Today I received another lowball offer on one of my listings. The agent wrote on the cover letter that this was a CASH buyer, as if that would soften the blow. This made me realize that perhaps I should write a blog on why CASH is not king and break open this myth! So this is an open letter to all Cash buyers:
Dear Joe Q. Cash Buyer,
Thank you so much for your interest in my listing. I see you have cash that you want to purchase a home with, Congratulations! Sure it is nice that there is not a financing contingency attached to your offer, but what makes you think it makes your offer any better than the other offers I receive? At the end of the day it is all about the NET that the sale brings to the seller. This means:
Sales price – costs (closing costs, commissions, etc) = NET
Cash does not have any effect the net, all it does is make the closing possibly happen a little sooner. Curious how you find that is worth HALF off the list price? Just because you don’t have to qualify for financing doesn’t mean it is a done deal! We still have to get through inspection and your appraisal (if you want one), the soonest we could close is in about a week compared to another offer than will close in 30 days. At the end of the day the seller (whether a homeowner or bank) only cares about their bottom line. Neither myself or my sellers could care less if you have a loan or pay in cash, blood or pennies, what we care about is the net to my seller!
Respectfully-
JWD / Realtor Extraordinaire
On a side note, the risk of the cash buyer is that it is easier for a cash buyer with $250,000 in the bank to walk away from a binding contract losing their earnest money rather than a financed buyer who saved up for months for their earnest money deposit.
Every day I receive calls from homeowners looking to sell their property. In my initial phone interview, one of the questions I ask is whether they have made any upgrades, changes or additions to the property. This is where, much to my seller’s dismay, they learn the school of value vs. maintenance.
Homeownership is maintenance! With that being said, a lot of sellers believe that maintenance costs add value to their property when in fact what they have done is maintained their value. So when a seller answers my question with “Yes, we have done a lot to the property over the last 7 years. We have painted the interior and exterior, replaced rotten wood around the windows, installed a new roof 3 years ago, replaced the hot water heater back in 2006, spruced up landscaping and added a privacy fence” they are shocked that those items didn’t add $$ to their home. I ask a simple question: “Mr. Seller, did your walls need to be painted, wood, water heater and roof NEED to be replaced?” I think it is important for all homeowners to understand the difference. Had you not repaired or replaced these items, your property value would have declined. No one wants to pay “fair market value” for a home that has roofing leaks, rotten window sills, no hot water and missing paint chips. Investing money kept your value stable, it did not increase so put the calculator down!
Another sore subject is when homeowners realize that some areas where they spent money paid off and some areas did not. Kitchens and baths are a great place to “sink” your money in to upgrade and renovate. Studies show that you can re-coup up to 99% of your investment in these rooms! Spending $30,000 for a landscaped backyard may make it beautiful but doesn’t mean you will see an increase of $30,000 to your home value, depending on location you would be lucky to see a return of around 30% on that. Swimming Pools? In Florida it’s hard to sell a home without one! In metro Atlanta, you can spend $50,000 on the most stunning oasis with waterfalls and stone walls but return? Next to NADA!
Your home is where your heart is. I’m not saying you shouldn’t upgrade certain areas of your property, what I want to share is that you shouldn’t keep a tally of every cent you spent and hope to add that to the comparable sales in your neighborhood. If you want an island oasis swimming pool then put one in (I did!). I don’t expect to recoup that cost when I go to sell and you shouldn’t either!
Obviously real estate market news is local and it is worth noting that my real estate blogs are for my team’s experience in western Atlanta suburbs (Cobb, Paulding, Douglas and Cherokee counties).
There is definitely a misconception of foreclosure buying out in this market at the present time. Some buyers will listen to their Realtor’s sound advice from the beginning and some will lose a few homes before they accept the reality. The reality is there is NO LOWBALLING on foreclosures!
Yes, I said it! The foreclosure myth is that a buyer can submit a lowball offer to a REO (Bank owned property) and they will gladly accept. What this means is that a home that is priced at $150,000 and the buyer thinks they can buy at $75,000. So sorry to disappoint!
Right now there are two different scenarios we are seeing in the marketplace:
Foreclosures are already being priced well below fair market value and a flurry of offers come pouring in within days (or hours) of it hitting the market causing a multiple bid scenario. For example the foreclosure was purchased a few years ago at $235,000. Current comps in the neighborhood (actives and solds) are ranging from 175k – 215k. The bank has the foreclosure priced at 150k. In a multiple bid scenario it is very rare that the home ends up selling below the list price and many times it sells for ABOVE the list price.
Foreclosures begin pricing at or just below fair market value and when no offers (or reasonable offers) are presented, the bank typically reduces in small increments on a monthly basis. Normally the reductions are dependent on the price point and range between $5000 – $10,000 per price reduction. This becomes interesting because a home can be on the market for a few months and after a particular price adjustment it now becomes the “magic number” and you guess it! A flurry of offers ensue causing a multiple bid scenario.
It’s actually pretty interesting as some foreclosure real estate agents actually post the transaction history for a particular property. For instance, recently one of my team’s Buyer Agents submitted an offer for a foreclosure that had been listed for 6 months! In the six month history the property price had been reduced a total of $40,000 from the original list price and had received 7 offers that the bank rejected. The bank had just reduced a mere $3,000 and that was the “magic number”! We now found ourselves in a multiple bid scenario. We advised our client of the situation and submitted our best & final offer which I must add was above the list price. We were outbid!
Is there room to negotiate with bank owned foreclosures? Yes but it depends on the scenario. Luckily in Georgia it is very commonplace for the Seller to pay Buyer’s closing costs so it is rather common for the bank to agree to that. If submitting an offer and the buyer’s agent can confirm that there are no other offers on the table, I have seen banks agree to anywhere from 5,000 – 15,000 in price reductions (depending on the price point). However in a multiple bid scenario, watch out and get ready to ante up or lose out!
If you are interested in buying a bank owned foreclosure, we would love to assist! The Walker Derby team assists buyers looking to purchase foreclosures in Acworth, Austell, Atlanta, Canton, Douglasville, Hiram, Kennesaw, Mableton, Marietta, Powder Springs, Roswell, Sandy Springs, Villa Rica and Woodstock
One real estate myth that I hear all the time is that buyers seem to think if they go directly to the listing agent (cutting out the buyer’s agent) that they will get a better deal on the home since only one side of the commission will be cut out. This is not always correct!
When a seller signs a listing agreement with an agent to sell their home, they agree to a set commission in which a percentage (usually HALF) would be payable “in the event” of a co-operating agent. What this means is that if a buyer contacts the listing agreement directly and does not have broker representation then technically the listing agent has earned the entire commission.
If you are a buyer and want to run the risk of no representation for a perceived lower sales price, make sure you do your homework! Be upfront with your request, not all agents will reduce their commission. I know of several instances where buyers were disappointed thinking they have negotiated the best deal and risked a lot of pitfalls only to find out at closing that in fact they saved nothing at all. Having an agent to represent your best interests in the largest purchase in one’s lifetime is a FREE service. Sure in the dawn of the internet age you can search for your own properties online, but are you familiar with due diligence (inspection) periods? What about financing and appraisal contingencies? If the seller’s agent is writing the contract I can assure you that the obligation of the agent is to look after the best interests of their CLIENT which in this case would be the seller.
The Walker Derby team has dedicated buyer’s agents who specialize ONLY in Buyer Representation. Contact us for more information!
There are a lot of misconceptions out there in regards to short sales. I spoke a little about the misrepresentations of the terminology “pre-approved short sales” in my section about What to expect when Buying a Short Sale.
Short Sales can be a lengthy process and unfortunately there are fewer buyers that can afford to expend the timeframe and wait. Most buyers have a certain deadline to meet: relocating in 60 days, lease is up in 45 days, tax credit deadline approaching and short sales are not an option.
This post is to comment about how short sale listings are presented in the MLS. In Atlanta FMLS there is a new option under “Special Circumstance” that includes the option of “potential short sale”. I don’t put a lot of weight on that selection. Let’s face it, the multiple input data entry can be performed by hurried agents, their assistant or office staff therefore it is not uncommon to see mistakes and omissions. What I want to place focus on are the public and private remarks.
Public remarks are where agents detail selling points of the property (Large frml living & dining*2 story family rm*). Private remarks are withheld from the public and only viewable by agents (usually including special showing instructions). The term “short sale” should be included in BOTH sections. There are some uses of “pre-approved / approved short sales” however there are a lot of listings that withhold that information. I would also like more information on “possible or potential short sales”. Every short sale is a potential short sale until you receive written final approval from lien holder(s). Once again we as agents need to give a little more detail to what is involved in this transaction. I feel it is unfair to the public and ourselves to market a home without full disclosure of the status.
