Low-ball bidders in many markets learn they can no longer get a steal on a house
It’s not something that economists routinely track, but it provides a rough sense of what’s happening in local real estate markets. Call it the low-ball index.
A year ago, according to researchers at the National Association of Realtors, one out of 10 members surveyed in a monthly poll complained about low-ball offers on houses listed for sale. In the latest survey — conducted in March among 4,500 agents and brokers across the country but not yet released — there were hardly any. Instead, the focus of volunteered comments has shifted to declining inventory levels — fewer houses available to sell — and multiple offers on well-priced listings.
A low-ball offer typically involves a contract submitted to a seller where the price proposed by the purchaser is 25 percent or more below list. Low-balls increase sharply when there’s a glut of properties available, asking prices are out of sync with local economic realities and values are depressed or uncertain. Buyers figure: Hey, why not? Maybe I’ll get lucky.
Based on the latest survey results, that sort of strategy is not a winning move in many communities this spring. In fact, in local markets where inventories are tight and competition for homes rising, realty agents say that buyers looking to steal houses by low-balling their offers are ending up at the back of the line, their contracts either rejected out of hand or countered close to the original asking price.
In high-demand, high-cost markets that have rebounded from recession slumps, sellers are now firmly in control; they pay scant attention to low-ballers.
Jayne Esposito, an agent with Coldwell Banker Residential Brokerage in Los Gatos, Calif., says that multiple offers are “the rule, not the exception,” in her area, and many transactions end up with final contract prices higher than the listing. “Sure, I’ve had a few buyers try to low-ball, and they wouldn’t listen,” she said in an interview, “but that didn’t work out well for them.”
Similar trends are underway in more moderately priced markets.
Wes Neal, an agent at Prudential Olympia in Olympia, Wash., said “low-ball offers are down a lot because we’re seeing more homes come on the market that are more realistically priced.” Sellers have absorbed the hard lessons of the recession years about what the market can bear.
Even when buyers submit shockingly low bids, sellers no longer are so insulted that they send the contract back without a counteroffer. Now they negotiate aggressively, and the final number ends up close to the original asking price. For example, Neal said, a buyer recently came in with a bottom-fishing offer of $150,000 on a house listed for $250,000. Though the seller was irritated, after a series of negotiations the low-ball buyer settled for a final price of $230,000.
In Northern Virginia, well-priced houses in good locations move fast, sometimes pulling in multiple offers within 48 hours of listing, says Chris Ann Cleland, an agent with Long & Foster Realtors. Sellers who encounter the occasional outrageous low-ball offer reminiscent tell listing agents not to even bother with them. After all, there’s an excellent chance there will be a realistic offer shortly, maybe more than one.
In the suburbs south of Chicago, Judy Orr, an agent with Classic Realty Group in Orland Park, Ill., says low-ball frequency and efficacy depend on the specific neighborhood or town. “We still see them, and we try to work with them” in communities where prices are soft and the impacts of tough economic times persist, she said. Elsewhere, though low-ball offers are down, she urges sellers to stick with it and negotiate. Recently a low-baller came in $40,000 below the asking price. Through negotiations with the buyer, Orr managed to close the gap to just $2,000 below asking.
Marnie Matarese, an agent with J Wood Realty in Sarasota, Fla., said that while low-ball offers are far fewer this spring, some out-of-town buyers still appear to be under the impression that all Florida real estate remains depressed. They insist on submitting offers that make no sense in today’s environment. Matarese has no problem with this — “you can’t blame a buyer for trying to get a good deal,” she says — but the fact remains: They usually risk losing the house.
The takeaway here: Rolling low-balls at sellers may have been an effective approach between 2008 and early 2011. But in 2012’s environment — at least in rebounding markets — it could be counterproductive if you truly want to buy.
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Update: Following a recent column on FHA’s controversial tightening of rules on collection accounts, the agency postponed the effective date of the policy change to July 1 from April 1.
Ken Harney’s e-mail address is firstname.lastname@example.org.