OT Advice Needed: Home purchasing and first offers

[Nooch]

Given the sample size of the forum, I figure it's the best place to pose this question...

Found a house the wife and I really like. Unlike most in the area that we've seen, it's one that we wouldn't grow out of for a long time, it's in the best school district in the area, and it's conveniently located.

It's also out of our budget, at the asking price.

So I ask -- how low is too low of an offer to make for a first offer? We have a number that's 14% off asking price, that would open us up (if they came back) to a best and final that's probably 10-12% off asking. Is our 14% number too low, or insulting, to the owner?

Their agent has made it clear that the owner is anxious and eager to move -- he has a home in Florida, he's the original owner, his wife passed away, and they previously had an offer fall through because they couldn't get a mortgage.

The comps justify his price, but I know we just can't get the mortgage with the taxes being what they are.

So how low is too low for an initial offering?

Other bits of information that my wife is hung up on: so far we've only seen about 15 houses, and we're not in a serious rush as we're in a lease that expires in May. So i guess the other question is whether or not it even makes sense to try on this house rather than waiting until march to try and find something.. we started looking now with the intention of seeing what was out there and getting a feel for the areas we're looking. this one just happens to check all of the boxes for us..

[EDS]

How long has the house been on the market?

[93legendti]

You never know. I just made a $30,000 offer on a house listed at $45,000. The seller's agent then asked for a number close to $40,000, as they had a mtg offer at that price. I countered at $31,500.

This summer I bought a house listed @ $39,000 for $30,500.

I don't believe sellers' claims of "insult" or requests for "highest and best". It's business.

You can't buy if you don't make an offer. Make an offer within your ability to buy, that isn't your ceiling, and see what happens.

[Nooch]

How long has the house been on the market?

153 days on Zillow

updated the original post to ask more opinions!

[shovelhd]

I would not consider a 14% offer insulting, not in this market.

[TBDSeattle]

I don't believe sellers' claims of "insult" or requests for "highest and best". It's business.

100% agree

It is up to them to accept or reject the offer. Real estate is not about feelings, it is about pairing a willing buyer and seller.

Motivations:
you = making an offer that you can afford so you can actually buy the house
real estate agent = make a sell at any price so that they get their commission
owner = get as many offers as possible within time constraints, choose the best one

[FlashUNC]

So much of real estate is location dependent, it really depends on the local market. We've got some friends out here who are house hunting in the Oakland Hills, and they might as well not put prices on the listings. The bidding wars are crazy. Even for serious rehab jobs.

Generally, I'd second what was recommended earlier in the thread. Offer what you can in your price range that isn't your max and see where it goes.

[93legendti]

?..
Other bits of information that my wife is hung up on: so far we've only seen about 15 houses, and we're not in a serious rush as we're in a lease that expires in May. So i guess the other question is whether or not it even makes sense to try on this house rather than waiting until march to try and find something.. we started looking now with the intention of seeing what was out there and getting a feel for the areas we're looking. this one just happens to check all of the boxes for us..

Less than a year isn't too early to look. 2 months is too little time to look. In my area, this time of year is better for buyers, as opposed to spring...

People don't want to move during the holidays, so less buyers is better for you...

I would be looking, you can get out of a lease early...

[ariw]

Make the offer, see what happens. If previous deals fell through and the listing is approaching six months, 14 % below asking is fine. Remember, the worst that can happen is that they can say no...

Ari

[mike p]

I wouldn't worry about insulting anyone, they can accept, counter, or ignore. If he's had one deal fall through he may be anxious to just be done with it. What can it hurt to try?
I once had a realtor tell me she wouldn't write up an offer that low, I told her no problem I'll find someone that will. She changed her mind in a hurry and I got it! They didn't even counter they just accepted! "You miss 100% of the shots you don't take".

Mike

[veloduffer]

Do you have the budget nailed down to include repairs? Don't stretch without including a good cushion, which could mean a lower down payment. One storm could cause a major repair, like a roof repair etc.

If you are comfortable with the budget, then make an offer. Some times it helps if the owner knows that you are a new family trying to get a start. Lots of times homes are like heirlooms with lots of memories, and sellers may take less money to see it passed on to someone they like.

[93legendti]

As another example of what can happen:

This summer I also bid on a $40,000 house, they countered my $31,500 offer at $34,000. I walked away. After a deal fell thru they came back and asked if I would pay $31,000. I agreed.

None of these houses were on the market as long as the one you're looking at.


I would also offer this based upon my experiences: More consideration goes into a buyer's offer than a listing price. In other words, a listing price isn't usually written in stone, or even with ink.

[Nooch]

As another example of what can happen:

This summer I also bid on a $40,000 house, they countered my $31,500 offer at $34,000. I walked away. After a deal fell thru they came back and asked if I would pay $31,000. I agreed.

None of these houses were on the market as long as the one you're looking at.

Man, I wish Michigan prices were New York prices, LOL.

[Nooch]

And as far as the lease, though? I mean, assuming a 90 day closing (which has us moving in the middle of January/February, depending on how things go), that leave 3-4 months on the lease term. The landlord hasn't been the greatest (complained after a few weeks of us living here about noise -- we were vacuuming on Christmas Eve, and just the other day asked if I could try and keep my 2 year old from running around the house in the morning because it wakes their two year old up... landlord occupied two family house, we're on top).

I don't have it in the budget to float both places for three months, unfortunately.. Assuming best case scenario that they accept our offer.

[VTCaraco]

Granted it was 17 years ago, but we were very frank...
"We like the house a lot and here's our offer". We didn't divulge too much, but the seller responded with a gesture of a counter-offer and an affirmation that they'd really like to sell it to us. I feel like we both walked away feeling like we had been treated respectfully and both received fair consideration. We were around 13% below asking, which was after a few price-drops had already occurred, and settled at about 11% below asking (eventual price was around 75% of original asking after 11 months or so on the market).
We were novices and young, but it still felt like it was handled in the "right way" from a civility point of view. What's interesting was the fact that the realtor said that the sellers had walked away from a higher offer about a month earlier because those folks had accompanied their offer with a justification of the discount rather than affirming that they liked the house. The explanation that the seller and realtor had for us was that they felt like we were looking at it as a "home" and not a business decision.

[19wisconsin64]

you never know. it's been on the market a while. might be over priced, might be a soft real estate market, might have some undisclosed problem. usually great homes go very quickly in almost any market.

i think you should be flexible with your price, and consider another home too in the area..... you seem committed to buying something, and you are smart enough to be looking in the better areas.

over the long term, 10% or so higher payments will make you back much more....you'll be happier, you'll be in a better house, you'll be in a better..........and the payments are partially tax deductible. most important, real estate begins with location. with this, you will get far more money and enjoyment than your 10% higher price up front.

me.....20 plus years investing in real estate in several states, and 18 years work in mortgages, and a business degree in research. .... real estate junkie...

you seem to know what you want.....just be careful as a first time buyer...buyer beware applies to houses, especially those on the market a long time. 14% is no insult. bigger question...it's not about the deal, it's about what is the best house for you long - term.

good luck!!!! (wait, that's a lie...you make your own good luck through a lot of research....)

[93legendti]

Man, I wish Michigan prices were New York prices, LOL.

Well, these are bungalows, usually in need of repairs, although one was in 100% rentable shape. 800-1400 sq feet, 3 bedrooms, 1 1/2 baths, some without garages and basements (more that can go wrong and they rent for the same price as houses with them and just as quickly-go figure!)

Taxes $1500/year or less.
Working class towns.

I am buying strictly for renting...an altogether different gig.

[MattTuck]

If you're worried about swinging a couple months of the lease, perhaps you do not have enough cushion to be buying a house quite yet... Not that you should waste your money by throwing it at a lease when you've already moved out, but that is something to think about.

As far as the low ball offer, I'd knock it down to 20% off asking. Houses are things. Real estate agents want buyers to have an emotional attachment to houses that support a higher valuation...

That being said, a market is made when a willing buyer and seller agree on a price. It doesn't require that the buyer be mortgaged to the hilt... bid what you can comfortably afford.

[oldpotatoe]

Given the sample size of the forum, I figure it's the best place to pose this question...

Found a house the wife and I really like. Unlike most in the area that we've seen, it's one that we wouldn't grow out of for a long time, it's in the best school district in the area, and it's conveniently located.

It's also out of our budget, at the asking price.

So I ask -- how low is too low of an offer to make for a first offer? We have a number that's 14% off asking price, that would open us up (if they came back) to a best and final that's probably 10-12% off asking. Is our 14% number too low, or insulting, to the owner?

Their agent has made it clear that the owner is anxious and eager to move -- he has a home in Florida, he's the original owner, his wife passed away, and they previously had an offer fall through because they couldn't get a mortgage.

The comps justify his price, but I know we just can't get the mortgage with the taxes being what they are.

So how low is too low for an initial offering?

Other bits of information that my wife is hung up on: so far we've only seen about 15 houses, and we're not in a serious rush as we're in a lease that expires in May. So i guess the other question is whether or not it even makes sense to try on this house rather than waiting until march to try and find something.. we started looking now with the intention of seeing what was out there and getting a feel for the areas we're looking. this one just happens to check all of the boxes for us..

The 2 worse things that can happen are either he says no or takes a higher offer. Nothing personal or shouldn't be.

Some other advice(son just bought a house), get a really thorough inspection before you buy. Son's took all afternoon, from windows to radon check to asbestos in popcorn ceiling test...

[93legendti]

What is your agent's advice?

[happycampyer]

153 days suggests that the asking price is on the high side to begin with, so an offer that is 14% below the ask is not unreasonable. If anything, you should start a little lower, expecting a counter offer. veloduffer's point is also a really good one—make sure that you have a budget for repairs, etc. Houses can be like black holes when it comes to expenses. Get a really good home inspector, and if the inspector uncovers issues with the plumbing, electrical, HVAC, etc., negotiate the expected cost of repairs from the sales price.

Mortgage rates have certainly moved in your favor recently. Who knows if it's a blip, but I wouldn't count on rates being this low forever. As far as the overlap with your lease is concerned, you might want to have at least some time with the house empty to take care of things that will be more difficult to manage after you've moved in. This is one place where the cushion comes in.

[happycampyer]

What is your agent's advice?This is an interesting question—in NJ, do they have the concept of a "buyer's agent"? In most cases, "your" agent doesn't actually represent you.

[Ken Robb]

I put together quite a few deals like this and emotions did play a factor. If the sellers raised a family in this property they will probably love hearing how much you would like to raise your kids in the same wonderful environment. This might be a situation where looking at the home again with your kids along when the owners are there to fall in love with your family. They may remember how they had to stretch to buy it when they were young. At the very least try to make sure your agent gets to present your offer to the sellers IN PERSON so he can paint you in a sympathetic light. This reduces the chance that you will be perceived as chiselers trying to steal a house.

Sellers want 3 things:
1-Their price.
2-Their terms; usually all cash but sometimes an installment sale with them getting the proceeds over time reduces their tax liability. They might be willing to carry a mortgage as an attractive source of income.
3-A sure closing at a convenient time. Sometimes sellers want a sure closing but at a much later date because they haven't yet found their next home or it won't be ready for them for some time, etc. In this case if they have already closed on their new place it is safe to assume that closing ASAP is their dream. If you can close in 30 days your agent can point out that they might not get another offer for 30-60 days and then those buyers might want 60-90 days to close. That's a long time to carry two homes and/or lose income on the equity in the old place. Do not underestimate the motivation caused by the disappointment of a failed transaction.

When you find a place that checks all your boxes you would be foolish to not try your best to buy it. Good luck.

[HenryA]

I put together quite a few deals like this and emotions did play a factor. If the sellers raised a family in this property they will probably love hearing how much you would like to raise your kids in the same wonderful environment. This might be a situation where looking at the home again with your kids along when the owners are there to fall in love with your family. They may remember how they had to stretch to buy it when they were young. At the very least try to make sure your agent gets to present your offer to the sellers IN PERSON so he can paint you in a sympathetic light. This reduces the chance that you will be perceived as chiselers trying to steal a house.

Sellers want 3 things:
1-Their price.
2-Their terms; usually all cash but sometimes an installment sale with them getting the proceeds over time reduces their tax liability. They might be willing to carry a mortgage as an attractive source of income.
3-A sure closing at a convenient time. Sometimes sellers want a sure closing but at a much later date because they haven't yet found their next home or it won't be ready for them for some time, etc. In this case if they have already closed on their new place it is safe to assume that closing ASAP is their dream. If you can close in 30 days your agent can point out that they might not get another offer for 30-60 days and then those buyers might want 60-90 days to close. That's a long time to carry two homes and/or lose income on the equity in the old place. Do not underestimate the motivation caused by the disappointment of a failed transaction.

When you find a place that checks all your boxes you would be foolish to not try your best to buy it. Good luck.

^^ THIS ^^
Here you have it from a pro.

[avalonracing]

As a real estate agent I would recommend that you seek the advice of your agent. They should know the market.
You should you have an agent that you trust, have confidence in, and know that their fiduciary responsibility to you alone... and if you don't have an agent that fits that, release them and get another.

[Ralph]

Make your offer with a statement that you are able to close at that price. Offer a decent deposit to show you are a serious buyer. To a motivated sellor, it's not always about absolute best price, it's sometimes about just getting the deal done. Show sellor you can do the deal. That might be worth more than absolute highest price.

I'm going to be home shopping soon, probably making some low offers. I will offer a strong deposit, with assurance I can close whenever sellor wants.

[Climb01742]

Based on some hard earned experience, I'd offer this:

As a buyer, the asking price should mean nothing to you. Working with your agent, figure out what you think the house is worth. Crucially, define your walk-away price...and stick to it.

Try your best to keep the process cold, analytical, pure business. Be prepared to walk away and most times, you'll get the house at a good price. And if not? There are always other houses. I love houses as much as anyone but buying one too often gets too emotional to everyone's detriment.

[malcolm]

I'm with 93 on this one. I don't buy the insult thing. If you don't like my offer don't accept it. Negotiation can always go up but almost never goes down. If I were to make an offer I would start lower than I expected to get it for and work from there. Not to offend real estate agents and brokers but they work on a percentage, the more it sells for the more they make. It doesn't benefit you not to start low. If they become so offended they don't want to do business move on or if you must have it apologize and give them what they want.

[jlwdm]

100% agree

It is up to them to accept or reject the offer. Real estate is not about feelings, it is about pairing a willing buyer and seller.

Motivations:
...
real estate agent = make a sell at any price so that they get their commission

...

It looks like you have had poor agents to make this statement about an agent's motivation. Great agents are in the business for the long term and are going to look out for the client's interests at all times.

I never worry about a short term sale or commission. That is how you sell a lot of real estate.

Jeff

[jlwdm]

...

Sellers want 3 things:
...
2-Their terms; usually all cash but sometimes an installment sale with them getting the proceeds over time reduces their tax liability. They might be willing to carry a mortgage as an attractive source of income.

...

No 2 is unlikely anymore as the for a married couple the first $500,000 of profit is tax free if they have lived in the house for two of the last five years.

Jeff

[binxnyrwarrsoul]

Man, I wish Michigan prices were New York prices, LOL.

Yeah! Add a zero on those numbers. Plus!

Drew, an offer is an offer, obviously the house is languishing at 5 months and still on the market. This one may seem perfect, but like the perfect bike that gets away, there will be another. Make the offer and fill us in. Buying a house is not a party, it's been 7 years since I was in your shoes, and I'm still "hungover" from the experience.

[jlwdm]

Based on some hard earned experience, I'd offer this:

As a buyer, the asking price should mean nothing to you. Working with your agent, figure out what you think the house is worth. Crucially, define your walk-away price...and stick to it.

Try your best to keep the process cold, analytical, pure business. Be prepared to walk away and most times, you'll get the house at a good price. And if not? There are always other houses. I love houses as much as anyone but buying one too often gets too emotional to everyone's detriment.

Good advice.

I closed on a house this month that I made an offer on in late August. I was not looking to buy a house, but the owners dropped the price $100,000 on a house in a market I am an expert on. I figured the owners would not want to move off the new price, but I took off another $50,000 and took off my commission. This house needs a remodel and my wife is an expert at remodeling houses and I made it a totally unemotional decision. The Seller came back at full price and I was told there were a lot of buyers coming back to look at the house. I said fine, but I was holding firm on my price and two days later it was mine.

Jeff

[1centaur]

It has been interesting to be in a career (fixed income money management) where bids and offers over various cycles of liquidity are the daily reality of life while also seeing how bids and offers are treated in residential real estate. In either case it's possible to bid (which in real estate is confusingly called an offer) at a level that is unrealistic to the point of being annoying, but such bids are not really insults as much as probes that have more or less meaning to the people making them. Being insulted is up to the receiver and their personality and, frankly, their lack of experience in receiving bids since they may only get 5 in a lifetime, compared to the 50 a day we might get in a fixed income portfolio. Real estate agents like to play on the culture of not giving offense to anybody to scare bidders into starting higher, and some sellers happily play that game too. But really, since the OP knows he is not trying to insult anyone, then his bid is not insulting. Whatever reaction the receiver has is up to him and is irrelevant. However, starting low sets an agenda, and the agenda setter in a negotiation often wins.

There are certainly bids that are so low they are doomed to failure and so a waste of people's time. 25% below the asking price of a normal home sold by a normal seller on the first day it is on the market is very rarely going to work. 6 months in, there is some hope the seller is getting desperate, and while they might reject it based on emotion on day 1, all hope is not lost as that bird in the hand starts to weigh on the mind. Successful low bidders lack emotion and are firm on their bids. They don't bid against themselves (raise their bids without getting some movement from the seller), and they don't worry about insulting.

I would think 10% off the price is the best any seller should hope to get on a first bid after that long on the market, and 14% should not be viewed as at all surprising.

[Ken Robb]

No 2 is unlikely anymore as the for a married couple the first $500,000 of profit is tax free if they have lived in the house for two of the last five years.

Jeff

True in this case but there are lots of people reading this thread and this idea was always part of my training program for new agents and/or clients.:)

[carpediemracing]

Not much to add.

When we looked at houses we offered 10% below asking, expecting to hit about 5% below.

One homeowner was insulted when we offered 10% below. They didn't sell the house for something like 5 years, and they actually moved back to the area after they finally sold it and left. The thing with them was that they weren't ready to sell - they built the house, they were moving for some unknown reason (and it seemed they didn't want to move), and they ended up moving right back. So they weren't ready to sell.

My first house was listed at 189k (early 90s). It was stretching my budget but I liked it and I thought I could make it work. The real estate agent was the listing agent (so he listed the house and he's working for the owner in that respect) as well as the agent showing me around.

On the other hand about 25 years prior to that my dad was his boss, basically told the real estate agent that he wasn't meant for that line of work, and the real estate agent quit his engineering job. He got into real estate and now has a comfortable little empire of rental units at that time in the early 90s. He kept remarking that if my dad hadn't told him straight up that he wasn't cut out to be an engineer he never would have gotten into real estate. He was really happy with his situation and very thankful my dad told him to get out of engineering, a career choice that everyone in his family seemed to think was the only thing to do (dad and brothers were engineers).

Anyway, at that time, I asked him what he's suggest I do about the house. I was thinking $180k or something. He told me to offer $160k. That seemed low but I told him to relay that offer to the seller. Seller returned with a $162.5k. I bought the house after double checking that they didn't mean $182.5.

When we sold it I think we listed it for $419k and sold it for $397.5. 5% less than asking was our goal so that was fine. We closed about 90 days after the house listed, they put a deposit on it I think 30 or 40 days after listing. Incidentally we used the same guy (the one that worked under my dad) as the listing agent. He said it was rare to be the listing and purchasing agent and then the listing agent again. He even referred us to a real estate agent up here, at our request, so he got a little spiff when we bought our house up here.

[wc1934]

Let us know how it turns out - Hopefully you get it - it has been on the market awhile and they just might want to sell before the winter etc.
GOOD LUCK.

[Ken Robb]

Laws vary from state to state but in CA. a lessee has the right to provide a substitute lessee to take over his lease provided the second party is as well qualified as the first and it doesn't cost the lessor anything. If it is the same where you live you might not be on the hook for lease payments after you move out even though you have some time left on your lease. Landlords often find this a good deal because they may get a good long-term tenant at no cost to them for ads or commissions.

[Nooch]

Well, submitted our low offer. Now we wait to hear back!

Thanks for all the advice, guys. We have very firm limits with how much we can and are willing to spend. The problem is, most of the properties in this area that come in asking that amount are likely to require a ton of work, have damp basements, water issues, etc.. So, we're taking a shot and seeing if it sticks!

[Mr. Pink]

The comps justify his price, but I know we just can't get the mortgage with the taxes being what they are.





Sounds like you're in over your head. The comps reflect a still overpriced market.

[93legendti]

Well, submitted our low offer. Now we wait to hear back!

Thanks for all the advice, guys. We have very firm limits with how much we can and are willing to spend. The problem is, most of the properties in this area that come in asking that amount are likely to require a ton of work, have damp basements, water issues, etc.. So, we're taking a shot and seeing if it sticks!

Good luck!

[echelon_john]

Good luck, Drew. Good advice here!

Don't forget to play your strengths, beyond the financial offer. In this case, your primary strengths are:

- You don't NEED this house. You've got time, and a world of other options. You can buy ANY house. They need to sell THIS house.

- You can offer them their choice of closing window to accommodate their needs. ASAP? You'll do your best to make that happen. If they want it longer for any reason, you can accommodate that. You can make the transaction easy and painless for them. Your agent should be communicating this for you.

In any event, my only piece of advice: if they come back firm on their price or with a counteroffer that doesn't show much give, do NOT get back to them right away with a higher offer. Give it a few days, minimum. Maybe a week. Maybe more. This is where it's critical to have an agent who's working for YOU, not the buyer, who can arbitrate. If you don't have a buyer's agent, then you need to pretend your agent is the seller, and keep your cards close to your chest. Be willing to walk away, and make sure the seller/seller agent realizes that they need to keep you on the hook. It's just a house. There are lots of 'em.

JC


Well, submitted our low offer. Now we wait to hear back!

Thanks for all the advice, guys. We have very firm limits with how much we can and are willing to spend. The problem is, most of the properties in this area that come in asking that amount are likely to require a ton of work, have damp basements, water issues, etc.. So, we're taking a shot and seeing if it sticks!

[Climb01742]

an important point has been raised by a number of posters:

buyers and their real estate agents don't always have the same self-interests. or put another way, share the same interest in playing hardball.

in my experience, many agents are a little too cosy with other agents. after all, in any given market, agents will interact with each other many times across many sales and it's only human nature to not want undue antagonism with colleagues you'll see down the road.

that play-nice attitude benefits them, but not necessarily the buyer. with the last house i bought a little over a year ago, i found a buyer's agent who was a pitbull and discovered what i'd been missing working with play-nice agents. the guy i found is one of the least popular (among other agents and brokerages) and most successful brokers in our area. he's very smooth, polished and will go for the jugular for his buyers. not an a-hole but relentless and doesn't mind a few bruised feelings, because he realizes his future depends on making clients happy, not other brokers.

my long-winded point is, watch your broker with open eyes. be sure they are fighting for your interests, not some clubby, go-along, get-along broker tea society.

[echelon_john]

The other approach, which takes some serious ovaries--or balls, if you're a guy--is to look at their counteroffer, and, if it's not in sync with reality, go back and offer $2500 less than your first offer, with a 30-day expiration. Then sit back and don't say a thing. If they get a better offer in 30 days, great. But it's October, and they haven't sold it in 150+ days on the market, including the spring/fall sales season.

By November 20th, your offer might make a lot more sense to them than it does today.

I've seen it work; not that this approach is for everybody, but...

[malcolm]

an important point has been raised by a number of posters:

buyers and their real estate agents don't always have the same self-interests. or put another way, share the same interest in playing hardball.

in my experience, many agents are a little too cosy with other agents. after all, in any given market, agents will interact with each other many times across many sales and it's only human nature to not want undue antagonism with colleagues you'll see down the road.

that play-nice attitude benefits them, but not necessarily the buyer. with the last house i bought a little over a year ago, i found a buyer's agent who was a pitbull and discovered what i'd been missing working with play-nice agents. the guy i found is one of the least popular (among other agents and brokerages) and most successful brokers in our area. he's very smooth, polished and will go for the jugular for his buyers. not an a-hole but relentless and doesn't mind a few bruised feelings, because he realizes his future depends on making clients happy, not other brokers.

my long-winded point is, watch your broker with open eyes. be sure they are fighting for your interests, not some clubby, go-along, get-along broker tea society.

This

freakonomics the 1st book, not sure how valid a source, had a chapter on buyers agents/real estate agents and compared them selling their own houses vs client houses. They almost always got more for their house even if it meant keeping it on the market longer.

Not to offend anyone and I think real estate agents serve a purpose and are helpful you just have to understand how they make their living and their motivations. As a buyer it's in their best interest for you to spend more money as they will make more. Human nature would dictate there is little incentive to get you the best deal possible.

[93legendti]

Sorry, I don't buy it.
I bought a hud house 1 year ago. List was $15,400. My agent suggested an offer of $11,000. I knew the house was seriously underpriced (2nd full bath upstairs - very rare for a bungalow, not to mention new roof) and I didn't want to lose it, so I told him to bid $15,450... $50 over list and I got it. $6000 in rehab costs and I am getting $750/month.

Brokers who only seek to benefit themselves won't last. For financed buyers, homes still have have to appraise. Either comps support a price or they do not. Either a house fits your budget, or it doesn't. People are so stupid to be duped by a broker, yet at the same time, smart enough to get the best price for their house.
And, who is listing and showing the house?? The home owner? Is his/her time and energy infinite?
There is no free lunch.

I broker could try telling to me to bid $40k on a $30k, but I wouldn't do it as the returns aren't there and what does it matter to my broker if I spend $120k for 3 homes or $30k for 4 homes?

[93legendti]

Sorry, I don't buy it.
I bought a hud house 1 year ago. List was $15,400. My agent suggested an offer of $11,000. I knew the house was seriously underpriced (2nd full bath upstairs - very rare for a bungalow, not to mention new roof) and I didn't want to lose it, so I told him to bid $15,450... $50 over list and I got it. $6000 in rehab costs and I am getting $750/month.

Brokers who only seek to benefit themselves won't last. For financed buyers, homes still have have to appraise. Either comps support a price or they do not. Either a house fits your budget, or it doesn't. So people are so stupid to be able to be duped by a broker, yet at the same time, smart enough to get the best price for their house??
And, who is listing and showing the house?? The home owner? Is his/her time and energy infinite?

There is no free lunch.

A broker could try telling to me to bid $40k on a house that is really only worth $30k, but I wouldn't do it as the returns aren't there and what does it matter to my broker if I spend $120k for 3 homes or $30k for 4 homes?

[paredown]

Well, submitted our low offer. Now we wait to hear back!

Thanks for all the advice, guys. We have very firm limits with how much we can and are willing to spend. The problem is, most of the properties in this area that come in asking that amount are likely to require a ton of work, have damp basements, water issues, etc.. So, we're taking a shot and seeing if it sticks!

Came late to this discussion, but wanted to add that if you have to reconsider your budget numbers for a second offer, we had a great independent mortgage guy help us get into a house that we stumbled on when we were not quite ready to buy.

In order to come up with a bigger cushion and cash for the down payment, we chose a 90 day closing. Then we both filed new W4s at work, claiming the interest rate deduction (more take home pay).

We then sold my car (as a temporary thing) and some other stuff to raise a little more cash and started a serious 90 day austerity program.

We had the cash we needed when we closed!

And as I face year six in a house that needed a lot of work when we moved in this time--IME, buy the house that is in best condition that you can afford--as this one sounds like it is.

[Ken Robb]

Came late to this discussion, but wanted to add that if you have to reconsider your budget numbers for a second offer, we had a great independent mortgage guy help us get into a house that we stumbled on when we were not quite ready to buy.

In order to come up with a bigger cushion and cash for the down payment, we chose a 90 day closing. Then we both filed new W4s at work, claiming the interest rate deduction (more take home pay).

We then sold my car (as a temporary thing) and some other stuff to raise a little more cash and started a serious 90 day austerity program.

We had the cash we needed when we closed!

And as I face year six in a house that needed a lot of work when we moved in this time--IME, buy the house that is in best condition that you can afford--as this one sounds like it is.

This was some clever maneuvering to achieve your goal. The opposite of this is when buyers who are pre-approved for the home loan they need buy a new car during the escrow period and the new loan and/or reduced cash reduces the size mortgage they can get and blows the deal.

[cfox]

It's not too hard; look at comps and where they sold vs. they're asking price (it's important to know if the property has had many re-pricings). In any mildly efficient market, you will get a feel for the spread. We are actually looking at houses in our own town. Every property sold in the past year has traded 4%-6% lower than the asking price. Unless the seller is especially motivated, it's unrealistic to think we'll do much better than that. The only time I would low-ball is if the owner is delusional about their starting asking price.

Every market is different, but if you take the time to look at actual transactions, not listings, you'll see that houses do sell if they are priced fairly.

[4Rings6Stars]

...nevermind. Came off more dickish than I intended.

Carry on!

[malcolm]

I don't think they are being duped or ripped off and I do think brokers serve a purpose and we use them, but I don't think most of them try as hard to get the best deal as they would for themselves. There are always exceptions.

[avalonracing]

that play-nice attitude benefits them, but not necessarily the buyer. with the last house i bought a little over a year ago, i found a buyer's agent who was a pitbull and discovered what i'd been missing working with play-nice agents. the guy i found is one of the least popular (among other agents and brokerages) and most successful brokers in our area. he's very smooth, polished and will go for the jugular for his buyers. not an a-hole but relentless and doesn't mind a few bruised feelings, because he realizes his future depends on making clients happy, not other brokers.


I disagree with this. I've seen that backfire as listing agents who are working for their sellers may say to the seller, "Well, we have a couple of offers here but the agent representing one of the potential buyers is a huge pain to work with and will nickel and dime on on inspections and other terms".

In this case the sellers may choose to work with the other buyers (who may have a more agreeable agent) and the buyers who chose the "pitbull agent" will lose the deal.

[Ken Robb]

I disagree with this. I've seen that backfire as listing agents who are working for their sellers may say to the seller, "Well, we have a couple of offers here but the agent representing one of the potential buyers is a huge pain to work with and will nickel and dime on on inspections and other terms".

In this case the sellers may choose to work with the other buyers (who may have a more agreeable agent) and the buyers who chose the "pitbull agent" will lose the deal.

AMEN!! Almost all agents who are successful over the long haul never annoy anyone if they can help it, always put their clients needs first, and are willing to do extra work to hold a deal together even if "it's the other guy's responsibility". Without referrals and repeat clients an agent is always experiencing his first year over and over.

[jlwdm]

I don't think they are being duped or ripped off and I do think brokers serve a purpose and we use them, but I don't think most of them try as hard to get the best deal as they would for themselves. There are always exceptions.

I work harder on my clients' deals than my own, and my clients expect and appreciate that. In the last year I have represented a buyer and a seller on $1m plus sales where the client just tells me the maximum he will pay and the minimum he will accept and I negotiate until the deal is done. In both cases I negotiated much better deals then the client would accept.

Jeff

[malcolm]

I work harder on my clients' deals than my own, and my clients expect and appreciate that. In the last year I have represented a buyer and a seller on $1m plus sales where the client just tells me the maximum he will pay and the minimum he will accept and I negotiate until the deal is done. In both cases I negotiated much better deals then the client would accept.

Jeff

Like folks that go above and beyond in any field you are an exception to the rule. If and when I buy or sell again I hope I get an agent/broker like you. I meant no disrespect as I do appreciate the work you guys do when I need it. I just speaking from things I've read and to some degree my feelings from having bought and sold in the past.

My wife is from Garland. I just happened to see you were from dfw.

[djg]

153 days on Zillow

updated the original post to ask more opinions!

That's a good long while.

Different sellers feel differently, at different times, and I don't know of any hard and fast rule about what might seem reasonable or not. If you know you want the house, and know what you are prepared to pay, I don't see anything wrong with making an offer. They might not like it, but they might, or they might be pretty darn glad for the chance to make a counter-offer before they hit the six month mark. There's always the question how you pitch it -- or how your realtor pitches it to the seller's realtor -- but the sellers always have the option of saying "no" (or "yes" or making a counter-offer) and at 5-plus months sellers might take a long hard look at an offer that they would have rejected outright 3 or 4 months ago.

We bought our house in the spring of 1998, making an offer two weeks after it had been taken off the market. There was a bit of back and forth, but it did not take too long for us to reach an agreement with the seller, and the sale price was lower than an offer that the seller had rejected out of hand a couple of months before (and we got a couple of points on top of that). For me, it wasn't about honoring or dishonoring the property -- just about coming to an agreement that the wife I thought manageable. As luck would have it, it turned out to be the best financial investment I've ever made. No offer, no contract.

[old fat man]

If your offer is rejected, remember, it is for the best. We're in our second house now, but when we bought our first (condo), we had tried to buy at least 3 or 4 prior and our offers were all outbid or rejected. Looking back at them, we were so glad that every one of those fell through.

Keep emotions out of it as best as you can. I feel strongly that when it comes to home purchases, if it is meant to be, it will work out. Don't force it, don't overpay.

[likebikes]

Found a house the wife and I really like. Unlike most in the area that we've seen, it's one that we wouldn't grow out of for a long time, it's in the best school district in the area, and it's conveniently located.

.....

Are you sure you're ready to buy a house & settle down for x amount of time?

Just asking as about 6 months ago you started a thread about starting over in another city.

[MattTuck]

I don't think they are being duped or ripped off and I do think brokers serve a purpose and we use them, but I don't think most of them try as hard to get the best deal as they would for themselves. There are always exceptions.

I disagree with this. I've seen that backfire as listing agents who are working for their sellers may say to the seller, "Well, we have a couple of offers here but the agent representing one of the potential buyers is a huge pain to work with and will nickel and dime on on inspections and other terms".

In this case the sellers may choose to work with the other buyers (who may have a more agreeable agent) and the buyers who chose the "pitbull agent" will lose the deal.

I have heard stories about attorneys playing softball in court when they should have been much more aggressive. Many of these guys (I'm talking the attorneys here, but could apply equally to RE agents) are not independently wealthy and need good working relationships with the people they deal with on a regular basis (judges, other attorneys, etc.). It sucks for a client when you realize your lawyer isn't fighting with 100% ferocity for you because he has other cases in the same court and doesn't want to piss the judge off.

AMEN!! Almost all agents who are successful over the long haul never annoy anyone if they can help it, always put their clients needs first, and are willing to do extra work to hold a deal together even if "it's the other guy's responsibility". Without referrals and repeat clients an agent is always experiencing his first year over and over.

[cnighbor1]

Seller can always make an counter offer so a low offer can be send back to you with a higher counter offer
Agent Is it your agent or the sellers agent?
I prefer to use my own agent has she has my interest's first and not the buyers being first
When making an offer you need to figure out an offer that takes advantage of any weakness he may have i.e. Wanting out fast
I would find a mortgage broker to work with I have and it pays big time He can find innovative ways for you to afford the house your after
Say a 1st and 2nd mortgage and set up so 2nd would pay off in fewer years

[gasman]

I work harder on my clients' deals than my own, and my clients expect and appreciate that. In the last year I have represented a buyer and a seller on $1m plus sales where the client just tells me the maximum he will pay and the minimum he will accept and I negotiate until the deal is done. In both cases I negotiated much better deals then the client would accept.

Jeff

That's why you are successful I suspect. Not every agent I've dealt with has the same ideals. The good ones do.

[jlwdm]

I have heard stories about attorneys playing softball in court when they should have been much more aggressive. Many of these guys (I'm talking the attorneys here, but could apply equally to RE agents) are not independently wealthy and need good working relationships with the people they deal with on a regular basis (judges, other attorneys, etc.). It sucks for a client when you realize your lawyer isn't fighting with 100% ferocity for you because he has other cases in the same court and doesn't want to piss the judge off.

The lack of 100% ferocity may be a perception. In real life the courtroom is different than tv. The yellers and screamers are not always presenting great arguments, but are just trying to impress their clients. Sound legal arguments presented in a clear manner are much more successful.

Working with others is a very successful approach in court and most of life.

Jeff

[Ken Robb]

The lack of 100% ferocity may be a perception. In real life the courtroom is different than tv. The yellers and screamers are not always presenting great arguments, but are just trying to impress their clients. Sound legal arguments presented in a clear manner are much more successful.

Working with others is a very successful approach in court and most of life.

Jeff

Yep.

[Ralph]

In our area, home prices have been going up fast for over 5 years. I'm more thinking it's time to be a seller, not a buyer. So IMHO, I would be very careful what you pay now. Remember, contrary to previous thought for past generation or so, we now know home prices go both ways, not always up like some thought in past.

I've always been a home owner for past 45 years or so, but now believe home ownership may not be that great a deal.....always. When I add in taxes, insurance, and maintenance (and repair and replacement) on my current home, some opportunity costs on dead money in the house, I could pay a lot of rent.....and have my home equity providing income.

Young families need/want home to raise their family, so ownership is probably right for them. Investment aspects not top priority. My advice is if you need a home because your family wants to put down some roots, and have a long term place for the family, buy a home. If you're doing it because you think renting is throwing money away, or because you think home ownership is a good investment, well.....be careful. Home bought right do make good investments if you renting them out, but to live in yourself.....be careful. Things have changed since 07-08.

[fuzzalow]

Things have changed since 07-08.

07-08 was a culmination of the years that preceded the moment of reckoning. The housing over-supply will get worked out but in some regions it will never come back. And that is the crucial element - location. Over-supply is a very different phenomena in the northeast corridor where the OP is situated than other locales. The northeast will always have a market whereas some regions the over-supply propped up a market that did not or could not exist and therefore from nothing can it ever return from or get back to.

These conversations mean nothing without the context of regional specificity.

There is no such thing as a free lunch. Buying into an attractive town or school district has its associate tax burdens. IMO school district attractiveness, and the test scores bragged about, is less a reflection of the quality and competence of K-12 public education as it is a consequence and predominance of underlying socio-economics and educational attainment prevalent via the parents. And integration into the town's social and cultural milieu will have its commensurate life-style issues and concerns. Buying the house is, in the bigger long-term picture, the easiest part.

I don't think muddying the waters with scenarios of investment properties has any relevence to what is being discussed here. Nor does timing in the peaks and troughs of the real-estate market applicable for a desirable town in the post-Lehman environment. A house is bought to live in, raise a family or to live a life. It is but one piece of a lifelong accumulation of capital assets. For a regular person it is not an ideal growth vehicle for the amount of capital it ties up and the transaction costs. I'd readily admit I don't know anything about flipping houses. I think it absurd to enter into a house which would be considered a primary residence for the purpose of flipping it. If one is able, keeping your investment life seperate and distinct from your personal life is desired and preferable.

[Nooch]

07-08 was a culmination of the years that preceded the moment of reckoning. The housing over-supply will get worked out but in some regions it will never come back. And that is the crucial element - location. Over-supply is a very different phenomena in the northeast corridor where the OP is situated than other locales. The northeast will always have a market whereas some regions the over-supply propped up a market that did not or could not exist and therefore from nothing can it ever return from or get back to.

These conversations mean nothing without the context of regional specificity.

There is no such thing as a free lunch. Buying into an attractive town or school district has its associate tax burdens. IMO school district attractiveness, and the test scores bragged about, is less a reflection of the quality and competence of K-12 public education as it is a consequence and predominance of underlying socio-economics and educational attainment prevalent via the parents. And integration into the town's social and cultural milieu will have its commensurate life-style issues and concerns. Buying the house is, in the bigger long-term picture, the easiest part.

I don't think muddying the waters with scenarios of investment properties has any relevence to what is being discussed here. Nor does timing in the peaks and troughs of the real-estate market applicable for a desirable town in the post-Lehman environment. A house is bought to live in, raise a family or to live a life. It is but one piece of a lifelong accumulation of capital assets. For a regular person it is not an ideal growth vehicle for the amount of capital it ties up and the transaction costs. I'd readily admit I don't know anything about flipping houses. I think it absurd to enter into a house which would be considered a primary residence for the purpose of flipping it. If one is able, keeping your investment life seperate and distinct from your personal life is desired and preferable.

Indeed, this is certainly not being viewed as an investment in any sense other than at some point, if we decide to move, we will get SOMETHING out of it, instead of renting where we pay off someone else's mortgage.

I've had some pretty ishty rental situations the past few years, which in my younger days wouldn't have bothered me one bit, but having two small girls, I'm tired of putting up with less than ideal living situations.

We have no outdoor space to have a bbq. We can't host the girls birthday parties. Our landlord, while better than he was the month we moved in, can still be a d!ck (asking me to keep my kid from running around the house -- I'm sorry, no, she hasn't learned how to step softly yet -- let alone riding the trainer!!). We moved out of our last place when it was clear the landlord was inept at dealing with the habitual smoking problem (cigs and weed) by the tenants in another unit that were affecting our quality of life..

A house is right for us. We don't want to keep trying our luck with landlords and tenants.. We want our roots to be pretty firm, want our girls to do whatever they please and be free to grow and be kids.. So we're gonna buy a house!

Still waiting to hear back. Offer was formally submitted yesterday afternoon.

[Liberace]

Still waiting to hear back. Offer was formally submitted yesterday afternoon.

Awesome!

[fuzzalow]

^ Those are the best reasons one might have to doing what you are trying to do.

Take it one step at a time and it will work out in the fullness of time. Build your financial future one brick at a time. And building home equity rather than paying rent is a start. Best of luck.

[cfox]

Owning a home is a lifestyle choice, and like most lifestyle choices, it has many costs along the way. The great misconception of the American dream is that home ownership is a magical panacea of wealth creation. How many times have you heard someone say "my parents paid 12 grand for that house 40 years ago, and they just sold it for 200 grand!!!". That's like a 7% annual return before taxes and maintenance, so probably south of 5%. Not bad, but not the windfall that the numbers appear to be on the surface.

As far as renting is concerned, in a market with a decent rental inventory, renting vs. owning should be pretty fairly priced. If you rent, and invest your down payment elsewhere (safely), subtract taxes, insurance, maintenance, market risk, and transaction costs you should come out pretty even with ownership. It feels like you are "paying someone's mortgage for them" but it's not that simple. There aren't really any easy arbitrages in life. Towns with very little rental property can command a rental premium, though.

[54ny77]

Ain't that the damned truth.

"Honey, I just farted a Meivici."

"Huh? You did what?"

"Oh nevermind, the HVAC guys were here this afternoon."

Owning a home is a lifestyle choice, and like most lifestyle choices, it has many costs along the way.

[93legendti]

Indeed, this is certainly not being viewed as an investment in any sense other than at some point, if we decide to move, we will get SOMETHING out of it, instead of renting where we pay off someone else's mortgage.

I've had some pretty ishty rental situations the past few years, which in my younger days wouldn't have bothered me one bit, but having two small girls, I'm tired of putting up with less than ideal living situations.

We have no outdoor space to have a bbq. We can't host the girls birthday parties. Our landlord, while better than he was the month we moved in, can still be a d!ck (asking me to keep my kid from running around the house -- I'm sorry, no, she hasn't learned how to step softly yet -- let alone riding the trainer!!). We moved out of our last place when it was clear the landlord was inept at dealing with the habitual smoking problem (cigs and weed) by the tenants in another unit that were affecting our quality of life..

A house is right for us. We don't want to keep trying our luck with landlords and tenants.. We want our roots to be pretty firm, want our girls to do whatever they please and be free to grow and be kids.. So we're gonna buy a house!

Still waiting to hear back. Offer was formally submitted yesterday afternoon.
The "renting is better" folks don't get it. Thankfully. I make a lot of money from my tenants. Owning is better.

[cfox]

The "renting is better" folks don't get it. Thankfully. I make a lot of money from my tenants. Owning is better.

You are approaching this from the perspective of a real estate investor, not a home owner. An investor should posses a level of expertise (hopefully) that your normal homeowner does not. Most landlords make money via appreciation rather than return on rent, so timing the market is important. If someone started renting a house 3 years ago in my town and invested what would have been the down payment in the S&P, they would have doubled their money. In three years. The equity in the house would be flat at best.

[93legendti]

You are approaching this from the perspective of a real estate investor, not a home owner. An investor should posses a level of expertise (hopefully) that your normal homeowner does not. Most landlords make money via appreciation rather than return on rent, so timing the market is important. If someone started renting a house 3 years ago in my town and invested what would have been the down payment in the S&P, they would have doubled their money. In three years. The equity in the house would be flat at best.

Couldn't disagree more.

I am a homeowner too. I bought my house because I wanted to live off a lake, near my family and in a nice neighborhood. It's tripled in value, but that's a coincidence (maybe). You don't need to be an investor to buy a home.

No serious landlord I know (and I know over a dozen) make money (other than maybe 10%) via appreciation, other than as a happy coincidence... Which is why some of them buy 2 bedrooms, which I refuse to do. Anyone in this business during hard times asks another landlord "do you have cash flow?"

My Father had apartment buildings he designed, built and managed and was concerned with only thing: his return after his expenses. That's what pays the bills, supports hobbies and vacations and funds retirement.

If you're not in it for cash flow/return on investment, you can't pay taxes, insurance, repairs, including a new roof, windows or furnace when necessary, or weather the 3 months it takes to evict, turn and re-rent. You're also going to buy bad properties.

Flippers make money via appreciation. G-d bless them.

Timing has zero to do with it. I buy homes that I can get a $800-950/month return on a $25-35,000 total investment. I don't like big houses and I don't like too small houses. 3 bedrooms, at least 1 1/2 baths. Good roof. Solid mechanicals. Good neighborhood. My houses are generally "paid for" in ~ 3 years.

In the last week I turned down 3 nice $30k properties with only $600 rents each. Way too low.

Appreciation doesn't pay the bills. I buy properties that will appreciate, but I make money from rent. First of the month. Every month. No matter where I am.

I bought a house first week in August and 3 weeks later a tenant wanted to prepay the rent for a year with a cashiers check. Hot damn!!!
Tenant asked me if it was easy to be a landlord. I answered "Today it is!".

The "appreciation" I am interested in is rental increases. Appreciation will come, but might not be there if I need to sell in an emergency, because of a down turn or tightened credit for buyers. THAT'S why only being interested in appreciation (unless you are doing short term flips) is foolish.

I had a tenant who didn't want to sign a lease extension and was always telling stories to get a rent reduction. "My basement is flooded!" 6" puddle around drain that was .00001mm deep. "Can't open windows!" One of 12 cranks broke. "Window is broken! emergency repair needed!" Small glass 2" x 10" pane on security door broken by him.

I finally sent him a Notice to Quit. Then he suddenly changed his tune. Too bad. Pack and leave. Costs him $2000 to move, more than the rent reductions he would have gotten from his stories in 10 years.
I wonder how much he likes renting....


Read again what Nooch just posted.

[cfox]

Couldn't disagree more.

I am a homeowner too. I bought my house because I wanted to live off a lake, near my family and in a nice neighborhood. It's tripled in value, but that's a coincidence (maybe). You don't need to be an investor to buy a home.

No serious landlord I know (and I know over a dozen) make money (other than maybe 10%) via appreciation, other than as a happy coincidence... Which is why some of them buy 2 bedrooms, which I refuse to do. Anyone in this business during hard times asks another landlord "do you have cash flow?"

My Father had apartment buildings he designed, built and managed and was concerned with only thing: his return after his expenses. That's what pays the bills, supports hobbies and vacations and funds retirement.

If you're not in it for cash flow/return on investment, you can't pay taxes, insurance, repairs, including a new roof, windows or furnace when necessary, or weather the 3 months it takes to evict, turn and re-rent. You're also going to buy bad properties.

Flippers make money via appreciation. G-d bless them.

Timing has zero to do with it. I buy homes that I can get a $800-950/month return on a $25-35,000 total investment. I don't like big houses and I don't like too small houses. 3 bedrooms, at least 1 1/2 baths. Good roof. Solid mechanicals. Good neighborhood. My houses are generally "paid for" in ~ 3 years.

In the last week I turned down 3 nice $30k properties with only $600 rents each. Way too low.

Appreciation doesn't pay the bills. I buy properties that will appreciate, but I make money from rent. First of the month. Every month. No matter where I am.

I bought a house first week in August and 3 weeks later a tenant wanted to prepay the rent for a year with a cashiers check. Hot damn!!!
Tenant asked me if it was easy to be a landlord. I answered "Today it is!".

The "appreciation" I am interested in is rental increases. Appreciation will come, but might not be there if I need to sell in an emergency, because of a down turn or tightened credit for buyers. THAT'S why only being interested in appreciation (unless you are doing short term flips) is foolish.

I had a tenant who didn't want to sign a lease extension and was always telling stories to get a rent reduction. "My basement is flooded!" 6" puddle around drain that was .00001mm deep. "Can't open windows!" One of 12 cranks broke. "Window is broken! emergency repair needed!" Small glass 2" x 10" pane on security door broken by him.

I finally sent him a Notice to Quit. Then he suddenly changed his tune. Too bad. Pack and leave. Costs him $2000 to move, more than the rent reductions he would have gotten from his stories in 10 years.
I wonder how much he likes renting....


Read again what Nooch just posted.

What Nooch posted was that he was more concerned with a nice place to live and the investment aspect was secondary. That is a smart, pragmatic approach I agree with.

I never said you have to be an investor to buy a home. All I am saying is you absolutely cannot say that for someone looking for a place to live, buying is always the better financial decision. Timing has a lot to do with that. I am currently bidding for a house that sold in 1999 for 200k more than the current asking price, and that is in southern Connecticut, an hour from NYC.

Your house tripling in value is great, but how long did it take? What was the annual return on your equity after taxes and maintenance? Because you could have doubled your money in 3 years in the S&P (again, timing).

Around here, in the land of the 600k starter home, my landlord friends do ok with rent returns, but any serious money they've made has been through appreciation.

Look, I'm with you. I'd much rather live in my own house, but I'm not deluded into thinking it's a guaranteed great investment. It's a happy event if it is, but I just view my house as a nice place to live and expect to pay for the privilege.

[MattTuck]

For a professional real estate owner, you can make money in any of three basic ways. 1) cash flows, 2) tax advantages and 3) price appreciation.

It is a pretty straightforward spreadsheet calculation to determine where your returns are coming from.

[fuzzalow]

Ain't that the damned truth.

"Honey, I just farted a Meivici."

"Huh? You did what?"

"Oh nevermind, the HVAC guys were here this afternoon."

Granted that HVAC isn't the sexiest thing to have installed but over time the much nicer stuff gets its turn and is much more fun to do. Then you will say:

"Honey, the delivery truck was here this afternoon."

"Huh, They did what?"

"Oh nevermind, I just farted a Bertazzoni italian oven" said with an ear-to-ear grin

Back to the OP - buying a residence is somewhat sensitive to timing but it is not the driver as to why and what you are doing. For example, interests rates may help or hinder affordability in a range of properties. But you'd be ill advised to put off trying to build a better life for your family so at the margin, interest rates don't mean as much.

I would only stress that you must have a firm grasp of your finances. It is true the banks will no longer loan to the degree of leverage commonplace pre-Lehman but neither will they wait for their payments indefinitely. You must have your cash flow in proper order.

A home is a life cycle purchase and forms a base level of stability as far asset classes. So settle in, raise your family, build on your career, get started ASAP on your investment portfolio.

[Nooch]

Waiting is not my strong suit...

But, I suppose that means they haven't said no yet!

[binxnyrwarrsoul]

Waiting is not my strong suit...

But, I suppose that means they haven't said no yet!

Sheez, dude, saw you posted and thought you got an answer.

[54ny77]

Do you do it full time or passive?

Can you elaborate? That math sounds near impossible, but is absolutely staggering if so.

Mr. Fuzz: the only Bertazzoni coming here would be some Italian guy with the same name who's a tile mason, or as they say, "Aye I'm a stone-a-mase."



Timing has zero to do with it. I buy homes that I can get a $800-950/month return on a $25-35,000 total investment.

[93legendti]

Do you do it full time or passive?

Can you elaborate? That math sounds near impossible, but is absolutely staggering if so.

Mr. Fuzz: the only Bertazzoni coming here would be some Italian guy with the same name who's a tile mason, or as they say, "Aye I'm a stone-a-mase."

I just rented a home for $875/month. $34k into it.
I have another home $950/month, $34k into it.
Have a $25k house gets $750/month
$30k house gets $800/month ...etc, etc....

I don't hold out for highest rents. Rather get someone in a month sooner, raise them the next year.


Well, it doesn't take 40 hours a week and a management company will rob you blind. So I do it myself, take about 12-20 hours a month, sometimes more, but I have a lot of properties. It's all I do. I was going to take the sale manager position at Performance last year, but didn't like closing 3-4 nights a week...wouldn't have interfered with managing properties.

Got a $22k offer accepted on a $29k property yesterday. Needs a new roof, paint, maybe carpet...$6k. 3 bedrooms, 2 baths. Will rent for $8-900/month.

[cfox]

I just rented a home for $875/month. $34k into it.
I have another home $950/month, $34k into it.
Have a $25k house gets $750/month
$30k house gets $800/month ...etc, etc....

I don't hold out for highest rents. Rather get someone in a month sooner, raise them the next year.


Well, it doesn't take 40 hours a week and a management company will rob you blind. So I do it myself, take about 12-20 hours a month, sometimes more, but I have a lot of properties. It's all I do. I was going to take the sale manager position at Performance last year, but didn't like closing 3-4 nights a week...wouldn't have interfered with managing properties.

Got a $22k offer accepted on a $29k property yesterday. Needs a new roof, paint, maybe carpet...$6k. 3 bedrooms, 2 baths. Will rent for $8-900/month.

What are the property taxes like? I know some areas with low housing values can have staggering property taxes on a % basis.

[54ny77]

Ok that's more like it, you're quoting gross returns.

I'm assuming after tax (NOI, etc.) is half the gross returns, more or less.

Still good numbers though.


I just rented a home for $875/month. $34k into it.
I have another home $950/month, $34k into it.
Have a $25k house gets $750/month
$30k house gets $800/month ...etc, etc....

I don't hold out for highest rents. Rather get someone in a month sooner, raise them the next year.


Well, it doesn't take 40 hours a week and a management company will rob you blind. So I do it myself, take about 12-20 hours a month, sometimes more, but I have a lot of properties. It's all I do. I was going to take the sale manager position at Performance last year, but didn't like closing 3-4 nights a week...wouldn't have interfered with managing properties.

Got a $22k offer accepted on a $29k property yesterday. Needs a new roof, paint, maybe carpet...$6k. 3 bedrooms, 2 baths. Will rent for $8-900/month.

[cfox]

Ok that's more like it, you're quoting gross returns.

I'm assuming after tax (NOI, etc.) is half the gross returns, more or less.

Still good numbers though.

Also, he's being compensated for the risk/volatility of buying properties with low property values. It much easier for a $30k property to drop to $15k than a $300k property to drop to $150k (as evidenced by him being able to pay $22k for a place listed for $29k...a 26% spread!). Good on you, Adam. Around here you'd be lucky to get a 5 or 6% net rental return...that's a lot of time, headache, and loss of liquidity for 5 or 6%.

[Nooch]

They came back $5k off asking. Our initial offer was $35k off asking. Hardly a concession, methinks..

[Ralph]

This is what I think it costs to live in my mortgage free home, and I'm in a low cost real estate tax state.

Taxes....... $3000 per year
Insurance... $2000 per year
Maintenance, repair, replacement, upkeep, etc.....
over a 22 year period average $11,000 per year

Opportinity cost on $350,000 value (figure conservatively @ 6% per year)
$21,000

Total cost to live in my house $37,000 per year
This does not include cost of utilities.....electric, water, etc.
That's $3083 per month. Nice house next to me rents for $2300/mo with pool service and yard service included. And I can rent a pretty nice condo in a nice condo project, with 2 car garage, for less than that.

Sure I know ownership is nice, house is mine, can sorta do what I want, etc.....but ownership is no big deal.

Agree....if my kids were still at home, I needed it for them, it's great. But you really need to look at all the numbers. Home ownership is best if you need a home. Also understand rentals no fun sometimes, so hassle of being a renter is a cost that swings it back a tad also. So over all I don't mind owning my house, but I'm aware it's an expensive choice I've made.

[drewski]

Given the sample size of the forum, I figure it's the best place to pose this question...

Found a house the wife and I really like. Unlike most in the area that we've seen, it's one that we wouldn't grow out of for a long time, it's in the best school district in the area, and it's conveniently located.

It's also out of our budget, at the asking price.

So I ask -- how low is too low of an offer to make for a first offer? We have a number that's 14% off asking price, that would open us up (if they came back) to a best and final that's probably 10-12% off asking. Is our 14% number too low, or insulting, to the owner?

Their agent has made it clear that the owner is anxious and eager to move -- he has a home in Florida, he's the original owner, his wife passed away, and they previously had an offer fall through because they couldn't get a mortgage.

The comps justify his price, but I know we just can't get the mortgage with the taxes being what they are.

So how low is too low for an initial offering?

Other bits of information that my wife is hung up on: so far we've only seen about 15 houses, and we're not in a serious rush as we're in a lease that expires in May. So i guess the other question is whether or not it even makes sense to try on this house rather than waiting until march to try and find something.. we started looking now with the intention of seeing what was out there and getting a feel for the areas we're looking. this one just happens to check all of the boxes for us..

Make sure you understand why you want to buy a house. Don't give into peer pressure
I would be very careful not to listen to your realtor.


check this out:

https://www.khanacademy.org/economics-finance-domain/core-finance/housing/renting-v-buying/v/renting-vs-buying-a-home

[54ny77]

Yup.

If it's distressed Michigan (Detroit metro) properties, that's a massive call option.

Quite a few savvy players in the market taking that leap, in size.

Will be interesting to see how it plays out.

And yes I agree otherwise ~6% is the norm in stable areas on net basis (that is, if you buy and manage correctly, excluding accounting gimmicks).

Also, he's being compensated for the risk/volatility of buying properties with low property values. It much easier for a $30k property to drop to $15k than a $300k property to drop to $150k (as evidenced by him being able to pay $22k for a place listed for $29k...a 26% spread!). Good on you, Adam. Around here you'd be lucky to get a 5 or 6% net rental return...that's a lot of time, headache, and loss of liquidity for 5 or 6%.

[Louis]

They came back $5k off asking. Our initial offer was $35k off asking. Hardly a concession, methinks..

Probably not the house for you.

Don't fall in love with a specific one - there are plenty of others.

[Ken Robb]

This is what I think it costs to live in my mortgage free home, and I'm in a low cost real estate tax state.

Taxes....... $3000 per year
Insurance... $2000 per year
Maintenance, repair, replacement, upkeep, etc.....
over a 22 year period average $11,000 per year

Opportinity cost on $350,000 value (figure conservatively @ 6% per year)
$21,000

Total cost to live in my house $37,000 per year
This does not include cost of utilities.....electric, water, etc.
That's $3083 per month. Nice house next to me rents for $2300/mo with pool service and yard service included. And I can rent a pretty nice condo in a nice condo project, with 2 car garage, for less than that.

Sure I know ownership is nice, house is mine, can sorta do what I want, etc.....but ownership is no big deal.

Agree....if my kids were still at home, I needed it for them, it's great. But you really need to look at all the numbers. Home ownership is best if you need a home. Also understand rentals no fun sometimes, so hassle of being a renter is a cost that swings it back a tad also. So over all I don't mind owning my house, but I'm aware it's an expensive choice I've made.
I'll be a little nit-picky: Your property taxes are deductible from your taxable income and if renting you would still have to pay for renter's insurance and or liability insurance. We know that insurance would probably be cheaper than your Homeowner's Policy but since we are crunching numbers let's not slip up on the details. :)

[4Rings6Stars]

I'll be a little nit-picky: Your property taxes are deductible from your taxable income and if renting you would still have to pay for renter's insurance and or liability insurance. We know that insurance would probably be cheaper than your Homeowner's Policy but since we are crunching numbers let's not slip up on the details. :)

I'll nitpick some more if that's what we're doing... He's in Florida so no income tax and owns mortgage free so no mortgage interest--he (potentially) doesn't itemize and thus RE tax being deductible doesn't come into play.


The average Joe (Ralph is/was a finance man by trade) isn't earning 6% consistently, so not sure I agree with the opportunity cost of the $350k being tied up in home equity being as high for others as it might have been for an investment savvy individual. And is that 21k opportunity cost after tax? I'm probably missing something, but you also haven't included that you could sell your property for $XX tax free, and that you likely paid much less for it. Or maybe that has been netted out of the opportunity cost calculation.

I do agree with the general idea that home ownership should not be justified because it's saving you money. Or at least that shouldn't be a major factor in the decision to buy. I will happily pay as much or more to own than it would cost me to rent ($1850 for a 1 bedroom apt in Boston...) because I WANT to own a home and don't want a landlord.

[Ralph]

[QUOTE=Ken Robb;1642941]I'll be a little nit-picky: Your property taxes are deductible from your taxable income and if renting you would still have to pay for renter's insurance and or liability insurance. We know that insurance would probably be cheaper than your Homeowner's Policy but since we are crunching numbers let's not slip up on the details. :)[/QUOT

You are correct. I agree. Just trying to point out the cost of living in our ordinary modest Florida home is not so cheap. If you keep a home nice, and we try to, the cost of that is huge.

I'm a fan of home ownership, but most folks just don't think about the costs of nice lawns and sprinkler systems, trimming trees regularly, keeping up and replacing HVAC systems, roof repair and replacement over time, fixing busted driveways, replumbing if necessary, replacing outside fences, repainting, replacing old windows, in our case....pool decks and pool surfaces, replacing pool equipment regularly, fixing solar systems with a thermostat, pool screen repair after storms, and on and on and on. Sure.....our home is worth more than twice what we paid 22 years ago, but I've spent more than that profit upgrading bathrooms and kitchens, patios, etc. If you buy, hope your budget has a lot of room for these costs.

[Louis]

I'm a fan of home ownership, but most folks just don't think about the costs of nice lawns and sprinkler systems, trimming trees regularly, keeping up and replacing HVAC systems, roof repair and replacement over time, fixing busted driveways, replumbing if necessary, replacing outside fences, repainting, replacing old windows, in our case....pool decks and pool surfaces, replacing pool equipment regularly, fixing solar systems with a thermostat, pool screen repair after storms, and on and on and on. Sure.....our home is worth more than twice what we paid 22 years ago, but I've spent more than that profit upgrading bathrooms and kitchens, patios, etc. If you buy, hope your budget has a lot of room for these costs.

Plus all the time spent dealing with this stuff.

I'd much rather be riding my bike than mowing the lawn or dealing with any number of things that have to be done to maintain a home. Time spent doing chores is time you'll never get back.

[fuzzalow]

Plus all the time spent dealing with this stuff.

I'd much rather be riding my bike than mowing the lawn or dealing with any number of things that have to be done to maintain a home. Time spent doing chores is time you'll never get back.

As a homeowner there isn't the option not to mow the lawn. Time is money, or in this case, money becomes time - hire a gardener. And it is not cheap. In the NYC suburbs the gardener season goes from April through November. $150 month May thru Oct. and $450 each for April & November cleanups, which is just another way of coming to $150/month all year. $1,800. Hedge trimming costs extra. It adds up.

In my case and in fairness, it is easy to walk away from wanting a lawn when you've experienced having a lawn, peace & quiet, bbq's, etc. All the seductions of suburban tranquility. But everything has its price.

[Louis]

I can't stand the sound of lawnmowers, and don't own one.
(one advantage of living out in the woods is no real lawn to speak of, but I do have a weed-whacker)

Brought to you by those well know philosophers, The Monkees:

"Pleasant Valley Sunday"

The local rock group down the street
Is trying hard to learn their song
Seranade the weekend squire, who just came out to mow his lawn

Another Pleasant Valley Sunday
Charcoal burning everywhere
Rows of houses that are all the same
And no one seems to care

See Mrs. Gray she's proud today because her roses are in bloom
Mr. Green he's so serene, He's got a t.v. in every room

Another Pleasant Valley Sunday
Here in status symbol land
Mothers complain about how hard life is
And the kids just don't understand

Creature comfort goals
They only numb my soul and make it hard for me to see
My thoughts all seem to stray, to places far away
I need a change of scenery

Ta Ta Ta...

Another Pleasant Valley Sunday
Charcoal burning everywhere
Another Pleasant Valley Sunday
Here in status symbol land

Another Pleasant Valley Sunday...

[93legendti]

Ok that's more like it, you're quoting gross returns.

I'm assuming after tax (NOI, etc.) is half the gross returns, more or less.

Still good numbers though.

No, net is much higher than half. Taxes have dropped here dramatically. :) tenants pay first $100 of repair calls. :) :).

[93legendti]

what are the property taxes like? I know some areas with low housing values can have staggering property taxes on a % basis.

~$1100-1300...

[fuzzalow]

Brought to you by those well know philosophers, The Monkees:

HaHa! Very true that scathing indictment of suburban life. The well know philosophers were probably Boyce & Hart who wrote a lot of those songs. Nesmith was pretty clever though so maybe it was him.

[93legendti]

Also, he's being compensated for the risk/volatility of buying properties with low property values. It much easier for a $30k property to drop to $15k than a $300k property to drop to $150k (as evidenced by him being able to pay $22k for a place listed for $29k...a 26% spread!). Good on you, Adam. Around here you'd be lucky to get a 5 or 6% net rental return...that's a lot of time, headache, and loss of liquidity for 5 or 6%.

Thanks.

5-6% net return? Wow, definitely not worth it.

Barring a depression, these prices are near the bottom. They've swung up a tad in 2 years, but not more than a few thousand. Lots of houses on the market. I made 6 offers last week, hoping to get one and got one. 10 years ago, these houses were worth $80-100,000.

And I won't touch Detroit houses anymore. The suburbs around Detroit are hot for rentals.

2/3's of my tenants have their own appliances. That tells me there is a class of perpetual renters. (And they drive nicer cars than I do.) When that changes, I will know the market is changing.

My broker has a dr that buys everything he sees at list price. He has over a 100 houses and he believes market is only going up. Another landlord I know doesn't believe in cash reserves for repairs. I think they are both foolish.

[Climb01742]

No, net is much higher than half. Taxes have dropped here dramatically. :) tenants pay first $100 of repair calls. :) :).

Adam,

I hope it's ok to ask this...I'm curious whether you're buying these homes with cash or financing...would the economics work both ways or would a mortgage add an expense that messes with the formula?

Watching the next 10 years in the Detroit area will be fascinating. Hoping for everyone's sake, including America's, that there's a renaissance.

[Ken Robb]

[QUOTE=Ken Robb;1642941]I'll be a little nit-picky: Your property taxes are deductible from your taxable income and if renting you would still have to pay for renter's insurance and or liability insurance. We know that insurance would probably be cheaper than your Homeowner's Policy but since we are crunching numbers let's not slip up on the details. :)[/QUOT

You are correct. I agree. Just trying to point out the cost of living in our ordinary modest Florida home is not so cheap. If you keep a home nice, and we try to, the cost of that is huge.

I'm a fan of home ownership, but most folks just don't think about the costs of nice lawns and sprinkler systems, trimming trees regularly, keeping up and replacing HVAC systems, roof repair and replacement over time, fixing busted driveways, replumbing if necessary, replacing outside fences, repainting, replacing old windows, in our case....pool decks and pool surfaces, replacing pool equipment regularly, fixing solar systems with a thermostat, pool screen repair after storms, and on and on and on. Sure.....our home is worth more than twice what we paid 22 years ago, but I've spent more than that profit upgrading bathrooms and kitchens, patios, etc. If you buy, hope your budget has a lot of room for these costs.

Ralph gets it very well. The "happiest" check I write each month is to my condo hoa. $399 per month covers all exterior maintenance, water,sewer, landscaping/gardening, trash, insurance on the building, etc. $4,000 a year is a bargain for me.

[54ny77]

Don't get me started. I just put down 80lbs of fertilizer on the grass tonight after work.

It never f'ing ends....

There are MANY things I miss about NYC life, and wondering if I can get my mower repaired within a week wasn't one of them!

As a homeowner there isn't the option not to mow the lawn. Time is money, or in this case, money becomes time - hire a gardener. And it is not cheap. In the NYC suburbs the gardener season goes from April through November. $150 month May thru Oct. and $450 each for April & November cleanups, which is just another way of coming to $150/month all year. $1,800. Hedge trimming costs extra. It adds up.

In my case and in fairness, it is easy to walk away from wanting a lawn when you've experienced having a lawn, peace & quiet, bbq's, etc. All the seductions of suburban tranquility. But everything has its price.

[chuckroast]

I can't stand the sound of lawnmowers, and don't own one.
(one advantage of living out in the woods is no real lawn to speak of, but I do have a weed-whacker)

Brought to you by those well know philosophers, The Monkees:

Credit where due, a Gerry Goffin/ Carol King song. I think Goffin just passed away earlier this year.

Signed, That Guy

[Louis]

Credit where due, a Gerry Goffin/ Carol King song. I think Goffin just passed away earlier this year.

Signed, That Guy

I think I remember reading about that just a while back, and maybe Carol King was on Fresh Air on NPR. A fascinating couple.

You watching the game? I have it on the radio. Shields having control problems.

I'm sort of glad the Cards aren't playing - less stress and it's easier to enjoy the actual game.

[Louis]

Shields not long for this game...

[brando]

Needs a new roof, paint, maybe carpet...$6k. 3 bedrooms, 2 baths.

$6k? :banana:

[likebikes]

updates?

[Louis]

updates?

http://upload.wikimedia.org/wikipedia/commons/6/6d/Biltmore_Estate_(trimmed).PNG

http://3.bp.blogspot.com/-D4i45mc-3XE/UTmBGT0gcnI/AAAAAAAAEUg/1xCjlttBQGM/s1600/Marble-House-Alva-Vanderbilt.png

[Nooch]

updates?

Well, original ask was $249,999. We offered $215k. They countered at $245k. We came back at $220k.

After that, my agent tells me that she spoke to their agent and asked what their number was. Their agent says $235k. a bit out of range on a conventional mortgage, but was likely possible on an FHA. We deliberated for a week and came back at $230k, as strong as we felt we could be.

The day we submitted ours, another offer came in, higher and stronger.

Perhaps it just wasn't meant to be.

Unfortunately, fortunately, it's not likely that much more inventory will come on until next year. We're still in our lease until May, so it really would have been difficult to work everything out buying this house at this time. So now we'll wait and watch and see if anything else comes up. There's a lot of garbage out there... houses with slanting floors, houses that don't necessarily seem structurally sound (like the basement I went in that had no less than 16 Jack Posts supporting the structure). But, we'll wait and see...

[MattTuck]

Who is buying all these houses??

I just don't get it.

http://www.zerohedge.com/sites/default/files/images/user3303/imageroot/2014/10-overflow/20141029_MBA1_0.jpg

[bjf]

I say make your offer and see what happens. I went lower than I thought was reasonable on my home purchase, but they took it right away. You never know.

[rileystylee]

Blimey, your houses in the states are pretty cheap in comparison to the UK...
Just buying my first house with my fiance - 300k (UK) ! has a nice white garage door for bike pics though....

check out this house a mile ride from our house...

http://www.rightmove.co.uk/property-for-sale/property-32305692.html

[Ken Robb]

Blimey, your houses in the states are pretty cheap in comparison to the UK...
Just buying my first house with my fiance - 300k (UK) ! has a nice white garage door for bike pics though....

check out this house a mile ride from our house...

http://www.rightmove.co.uk/property-for-sale/property-32305692.html

I would buy this immediately if not for the difficulty managing staff these days. :rolleyes:

[jimoots]

Blimey, your houses in the states are pretty cheap in comparison to the UK...
Just buying my first house with my fiance - 300k (UK) ! has a nice white garage door for bike pics though....

check out this house a mile ride from our house...

http://www.rightmove.co.uk/property-for-sale/property-32305692.html

Extreeeemely cheap compared to Australia, too.

I think the median house price here is about A$580k, which is like US$530-580k (depeding on exchange) and around GBP315.

Admittedly we get a poop-load more land for our $$$ than Pommies do, and our quality of life (traffic congestion, public health system, facilities, roads, etc) is pretty amazing.

[rileystylee]

Extreeeemely cheap compared to Australia, too.

I think the median house price here is about A$580k, which is like US$530-580k (depeding on exchange) and around GBP315.

Admittedly we get a poop-load more land for our $$$ than Pommies do, and our quality of life (traffic congestion, public health system, facilities, roads, etc) is pretty amazing.

We're only pommies when we're in Australia or NZ ;). I lived in NZ for a few years , the houses there had lots of land, were cheap (apart form Auckland) and were pretty nice but most had tin roofs and there was f'all else to do....

Never really explored Australia but I do like watching grand designs Australia ... some amazing homes

[djg]

http://upload.wikimedia.org/wikipedia/commons/6/6d/Biltmore_Estate_(trimmed).PNG

http://3.bp.blogspot.com/-D4i45mc-3XE/UTmBGT0gcnI/AAAAAAAAEUg/1xCjlttBQGM/s1600/Marble-House-Alva-Vanderbilt.png

OMG . . . are they NEVER going to update the wall coverings?

[Nooch]

.... I'm not really sure what's happened here.