Right Offer Price when Buying Real Estate
Placing the right offer price when buying a home in Port St Lucie is the most crucial step in purchasing your dream home. In previous articles, we have emphasized on the methods in assisting you in locating that ideal home as soon as the listing is released to the MLS System. We also discussed the importance of the search tools and “automatic email feature” in MLS that is exclusive to Realtors along with how to stay on top of the market and act quickly. These are all designed to keep you one step ahead of the competition and get your offer in before the competition has even accessed the listing.
Now, you have found your dream home and can’t wait to move in! But first, you have to put an offer and wait for seller’s acceptance of your offer. But how much to offer that you are not over-paying for the property and at the same time it is an acceptable offer by the seller. As much as this step could make or break any deal but not to worry as your professional Realtor has all the tools available to help you with this task. Before we start with the steps in placing an offer it is important to know that most often the list price is not the realistic value of the property. There are many factors that influence the sellers in determining the list price of their homes. Seller’s high expectation along with an overzealous listing agent’s idea of getting a listing no matter what, are the main contributors to the over-valuation of a listing.
Comparable Market Analysis, CMA
The first step when it comes to listing a home by a Realtor is compiling a CMA report. This report will show comparable Active and Sold Listings, preferably during the past 3 months, within the same subdivision or 1-mile radius and with similar characteristics as the subject property. If any of the sold comps are superior or inferior in some feature the Realtor would adjust them accordingly in order to bring them to the same level as the subject property. If the sold comparable is not renovated as the listing property you should add, credit, to the price of the comp and if it is the other way around then subtract the amount necessary to do the same renovation. These adjustments are always placed on the comparable property and not the subject. This way if there are 3 comparables it will make it easier to adjust each one to become as close as to the subject as possible.
Finally, the realtor would conclude the report with an estimate of value, based on all adjusted sale prices of the Sold Comparable Properties.
Use of CMA When Placing Offers
When placing an offer it is your agent’s duty to do an informal CMA to find out both how the listing agent has come up with the price and also what is his own opinion of the price. This will shed some lights over the validity of the listing price as well. Now, you have an idea of the price of a home with the same number of bedrooms, baths, and garage with certain amenities, such as a swimming pool are sold in the same area.
Finally, it is time to place an offer that is based on the Fair Market Value of the property. If the subject property is priced 5% to 10% more than the Fair Market Value, it is very much possible that the seller and his agent have left a negotiating room or haggling room. Your Realtor could return the favor! by placing your offer for 5% to 10% below the asking price and hope for a counter offer at the Fair Market Value. Although this strategy is played in most real estate transaction but, like anything else in real estate, it is not guaranteed. There are many other factors involved when it comes to a seller’s acceptance of an offer. Some sellers are emotionally attached to the property along with all memories that they have gathered during many years of residency. Dealing with this type of sellers is more difficult because they feel they are selling all their memories and not just a house. Other sellers, on the other hand, could be in a rush to sell due to circumstances beyond their control such as relocation. The latter sellers are more flexible and sometimes would even accept an offer that is less than the price they had in mind.
Since finding the seller’s reason for the sale of their property is very difficult, we have used few technics when placing an offer to purchase a property in our area of Port ST Lucie that over time have proven to be effective. To examine these methods we first divide the for sale properties to sections; the REO Listings and Fair Market Listings. The main reason for this is the fact that REO listings are often in need of some repairs and because of that these properties are listed somewhat below the market value. The other reason is that the financial institutions that are in possession of REO or Bank Owned Properties are eager to sell them as soon as possible. This is because of the costs that are associated with the maintaining of thousands of such properties. Also, the foreclosure, REO and resale process has created an enormous amount of unwanted work for these institutions that resulted in the deviation from the routine banking system that they are not geared to deal with. The sooner they get all the REO properties off their books the sooner they could go back to what they’re structured for.
Making An Offer On Bank Owned, REO Properties
Although the steps in determining the Fair Market Value of any property remains the same for all listings but to place an offer and coming up with a right offer price for REO properties is different from the traditional listings. As previously mentioned, most REO properties are missing some or all appliances and at times are in need of some repairs. The amount necessary for the replacement of the appliances and making all repairs is the main factor when determining the offer price. The rest is a simple math. Add the dollar amount required for the repair to the listing price to come up with the Fair Market Value. Then like previous examples compare them to most recent sales of compatible properties. By then you would have an idea if the property priced right, undervalued or overpriced. In my experience, it has been very rare that we have dealt with overpriced REO properties in Port St Lucie. In rare occasions that this had happened normally, the listing had stayed in the market until the prices have dropped to an acceptable level.
For the underpriced listings, especially in the current sellers’ market in Port St Lucie, we have always suggested submitting an offer at or around the asking price. Some clients who have tried to send lower offers have been faced with rejections and loss of opportunities. In some cases when the property is grossly under-valued, we have even placed offers at above the listing price. At times, even offering over the listing price have not been sufficient enough to win the price war over other buyers. The other issue we have encountered in Port St Lucie REO market is overpaying to some listings. This is primarily due to the mistake that some buyers and their agent make by thinking that all REO properties are great deals and do not want to lose them no matter at what price. It is up to you as a buyer and your agent as a real estate professional to realize when is the time to walk away from a betting war.
Offer Price for Non-REO Listings
As mentioned earlier, the sellers motives for the sale of their home plays a major role in their flexibility on whether to accept an offer or not. Since it is difficult to figure out the sellers’ real motives, we should concentrate on the Fair Market Value of the property instead and place our offer accordingly with a little room for negotiation. Although the techniques that we have employed for placing an offer on homes for sale in Port St Lucie are very simple but they have proven to be effective. One of these techniques is to attach a copy of recent sales, both through MLS and For Sale By Owners, to our offer along with a note explaining that our pricing is based on these comps. In most cases this helps the listing agent in convincing the seller on the price of our offer. The advantage of using for sale by owner comps is that since all CMA Reports are MLS based, most agents would not bring any non-MLS sales to their estimation of the value. In this case, the seller might not have any idea of real market value due to an omission of FSBO listings. Also sometimes they are newer sales that have taken place after the listing was entered into MLS and these comps support our valuation and offer price.
In both cases, the sellers and their agent will be faced with the reality of what the fair value of the property is and most probably would not look at our offer as a low-ball offer.