offers almost always rejected when sellers have the upper hand, as they do now, but offended sellers generally won’t bother to make a counter offer. If the rejected buyer wants to submit a new, higher bid, his negotiating power is far less than it would have been without the lowball bid.
Comps Based On Interior, Locale, Upgrades, Photos
For home buyers trying to get a handle of what a fair price is for a property they’re interested in, it’s critical to look at neighborhood level comps (comparisons) that have recently sold within a 20% price range of the asking price. But this is just a beginning and relatively superficial. A professional assessment would factor in the interior condition of the home, the qualities of its locale, and the need for updates or maintenance fixes. One way to gain insight into the latter issue is by reading the realtor notes that accompany a listing. While realtors trying to sell a home are naturally going to emphasize the best aspects of the home, what they leave out can be more telling. A lack of details on items that require periodic updates – like roofs or hurricane windows here in Florida – can indicate problems that ought to impact the sale price. As far as locale, a deeper look at the specifics of the property – does it back onto a lake or a busy road, for example – is important as well. It shouldn’t be a surprise that the shape that the interior of the house is in should also be a major consideration. While you may have heard it before, it bears repeating that photos of the home can be deceptive and should not be a substitute for a tour of the property. It’s fairly easy for a professional photographer to make a home look bigger, prettier, and more pristine than it really is. Buyer beware!
Steve shifts the conversation to mortgage pre-approvals, asking whether they play a big role in the sales process. Terry’s answer is an emphatic yes: pre-approvals are critical, especially in today’s market. For starters, a pre-approval will give you a concrete idea of what you can afford. Secondly, sellers now require pre-approval. Finally, in a competitive market like we have today, the buyer who has all her paperwork in order is going to have a much better shot at winning a bidding war. The transparency of a buyer’s financial position, that a loan pre-approval demands, is reassuring to sellers.
Home Updates And Maintenance Items
The presence or lack thereof of key home updates and maintenance items can affect a home’s sale price and buyer-seller negotiations. While bigger updates to kitchens, baths, and floors are more easily factored in, maintenance issues (air conditioners, hot water heaters, etc.) often only come to light after a property inspection, after a price has already been agreed upon. Sellers should ideally show some flexibility and willingness to either lower their price or have work done and old items replaced, but they frequently elect to hold the line, reiterating that the property is offered “as is” or offering only very minor concessions on the price. It’s not uncommon for this stance to provoke buyers to rescind their offers and walk away. If a seller hasn’t carefully considered the costs of needed maintenance work and/or replacement of aging items on the asking price of the home and hasn’t communicated these costs to prospective buyers, the inspections process might catch both parties off-guard and jeopardize the sale.
Disclosure: The opinions expressed are those of the interviewee and not necessarily United Capital. Interviewee is not a representative of United Capital. Investing involves risk and investors should carefully consider their own investment objectives and never rely on any single chart, graph or marketing piece to make decisions. Content provided is intended for informational purposes only, is not a recommendation to buy or sell any securities, and should not be considered tax, legal, investment advice. Please contact your tax, legal, financial professional with questions about your specific needs and circumstances. The information contained herein was obtained from sources believed to be reliable, however their accuracy and completeness cannot be guaranteed. All data are driven from publicly available information and has not been independently verified by United Capital.
Steve Pomeranz: It’s time for Real Estate Roundup. This is the time every single week we get together with noted real estate agent Terry Story. Terry is a 30-year veteran with Keller Williams located in Boca Raton, Florida. Welcome back to the show, Terry.
Terry Story: Thanks for having me, Steve.
Steve Pomeranz: I want to talk about your business and what it’s like out there, and we always do talk about pricing and how to price a house when you’re buying a house, not pricing a house. When you’re buying a house, does it make sense to come in with a low-ball offer in this market?
Terry Story: You know it really doesn’t, Steve, and I’ll give you some tips. First of all, it’s important to understand how to read the market. 2017 is most likely going to remain a seller’s market in most of the areas of the United States. If there’s going to be a change in the market, we’re probably looking at 2018, 2019. So, you could sit and wait to see if the prices decline, but, at the same time, interest rates are going to rise, so I don’t know that I would play that game. But it’s important that if demand is hot and properties are scarce, it’s important for buyers who want to play hardball to think twice about it because they’re going to end up not getting a house and ticking off the seller and it’s a lose-lose for the buyer.
Steve Pomeranz: If it was a buyer’s market then it could be a race to the bottom, let’s say, but in a seller’s market the seller has the upper hand. So, low ball in most cases won’t work.
Terry Story: It’s an emotional decision too. If you submit a low ball offer a lot of sellers like “Yeah, I’m not even going to give you a counter.”
So now that puts you in a bad position because now you have to put in a higher initiating point; now you look like kind of a fool if you really like the house, now you’re chasing yourself.
Steve Pomeranz: Yeah.
Terry Story: So, I don’t encourage it because it doesn’t work.
Steve Pomeranz: How do you know what the market really is? I find when I go and look at Zillow or the MLS system, you can kind of see what other houses have gone for, but you don’t really know what’s going on inside the house. You know that, let’s say, you’ve done tremendous upgrades but all the houses that sold, you’re still kind of in an old area, it’s kind of shoddy. How do you know?
Terry Story: Well, if you’re dealing with an agent who specializes in the area, is very familiar with the communities, they’re going to know because they’ve been in those houses and they can tell you from personal experience about the home. But if you’re in a situation where you don’t necessarily know the ins and outs of every house, it’s important to do your due diligence. First thing you need to do is look at the most comparable homes and look at the homes that are within a 20% differential of size within that neighborhood. That’s how an appraiser is going to look at it. Look at it on a map, see where those homes are located. What do they back up to? Does the subject back up to a lake and the other house backs up to a road? So, those are factors you need to take into consideration. You’re not going to be able to do it just by glancing at things. You need to plot it out on a map, take your time, take a look at it, and then look at the photos. Now photos can be deceiving.
Steve Pomeranz: Yes.
Terry Story: Look at the photos, that will give you some indication. When the house looks really trashy inside you’re going to know. Sometimes you have really good photography that hides things, but the next thing to really look at is the remarks that the real estate agent writes up. Read what’s not there. So, if the agent, for example, says, well maintained beautiful home, flowers it all up but doesn’t go into the meat and potatoes like updated roof, hurricane impact windows. Read what’s not there. Then you’ll have even a better sense as to what kind of upgrades are present in the house.
Steve Pomeranz: Yeah, I mean if you think about it the agent is the salesperson and the agent is going to want to highlight all the best aspects and if they’re leaving specifics out like that.
Terry Story: They don’t exist.
Steve Pomeranz: Yeah. (laughing) I want to talk about those photos though because the thing that bugs me the most are these wide-angle photos. So, you go into a house, it’s 1100 square feet and you go “Hey, I thought this was Mar-a-Lago.”
Terry Story: Yeah.
Steve Pomeranz: “I thought this looked like everything was so expansive and the bathrooms were huge”, but it’s those darn photos.
Terry Story: Yeah, I just came back from showing a house and the guy, we pulled up to the front of the house and he said “Heck no. This is about the ugliest thing I’ve ever seen” and his wife had picked the house. Now it’s probably beautiful on the inside, but he couldn’t get past the outside. It was professional photography and the angle in which the photographer took the picture it made it look like you know, this isn’t so bad. But the way it situated on the lot, it’s an awkward house.
Steve Pomeranz: If I’m buying a home, really, how important is it for me to get pre-approval of a mortgage?
Terry Story: It’s critical. First of all, you need to know for yourself what you’re approved for. Second, the seller is going to require it. Third, in a seller’s market, when you’re interested in a house and there’s 10 other people that are interested in it, he who has all his paperwork in order is going to get the house. Assuming you get yourself in a bidding war or there’s two offers at the same price, they’re going to take the offer where the buyer is already not only pre-qualified but pre-approved. They’ve already turned in their bank statements, their tax returns, and the mortgage person is already in the process of processing a loan for them. So, that would be the best scenario for you. So, it’s critical because no one is going to accept an offer without seeing your qualifications.
Steve Pomeranz: You know, Terry, I love it when you talk about what’s going on in your business. Have you had any deals fall through lately? And if you have, what happened?
Terry Story: (laughing) Yes. I just had one fall apart this week and, to be honest, it doesn’t happen that often. In this particular case, it came down to the inspections. Sellers need to have realistic expectations here because, even though it’s a seller’s market and they’re calling the shots, there is some limitations to that. In this particular case, we had a meeting of the minds on price, and it was a fair price for the house, it’s a dated home that needs updating. The buyer does their inspections and the buyer finds that there are—I’ll call them maintenance items, like older air conditioners, older hot water heaters, flat roofs—that are at the end of their life. These particular buyers weren’t anticipating that. The buyer goes back to the seller and says “Hey, Mister Seller, I want X amount of dollars towards these items because we anticipate them to be that old or in need of repair.” The seller said that it’s as-is, basically offered them 15% of what they had asked for.
Steve Pomeranz: Yeah.
Terry Story: That upset buyer and they walked.
Steve Pomeranz: Walked away.
Terry Story: Just totally walked away.
Steve Pomeranz: Seller takes a risk, but the seller’s got to say, “Hey, I’ve priced this appropriately based upon the age of these things. If I’m going to give you the value of these other things that their full price or something, then I’m really not getting as much for the house as I should.” There’s two sides-
Terry Story: Right. There’s a difference between needing to update a house and the maintenance items.
Steve Pomeranz: Oh, I see.
Terry Story: When I say updating kitchens and baths and flooring. So, the buyers, in this case, were concentrating on what they needed to do cosmetically and never really factored in that there were going to be maintenance items.
Steve Pomeranz: Right
Terry Story: It’s something both buyers and sellers need to take into consideration.
Steve Pomeranz: Yeah, that’s why it’s good to have a professional in the market. The professional I’m speaking with is Terry Story. Terry is a 28-year veteran with Coldwell Banker located in Boca Raton and she can be found at terrystory.com. Thanks, Terry.
Terry Story: Thanks for having me, Steve.