Buying a home at a discount frequently requires the buyer to make sacrifices in areas such as desired features, quality of amenities, and chosen lifestyle. A home that has been professionally staged, is in excellent shape, and is located in a selected area is not likely to sell for less than the asking price in today’s real estate market. The market for such homes is often highly competitive. The typical homebuyer has a wish list of amenities and characteristics they want to find in their new house. Everyone else does, too, and they all have comparable needs. They want to get as close to their ideal home as they can afford if they can’t buy it. For most consumers, purchasing a home is a deeply personal endeavor. The decision to buy a home rather than continue renting is heavily influenced by the psychological impact on one’s family.
Those who can most be flexible in their expectations, such as investors, second-home purchasers, singles, and couples without children, have the best chance of taking advantage of a below-market opportunity. A single buyer may have their heart set on a two-bedroom condo with a den but be willing to settle for a one-bedroom unit if the price is right. The buyer of a second house might prefer a beachfront location but would pay for easier access to the beach if the price was right. When a home has been sitting on the market for a long time, it is likely; the seller isn’t interested in receiving total market value because of cosmetic flaws or because they can’t afford to stage the home correctly.
Short sales and foreclosures
The general public often wrongly assumes that foreclosures and short sales represent significant savings. As a result of the high interest in certain homes, a bidding war may break out. In the case of foreclosed properties, the asset manager acting on behalf of the mortgage holder is tasked with conducting a thorough market analysis, including an assessment, of each property. The asset manager should receive a competitive analysis report from the real estate agent hired to list the property. This report should detail comparable sales, active listings, and a suggested listing price. This level of scrutiny is not suitable for lowball bids.
In addition to the risk of making a loss on the sale of a foreclosed property, the lender representing the property is likely to be reluctant to the expense of significant improvements. Therefore, run-down homes are more likely to be bought at a discount. Still, they also provide a greater financial risk due to the cost of potential repairs that would not be apparent from a superficial examination. The “handyman special” often ends up being anything but.
The stress of a short sale can be even worse. The mortgage holder has only agreed to consider an offer when a home is put up for sale. The lengthy approval processes are sometimes necessary before a request can be accepted. There is little incentive for the second trust holder to get the contract because of a second mortgage on the property. The first and second mortgage holders can agree, but this process can be time-consuming.
A home that has been on the market for a long time relative to the norm in the area is probably ready to accept an offer below the going rate. Real estate agents can get this data thanks to MLS systems. The longer a property sits on the market, the more significant pressure the seller may feel to close the deal. A strong indication of the seller’s motivation to sell is the purchase of another residence or the occupancy of temporary accommodation pending the sale of the subject property. A highly motivated seller would be paying both rent and mortgage, as would someone whose home is in danger of foreclosure or whose company has relocated him.
Buyers should be upfront about their goals when choosing a real estate agent. Providing the realtor is patient enough to work diligently in researching properties and presenting underpriced contracts on multiple properties; there is a good chance that the realtor will play the real estate low offer game if the client is upfront about their intentions from the start and declares an oath of loyalty. Most real estate agents are not averse to putting in long hours if they know they will ultimately be rewarded with a sale. In most cases, the listing agent is more familiar with the sellers’ reasons for selling than the buyer’s agent. Despite the listing agent’s ethical obligation to keep sellers’ problems private, they may advise or oppose a low offer in negotiations with the buyer’s agent.
Keep it basic
When making a lowball offer, the corresponding contract must be as spotless as possible. A letter of pre-approval from a lender is standard procedure when making an offer on a property. However, a letter of underwriting credit approval contingent only on the property acquisition and an acceptable appraisal carries significantly more weight. A mortgage underwriter has processed and examined the buyer’s loan application, giving the seller more confidence in the buyer’s ability to repay the loan. The contract should not include repair items and contingencies imposed by the vendor. A high earnest money deposit, a short closing timeline, and a “clean” agreement increase the likelihood that a seller may accept an offer below the going market rate.
Offers to meet
When presented with a purchase agreement, a seller can either accept it as is, reject it, or adjust the price and terms. It is typical practice for real estate investors to have their buyer’s agent advise the selling agent that they have written contracts on many homes to prevent the seller from considering a large counteroffer.
In many cases, bargaining successfully comes down to taking advantage of the seller’s desperation after months on the market with no offers. It’s a rough game, but the seller can have it worse if they don’t sell at a discount. Buyers have a significant obstacle in the current market since sellers often refuse offers when they learn that the sale price won’t be enough to pay off the mortgage.
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