Buying a first home...what's a good offer

18389 Views 30 Replies 12 Participants Last post by Serviss, Feb 26, 2010

KanyEast

Discussion Starter · Jun 24, 2009

Hey y'all. I'm so excited about getting my first home and i was wondering what i good offer is??? Does any of you well learned estate gurus know what a reasonable offer is?? I'm looking at a condo going for ~$200,000. I was thinking of make an offer of 180K for it. Does this seem reasonable?Is there some calculator i use ex. offer< or=90% of listed price etc.
Thanks!!!

1 - 20 of 31 Posts

iherald

· #2 · Jun 24, 2009

It's impossible to know. What are condos in that building and area selling for? If the average condo is selling for 200k, I don't think 180 is a bad first offer with the idea you'll likely go for 190-194. But, are you in an area with multiple bids? How long has it been on the market? if it's been there for 2 days and you want to go in at 180 the sellers may just reject it thinking they'll get a better offer.

If it's been there for 2 months, then you might be good.

I would recommend getting a buyers agent (you don't pay them, the seller does) who can not only look for condos for you, but can do the market analysis you need to get the property you want at a good price.

KanyEast

Discussion Starter · #3 · Jun 24, 2009

Also is it okay to work with multiple realtors at once or is that an unethical thing to do??
Thanks!!

FeeOnly.ca

· #4 · Jun 24, 2009

Here is a process that works for many.

Find out actual & recent selling prices vs assessment values in your area.

Your realtor knows this important ratio is derived from:

Actual Selling Price/Assessed Value = the Ratio

This is a valuable and dynamic "current indicator" he can now follow the changes as they occur in his area.

That ratio if you know it, gives you a tool for buying and selling in your area that everyone can understand.

In a market when no one know what the real price is they use the assessment value as an anchor point and an unbiased point of reference.

Your transaction $ should be in line with that ratio.

Your offer slightly below, your actual transaction should be at or better than the ratio.

I provided extensive input on 3 RE transactions in the last 4 months. Dissimilar & in very different markets the transactions were conducted promptly to everyones satisfaction. The ratio had a lot to do with it.

People have an innate desire to behave "consistently" and a strong urge to find common ground in negotiation. I believe parties with divergent interests can effectively come together on price anytime and feel comfortable doing it.

This approach simplifies but does not oversimplify a very complex problem.
It is also very useful for focusing everyones attention and avoiding common errors. Very "doable" RE deals are notorious for going off-track unnecessarily.

By turning the problem into a process, it's not a problem anymore.

Graham

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Sampson

· #5 · Jun 24, 2009

FeeOnly's advice is good, but I believe there can be an inherent bias in the 'ratio'

In Calgary, City performed property assessments are actually BASED on sale prices of comparable units (comparable in terms of location, size, upgrades etc). So actual sale prices and assessment prices are linked.

A ratio we used when putting an offer in was actually the (sale price)/(listing price) of comparable units (location build quality etc). This gives you an idea of what the market has been doing over a set amount of time.

How we got this info was asked our realtor to pull all the sales in the community incl. MLS listing histories (i.e. have the listing prices changed up or down over the past few weeks/months) and the final sale price. Since we are in a duplex, and they are relatively rare in our community, I also asked our realtor to pull duplexes in neighboring communities for the same info.

This gave us an idea of how much variation between asking and final sale price - in our community at the time, sale prices were about 95-98% listing price. So our initial offer was about 90% and we settled at about 93-94%.

This is almost exactly the same as what FeeOnly describes, however you need to know if the assesment price is accurate. In our case it wasn't. The assessed value was nearly 20% higher than what the market value was.

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FeeOnly.ca

· #6 · Jun 24, 2009

Sampson said:
In our case it wasn't. The assessed value was nearly 20% higher than what the market value was.

That's is precisely what the common ratio of around 0.80 revealed. Actual selling prices where 0.8% of the assessed value (prior year).

Taking the attitude that people are slow to lower expectations we approached buying at a 20% discount to asking, and selling at a 20% discount to last years assesd value.

Retired at 31

· #7 · Jun 24, 2009

Just remember that you can always go up in price, but going down if you offer too much to begin with isn't an option!

It obviously depends on prevailing market conditions and how much of an emotional attachment you have to the house in question. Best results come from putting both of those in your favour.

If using the ratio of sell price to list price, watch out for greasy realtors who will cancel a listing and redo it at a lower price, rather than amending the price. This will impact the ratio unless you catch the old listing with the true original price.

At the end of the day, a house is worth what you're willing to pay for it.

iherald

· #8 · Jun 25, 2009

KanyEast said:
Also is it okay to work with multiple realtors at once or is that an unethical thing to do??
Thanks!!

I wouldn't be against using different brokers. BUT, if you ever want to make an offer on a house they'll make you sign an exclusive agreement with them (it's how they get paid) which will mean you'll be stuck with one. So why not just use one who you trust and you can deal with.

lb71

· #9 · Jun 25, 2009

iherald said:
I wouldn't be against using different brokers. BUT, if you ever want to make an offer on a house they'll make you sign an exclusive agreement with them (it's how they get paid) which will mean you'll be stuck with one. So why not just use one who you trust and you can deal with.

And you will be stuck with them for a fixed period of time (something like 120 days). So if that offers falls through and you purchase a property (same property or any other property) with another agent and the first agent finds out, you'll be forced to pay the first agent commission. (Unless the first agent lets you out of your agreement.)

Sampson

· #10 · Jun 25, 2009

Also make sure to negotiate with your realtor. They understand competition is rough and many are willing to 'return' some of their commissions to you upon closing.

KanyEast

Discussion Starter · #11 · Jun 25, 2009

Sampson said:
Also make sure to negotiate with your realtor. They understand competition is rough and many are willing to 'return' some of their commissions to you upon closing.

I don't fully comprehend that;i thought the realtor will get the commission from the seller not the buyer(i that is)...so can you shine more light on this commission "return" you talking about???

Sampson

· #12 · Jun 25, 2009

You are correct that the seller must pay these fees.

Basically, some realtors are willing to give you some of their pay to earn your business. Instead of the standard 2.5%, they'll earn a lower commission and give that to you the buyer - only some do this, and only if you negotiate for it.

takingprofits

· #13 · Jun 26, 2009

If a Realtor can't negotiate well enough to maintain his/her full commission, why would you trust him/her to negotiate a lower price for your home purchase?

Your Realtor should be able to show you comparable sales that will give you an idea of what to offer. If your Realtor will not do that you need a new Realtor.

takingprofits

· #14 · Jun 26, 2009

Find out actual & recent selling prices vs assessment values in your area.

Your realtor knows this important ratio is derived from:

Actual Selling Price/Assessed Value = the Ratio

Assessed value does not tell you much about market value. Assessed value tends to be an average based on utility and does not take into account the biggest determining factor - property condition. There is no ratio that has any accuracy at all in estimating property values. The only way to determine property value with any sort of accuracy at all is by doing a comparative market analysis which compares the property to recent sales, current listings, and recent expired listings in the area. This is what appraisers do and that is what your Realtor should be willing to do for you if you are a loyal customer or client.

A Realtor citing a "Ratio" would be one looking to avoid doing any real work or one that suspects you are not a serious buyer (if you are working with multiple Realtors for example).

iherald

· #15 · Jun 26, 2009

takingprofits said:
Assessed value does not tell you much about market value. Assessed value tends to be an average based on utility and does not take into account the biggest determining factor - property condition. There is no ratio that has any accuracy at all in estimating property values. The only way to determine property value with any sort of accuracy at all is by doing a comparative market analysis which compares the property to recent sales, current listings, and recent expired listings in the area. This is what appraisers do and that is what your Realtor should be willing to do for you if you are a loyal customer or client.

A Realtor citing a "Ratio" would be one looking to avoid doing any real work or one that suspects you are not a serious buyer (if you are working with multiple Realtors for example).

I agree. A lot of assessed value is "three bedrooms, two bathrooms on this street therefore X" There is value to a renovated place, versus a non-renovated place. When I purchased my place I looked at sales in the area and was able to see that similar homes were going between 640 and 720. Based on those numbers and how many bids there were, I knew what I could afford and made the winning bid.

Sampson

· #16 · Jun 26, 2009

takingprofits said:
Assessed value does not tell you much about market value. ..... The only way to determine property value with any sort of accuracy at all is by doing a comparative market analysis which compares the property to recent sales, current listings, and recent expired listings in the area...

With the exception of current listings, many Canadian cities actually use market analysis methods for valuation. One major problem is that they are only done once per year and use semi-historical data.

I do agree that up-to-date (read: recent) listings and sales are key in deciding how much to offer.

I have to disagree with you about a realtor who is willing to reduce their commissions is not a good negotiator. That would be like saying a mortgage banker who gives you an extra 0.2% (below the standard rebate) is a bad banker. Some of the realtors I know will make a judgement based on how much time and effort it takes to close a deal - then decide if they are willing to part with their hard (or easy) earned commission.

takingprofits

· #17 · Jun 26, 2009

Sampson said:
Some of the realtors I know will make a judgement based on how much time and effort it takes to close a deal - then decide if they are willing to part with their hard (or easy) earned commission.

That may be true for a selling agent trying to close a bona-fide offer on an over priced listing or one close to expiring but there are few Realtors other than those new to the business who actually need more people to drive around in their cars. (Do you want a starving Realtor negotiating on your behalf?)

Buying prospects who try to negotiate commission cuts up front would be cut loose as low quality prospects by almost all experienced agents. That type of prospect can be had by the boatload and few Realtors will waste their time chasing such a prospect.

Sampson

· #18 · Jun 26, 2009

takingprofits said:
there are few Realtors other than those new to the business who actually need more people to drive around in their cars. ....That type of prospect can be had by the boatload and few Realtors will waste their time chasing such a prospect.

I think this is one of those agree to disagree arguments.

If the majority of realtors were able to control when how how big of a deal they close, then in theory, this should be one of the best paying occupations - which, while there are many wealthy realtors, they aren't all loaded.

Many of the realtors I've spoken with and dealt with are often doing in on the side, are new and aren't as overworked as to be able to choose their clients. The competition is fierce especially now so many people are listing homes themselves.

takingprofits

· #19 · Jun 27, 2009

Sampson said:
Many of the realtors I've spoken with and dealt with are often doing in on the side, are new and aren't as overworked as to be able to choose their clients.

I guess experiences differ depending on location. In Winnipeg part timers are not allowed so Realtors are generally serious about their profession and are not just looking for a quick buck to supplement other income.

Why on earth anyone would deal with an inexperienced part timer they can push around to save a few bucks on commission when so much money is involved in the deal itself is beyond me. Especially in multiple offer situations or tough negotiations when real expertise is required. People can lose tens of thousands trying to save a few thousand and many don't even know when it happens...

Sampson

· #20 · Jun 27, 2009

takingprofits said:
I guess experiences differ depending on location...Why on earth anyone would deal with an inexperienced part timer they can push around to save a few bucks on commission when so much money is involved in the deal itself is beyond me.

You're first sentence probably sums it up.

Not all part timers are inexperienced, earning on the side. Realtors transitioning into retirement might have plenty of experience. Realtors at lower profile companies or working at independent firms may also be more flexible.

I just don't think that someone willing to reduce their own commissions are 'lesser' realtors. Negotiations on price happen in any transaction big or small - its up to you to convince the realtor why they should lower their commission. Are you suggesting that someone charging less money for the same good/service is of lesser caliber?

Maybe it hasn't happened in Winnipeg, but certainly there have been huge boom-bust cycles in Calgary and realtors who were once turning away clients wanting to buy $1M homes are now struggling.

I've personally only dealt with a few professionally, and they certainly haven't been looking after my best interests (trying to get me the house at the lowest possible price).

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