bostonbubble.com

[kicking_cans]

I'm looking at a condo sold in 2006 (Market Peak) for $349k. They're looking to sell the home for..... yup, $349k.

Obviously they're not going to get that price.

My question for everyone here is:
If I point out they would have paid ~$70k to rent their condo for the past 3 years; then they're better off with anything that leaves them with less than a $70k loss.

Is this a reasonable argument?

[JCK]

I don't think this matters. The value of the property is what a buyer is willing to pay, not the amount that they've saved on rent. By this logic, a buyer that's saved more in rent than the value of the property should be willing to sell to you for free.

A much, much better argument is comparable sales. If you can find recent comps that sold for less, then you should use those to bolster your case.

[WestCoastXPlant]

Yup, totally agree with JCK. If I were them and you came to me with that argument I'd tell you that it would also be cheaper for you to rent and not buy my condo

I'd lookup their loan in the deed registry and see what they owed on it when they bought it. Then you'd have a better idea of what they owe. Even trying to sell "flat" they are already hurting a lot. They have 6% realtor fees now plus whatever other "fees" they paid at closing that they won't be recovering....And with people loving the HELOCs these days it's not unlikely that they owe more than what the purchase price was anyway. Also, if they put very little money down, it's very likely that they can't go lower anyway -- to assume an extreme situation, with a 0 down I/O loan they can't give you a $1 off without it becoming a short sale...So my vote would be know their loan and know the comparable properties on the market

[john p]

You can say whatever you want in a negotiation. Typically sellers know what their floor is at any given time and sometimes they bite.

However, if your buyers agent can convice the sellers that you represent the profile of the typical buyer that would be interested in the place and your basis for buying represents that of most anyone else, it might work if the seller realizes that they might be waiting for a buyer type that most likely doesn't exist. The buyer needs to say "this is your buyer".

Truthfully, however, price, quality and location relative to selection at any given point in the market are what make properties sell. If there are a lot of buyers, the places that have the highest average ratings of best price, best quality and best location will sell quickly. Even in slow markets these places will sell, but less frequently.

Typically, sellers overestimate their location, quality and dollar value. If you catch a seller after two or three open houses of no visitors, they might become more open minded to the basis for what would make you buy. Otherwise, they need to learn the hard way and take their time and let their delusion run its course. Often times, a seller will call back a buyer with a lower offer that they weren't interested in considering when they were full of hope.

[balor123]

I don't think the seller cares what reasoning you give. The only reason you might mention these things is to convince the seller that they should drop the price. Studies have shown that people are very averse to losing money, though, so you are unlikely to succeed. You're best bet is to pay their higher price or use your leverage to force a lower price. You have the most leverage when supply exceeds demand and you are willing to walk away. I suggest making an offer just below what you think they would accept (and which presumably you are happy with otherwise continue to rent). If they say yes, then you screwed up. In general, if the seller is happy with the transaction then you know you haven't pushed them enough. They should grudgingly accept your offer. Knowing your seller will help you identify how much you can push them. Know the history of the property. Find out what they do for a living, what their previous properties looked like, what kind of advice they are receiving (do they do their homework?), what the reason is for selling, etc. I think Fatwallet Finance had a thread that explained strategies for getting the best deal by being the biggest jerk.

[balor123]

I'd also like to point out that there are more factors than bargaining hard. You can time the market by waiting for Fall for instance (less supply, lower prices), make non-cost concessions (like taking away contingencies), maximizing your tax deductions, trying harder for a better mortgage rate, etc.

[kicking_cans]

The sellers put 20% down. My biggest concern is they're adverse to losing money and this strategy would point out their not losing money.
I'm looking for a way to communicate that a sales price lower than what they paid isn't necessary a loss. It could be a gain.

[JCK]

Even if you convince them that they're not losing money with this argument (which I'm not sure will work, as these folks are indoubtably paying mortgage interest in lieu of rent), your bigger problem is that your argument just isn't relevant to the property's value.

Wait for this place to languish on the market, and then lowball.

[balor123]

I agree. Sort by days posted for properties and lowball the ones which have been on the market for a long time. Make most of your offers near the end of the selling season and remind the sellers that if they don't accept they'll likely have to hold out for another 6 months since nothing sells in winter. Pay special attention to houses that are empty or where you know the seller has to move.

[BelmontRenter]

I believe it's actually counter-productive to go to a seller with a "story" or "reasoning" as to why your price should be accepted.

The seller has listed the property at a certain price, and has a certain floor below which they won't sell. They have considered what they'll consider, and their listing agent has talked good, or bad, sense into them or out of them. The seller is not of a mind to re-think their pricing strategy, especially coming from a potential buyer who simply wants to pay as little as possible.

Stated another way, of all the people to take advice from, why would a seller take pricing advice from a potential buyer????

[SamChady]

I have found its pointless to use logic with most people in negotiations. The price of a house does not anything to do with the sunk cost of the owner, its all what the market says its worth, independent of what it the owner.

I have a friend that has had a house on the market for over a year now in Greenville, SC. He had an offer $10K less than his low asking price, and he balked. Now he has had it on the market for 6 months after this offer, with carrying costs (mortgage, taxes) and high maintenance costs (have to keep up the yard and keep it clean). Plus, he found out that the local high school students called it the "party house" and partied every Friday there, including using his pool. They kept it a secret by totally cleaning up perfectly. Smart kids not to kill the golden goose. I have talked with him about it, but its so painful for him that he cannot use logic and prefers to keep it on the market and keep paying the upkeep and mortgage and wait for a correction. What he does not realize is that for him not to "lose" money, it will take years for the price to come back, and by that time, he hast LOST a lot of money even if he sells for a higher price. He doesn't rent it out because he wants to sell it, so he can't even make money with the investment.

I think so many sellers are like him. I have to admit that I have felt that way about stocks too - I did not lose until I sold, so holding a security for a long time after it dropped was not as painful as selling, even though selling was the right thing to do. Trying to understand this human irrationality in myself tends to help me make better decisions.

So as a buyer, I wait. My realtor is going crazy waiting for me, but I won't buy now I think until next winter when its bleak, unless I see the right thing in the meantime.

My rent now is less than condo fees and taxes on what I am looking to buy. Its not a fair comparison since my apartment is not in the same areas I am looking to buy, but still, its tough to want to own a place when its so cheap to rent and I have no family.

[john p]

How much does "selection" play into your mind? For instance, you can wait, wait, and wait, but depending on your market how frequently do you see something that you really like? Hopefully you see something great on a regular basis.

[Guest]

Sellers are still in denial, hoping to cash in at top of the bubble prices, hence the properties sitting on the market 200-400 days with NO price reduction. I see it all over so called immune towns. Baby boomers often would sell, attempt to sell, but won't sell because they will not get the top $$$ for their outdated, requiring major renovation property that they often own outright.
Those few who truly want to sell, price it at 2001-2002 levels and places DO sell.

We, first time buyers have been waiting on the sidelines for a few years, with good savings, good credit capability, now ready to jump in. Sellers won't balk, buyers get impatient, but more you wait, more you rent, more you save, more mediocre properties you see asking unrealistic for these times prices, more the idea of renting and saving your bucks seems appealing. You get detached emotionally from I-have-to-buy-a-house-or- else. It does not matter as much, even though we are 40, professionals with with good jobs and a family, and have not owned yet.
Selling and buying is not done rationally, it is a very much emotional, cultural and psychological issue, where math, logic, statistics, even bare facts hardly apply (goes
There will be always those wanting to sell high and those overpaying thinking that they did well.

[john p]

Great take-away, basically you see the 2001-2002 as the water mark.

Keep in mind that we've had almost 6 years of inflation since then (this past year at zero). Also keep in mind that the mortgage rates are significantly less than in 2001/2002.

Basically what your saying is that it was overpriced back in 2001 because you're not adding any increases for inflation or buying power savings due to the current lower cost of capital.

Since 2001, I'd say that we've had about 20% inflation if you compound 3% over 6 years right? Then, you can afford another 6% in home prices because the cost of capital is cheaper right?

I think you need to take measure of that. However, the reason why I think you might be right, is that prior to 2001 people had quickly gotten equity and when they traded up they were able to sell and have a bigger down payment on the next place. This surcharge of downpayment that buyers used to have is what I think is burning off out of the bubble, rather quickly. Again, the other side which is inflating the bubble is the inflation of the past 7 years and the cheaper cost of capital. I think you need to find what you think is the balance of those two things...

[Guest]

2001-2002 adjusted for inflation and prices by enlarge are not nearly where they should be. This spells affortability. Salaries since 2001-2002 were adjusted for inflation in most industries, RE skyrocketed out, salaries did not.

Mortgage rate WILL not stay where they are now. You know what will happen if they adjust up.