Expert: liznarr - 10/5/2010

Question
Hi there,I have a question about placing a bid.  We are interested in a house in Centreville, VA.  It was purchased new by the seller for $895,000 in 2002. They added a pool and basketball court. The house was listed in 2008 for $1.5 mil, dropped to $1.4 w/no sale.It again was listed 4/7/2010 ( almost 200 days ago) for $1.293mil and was dropped to $1.149 mil on 8/22/2010.  The assessment was $1.036,460 this year.  There are no comps in the are w/in the last 9 months.... The owner is a realtor,but not the listing agent.  What type of offer is reasonable?  Is $950 too low??

Answer
Hi,

Sorry for the delay in responding.  I just received a notice from the All Experts site that your question was pending on the site; and I was not aware of this.

I don’t think $950,000 is too low at all.  In fact, it might even be a big high in my opinion.  

The real estate market is very BAD now, and everyone in the real estate business and mortgage profession that I talk with seems to think it is going to continue for another 3-5 years.

As a comparison for you, I have a closing soon on a listing of mine that would be worth $1,000,000 in a good market (pristine condition and less than 5 years old).  My Seller is also a licensed broker in another state and took my advice to list at $749,000.  It stayed on the market for only about 2 months, and will soon close for $675,000.  

State-to-state value comparisons can also be meaningless, but I offer the above as an example only to show you that Sellers can NOT list high and expect to get their price.  They must be realistic in this market.  Homes are simply selling in this market well below value in many cases, but not necessarily in all cases.  There are always exceptions to everything.  

I don’t know anything about the market in Centreville, VA, other than what you have written; but it is obvious this house was listed too high, even back in 2008 when the market was a LOT better than it is now.  Even with periodic drops in price, this Seller still has not found a buyer.  

See if you can pull any information out of the listing agent as to whether or not there have been any prior offers on the property.  If so, see if he/she will reveal to you “why” any offer(s) were not worked out.

If there are no comps within the area within the last 9 months, you can have your agent pull comps in NEARBY areas, which is acceptable under appraisal standards when there are no comps in the area of the subject.  See if there are any comparable homes in nearby areas within, say, in a range of $875,000 to $1,200,000 and go from there.  If there are not many homes at all in Centreville in the $ Million Dollar range, this makes determining value even harder.

The two parties who determine the price of a house are seller and buyer.  An appraisal is worthless if a seller does not have a qualified buyer who is ready, willing and able to purchase.  Tax assessments do not determine value (as I am sure you are aware), but can be a guideline when other determining factors do not “add up.”

Whatever price you are willing to pay for this house, offer at least $40,000 to $50,000 less.  If you think the house is worth $950,000, then offer $900,000, allowing yourself room for negotiation.

It depends on the Seller’s motivation as to what type of response you will get:  Does Seller NEED to move?  Is Seller in a financial bind?  Is there a divorce situation?  If this Seller/Realtor is motivated, you should get a quick response.  If you offer, say, $900,000 and he counters high, simply counter back in smaller increments until you reach the $950,000 figure (or whatever your buying price actually is).

Be prepared to play hardball.  Put your emotions aside and think only in terms of, “This is a business decision, and it has to be right for me.”

By all means, DO have a letter from your lender to accompany your offer stating that you are qualified to close on this property.  I would recommend anywhere from $2,500.00 to $5,000.00 earnest money to accompany your offer to indicate that you are serious.  If Seller wants more, do NOT agree to put more than that up until all YOUR inspections have been completed and any deficiencies found in any of your inspection reports have been satisfactorily resolved between you and the Seller.

I hope the above is helpful.  Again, I apologize for the delay.

Good luck to you, and feel free to write again if you have additional questions.

Regards,
Elizabeth