Bargaining is an art, particularly when the buyer wants to make a rock-bottom bid without insulting the seller.
In this slowing market with dropping prices, sometimes buyers get the idea that all properties on the market will go out at give-away prices, and then proceed to make offers to purchase that are 20% or lower than list price.
This is generally not a winning strategy. In fact, it often shows an immaturity in the marketplace if not an inability to deal with market realities. Most often the buyer is just shopping in a price range above what they can afford. Agents who write these types of offers show a lack of respect for the sellers, the other agents, and first and foremost, their own buyer. In order for the average seller to consider working with the offer, if only to make a counteroffer on price and/or terms, the offer has to be in some way palatable and shows you've done your homework on price comparable sales and/or seller motivation.
Sometimes an unreasonably lowball offer can make a seller so angry they won't make a counter offer or deal with a buyer. Adios is the best word that can describe the reaction, although other words are often said.
This is not to say that there aren't deals to be made. There are. Seller motivation plays a key role in price negotiation. Distress sales or time-specific needs top the list of homes that would be potentially great to make a low-ball offer on, but not all homes on the market are in these categories. Bank-owned properties are generally priced at the very lowest tier of comparable properties, and in a slowing and declining market the institutions don't want to keep them for very long. Unsold inventory costs the servicing companies money. But neither do they give these properties away. After all, they are in business also. Some people tout short sales as buyer opportunities, and sometimes they are. However, in the vast majority of cases, either the list price as a short sale is just so unreasonably low for the bank to consider and is in effect a 'teaser price' just to get people in the door, or the seller is not in a legitimate distress situation financially, in which case the lender will proceed with foreclosure and deny the short sale. This last situation is particularly prevalent in our area, where people think they can continue to game the system to their advantage.
But getting back to making offers on properties...
Here are their suggestions for coming up with a number that is competitive and compelling.
-- An offer that is more than 10 percent off the list price isn’t customary and is likely to be rejected.
-- Understand that there are other attractive homes on the market and don’t be shattered if the sellers reject their lowball offer. Move on.
-- Recognize the home’s strengths as well as its weaknesses.
-- Make a list of reasons to share with the seller for offering less than list price.
-- Instead of asking for the price to be lowered, negotiate other tangibles such as repairs, closing dates, and closing costs.
Treat others as you would want to be treated. Buyers should be respectful whenever he or she is around the sellers. Sellers, rather than getting upset about the offers that are made, should be concerned about all of the potential buyers who see their home, and then choose not to make an offer. Realistic pricing up front is the best way to negotiate a successful sale.
Some of the material for this piece was developed from an article by
Source: Star-Tribune, Lynn Underwood (11/17/07)
Friday, November 30, 2007
California Tenants Displaced by Foreclosures
by Dean Preston‚ Nov. 27‚ 2007
“A foreclosure doesn’t differentiate between a homeowner and a renter residing in a defaulting property,” said U.S. Senator Chris Dodd in a recent statement supporting protections for residents of foreclosed property. This is an important recognition of the fact that both defaulting homeowners and tenants are impacted by foreclosure. It is time for California’s policymakers and media to acknowledge and address the impact of the mortgage crisis on California’s tenants.
California foreclosure rates are particularly high. Cities such as Sacramento, Bakersfield, Riverside and Stockton have been among the hardest hit in the nation. Stockton is one of the top-three cities in the nation for foreclosures, with rates increasing by over 250% from 2006 to 2007. In a press release just last week, Governor Schwarzenegger noted that California has been “impacted more than any other state by the national home foreclosure crisis.”
Homeowners are not the only people displaced by foreclosures. Banks typically evict tenants upon foreclosure because they prefer to sell the property vacant. The resulting displacement of tenants is a largely untold story of the mortgage crisis.
There is currently no definitive data as to exactly how many tenants are being displaced due to foreclosures. According to a recent survey by the Mortgage Bankers Association, one in seven foreclosures nationwide was property that was not owner-occupied.
In California, the rate of foreclosure on non-owner-occupied properties is even higher than the national rate. An estimated 22% of foreclosures in California this year involved properties that are not owner-occupied. (Plus, some of the “owner-occupied” properties also include tenants, either because the property contains more than one unit or because an owner-occupant sublets rooms to tenants.)
The media have covered the mortgage meltdown by its impact on homeowners and on the economy. Missing from the story are the tenants who are forced to leave their homes because of foreclosures.
The San Francisco Chronicle, for example, has covered the impact of foreclosures on defaulting owners in recent articles about Bay Area hotspots like Vallejo, but the paper has largely ignored the impact on tenants.
The one Chronicle piece referencing tenants in this context was a profile of a local real estate agent whose business is booming because she specializes in acquiring foreclosed properties. (“Realtor specializes in selling foreclosed homes,” September 9, 2007). The article treats tenants as if they were nothing more than an inconvenience to the agent’s lucrative business: “If it's occupied - about a third of the properties are, often by renters - she offers ‘cash for keys’ (about $500) to get the tenants to move out. Only rarely does she need to bring in the sheriff for an eviction.”
On November 18, the New York Times changed the media landscape on this issue with a front-page article entitled “As Owners Feel Mortgage Pain, So Do Renters.” John Leland’s article poignantly begins as follows: “In the foreclosure crisis of 2007, thousands of American families are losing their homes without ever missing a payment. They are renters in houses whose owners default on their mortgages — a large but little noticed class of casualties.”
Fortunately, California tenants in certain rent control jurisdictions are entitled to continue to occupy their homes despite foreclosure. Under a 1985 Court of Appeals decision (Gross v. Superior Court), the bank steps into the shoes of the former owner, and must comply with local eviction laws that limit the grounds for eviction. But this only helps tenants who live in cities where local “just cause” ordinances do not allow eviction due to foreclosure.
In most of California, banks are free to evict tenants in foreclosure cases with just 30 days notice to the tenants. Statewide legislation is necessary to provide greater protections to tenants living in these properties.
There have been recent developments at the federal level that could offer some relief. On October 22, Reps. Brad Miller (D-NC), Mel Watt (D-NC) and Barney Frank (D-MA) introduced HR 3915, the Mortgage Reform and Anti-Predatory Lending Act of 2007. Among other provisions, the bill contains limited foreclosure protections for renters. Under the bill, a successor owner would have to honor pre-existing leases, and tenants without leases would have at least 90 days before being required to vacate.
The bill passed the House on November 15th by a vote of 291-127. It is now before the U.S. Senate.
With federal legislation pending and a recent front-page New York Times article highlighting this issue, the plight of tenants in foreclosed properties may finally receive more of the media attention it deserves. Tenant advocates must actively push for coverage of this important situation. Otherwise, tenants will remain “a large but little noticed class of casualties” of the mortgage crisis.
Dean Preston is an attorney currently launching Tenants Together, a statewide tenant organization. He can be reached at dean@tenantstogether.org
“A foreclosure doesn’t differentiate between a homeowner and a renter residing in a defaulting property,” said U.S. Senator Chris Dodd in a recent statement supporting protections for residents of foreclosed property. This is an important recognition of the fact that both defaulting homeowners and tenants are impacted by foreclosure. It is time for California’s policymakers and media to acknowledge and address the impact of the mortgage crisis on California’s tenants.
California foreclosure rates are particularly high. Cities such as Sacramento, Bakersfield, Riverside and Stockton have been among the hardest hit in the nation. Stockton is one of the top-three cities in the nation for foreclosures, with rates increasing by over 250% from 2006 to 2007. In a press release just last week, Governor Schwarzenegger noted that California has been “impacted more than any other state by the national home foreclosure crisis.”
Homeowners are not the only people displaced by foreclosures. Banks typically evict tenants upon foreclosure because they prefer to sell the property vacant. The resulting displacement of tenants is a largely untold story of the mortgage crisis.
There is currently no definitive data as to exactly how many tenants are being displaced due to foreclosures. According to a recent survey by the Mortgage Bankers Association, one in seven foreclosures nationwide was property that was not owner-occupied.
In California, the rate of foreclosure on non-owner-occupied properties is even higher than the national rate. An estimated 22% of foreclosures in California this year involved properties that are not owner-occupied. (Plus, some of the “owner-occupied” properties also include tenants, either because the property contains more than one unit or because an owner-occupant sublets rooms to tenants.)
The media have covered the mortgage meltdown by its impact on homeowners and on the economy. Missing from the story are the tenants who are forced to leave their homes because of foreclosures.
The San Francisco Chronicle, for example, has covered the impact of foreclosures on defaulting owners in recent articles about Bay Area hotspots like Vallejo, but the paper has largely ignored the impact on tenants.
The one Chronicle piece referencing tenants in this context was a profile of a local real estate agent whose business is booming because she specializes in acquiring foreclosed properties. (“Realtor specializes in selling foreclosed homes,” September 9, 2007). The article treats tenants as if they were nothing more than an inconvenience to the agent’s lucrative business: “If it's occupied - about a third of the properties are, often by renters - she offers ‘cash for keys’ (about $500) to get the tenants to move out. Only rarely does she need to bring in the sheriff for an eviction.”
On November 18, the New York Times changed the media landscape on this issue with a front-page article entitled “As Owners Feel Mortgage Pain, So Do Renters.” John Leland’s article poignantly begins as follows: “In the foreclosure crisis of 2007, thousands of American families are losing their homes without ever missing a payment. They are renters in houses whose owners default on their mortgages — a large but little noticed class of casualties.”
Fortunately, California tenants in certain rent control jurisdictions are entitled to continue to occupy their homes despite foreclosure. Under a 1985 Court of Appeals decision (Gross v. Superior Court), the bank steps into the shoes of the former owner, and must comply with local eviction laws that limit the grounds for eviction. But this only helps tenants who live in cities where local “just cause” ordinances do not allow eviction due to foreclosure.
In most of California, banks are free to evict tenants in foreclosure cases with just 30 days notice to the tenants. Statewide legislation is necessary to provide greater protections to tenants living in these properties.
There have been recent developments at the federal level that could offer some relief. On October 22, Reps. Brad Miller (D-NC), Mel Watt (D-NC) and Barney Frank (D-MA) introduced HR 3915, the Mortgage Reform and Anti-Predatory Lending Act of 2007. Among other provisions, the bill contains limited foreclosure protections for renters. Under the bill, a successor owner would have to honor pre-existing leases, and tenants without leases would have at least 90 days before being required to vacate.
The bill passed the House on November 15th by a vote of 291-127. It is now before the U.S. Senate.
With federal legislation pending and a recent front-page New York Times article highlighting this issue, the plight of tenants in foreclosed properties may finally receive more of the media attention it deserves. Tenant advocates must actively push for coverage of this important situation. Otherwise, tenants will remain “a large but little noticed class of casualties” of the mortgage crisis.
Dean Preston is an attorney currently launching Tenants Together, a statewide tenant organization. He can be reached at dean@tenantstogether.org
How to Take the Sting Out of Falling Property Values
If you own a residential property that is declining in value, here are some ways to make the losses less depressing.
Trim property taxes. If a house has lost value, have it reappraised by the municipal assessor. Consider petitioning — or even suing — to get back taxes overpaid in the last few months.
Deduct a home office. Some people avoid the home office deduction because it requires deducting depreciation, but if the property has lost value, this isn’t an issue.
Sale-leaseback with a relative. If you're convinced your property is due for a big price correction and you have equity in the home, then sell now. For example, if you have a $1 million home that has been appraised at $1.8 million, you can sell it and take home $500,000 of the $800,000 gain tax free — due to an exemption on profits from the sale of personal residences. Sell the property to a trusted friend or wealthy relative and then become a tenant and pay the buyer rent at market rates — a much more attractive amount than Treasury bonds are paying now. When the housing market corrects, buy the property back.
Invest in housing futures. The Chicago Mercantile Exchange sells investment instruments that trade based on house price indexes for each of the 10 largest U.S. cities. You can sell futures, buy puts, or sell calls on this market to hedge losses in the value of your home.
Source: Forbes, Stephanie Fitch (12/10/07)
Trim property taxes. If a house has lost value, have it reappraised by the municipal assessor. Consider petitioning — or even suing — to get back taxes overpaid in the last few months.
Deduct a home office. Some people avoid the home office deduction because it requires deducting depreciation, but if the property has lost value, this isn’t an issue.
Sale-leaseback with a relative. If you're convinced your property is due for a big price correction and you have equity in the home, then sell now. For example, if you have a $1 million home that has been appraised at $1.8 million, you can sell it and take home $500,000 of the $800,000 gain tax free — due to an exemption on profits from the sale of personal residences. Sell the property to a trusted friend or wealthy relative and then become a tenant and pay the buyer rent at market rates — a much more attractive amount than Treasury bonds are paying now. When the housing market corrects, buy the property back.
Invest in housing futures. The Chicago Mercantile Exchange sells investment instruments that trade based on house price indexes for each of the 10 largest U.S. cities. You can sell futures, buy puts, or sell calls on this market to hedge losses in the value of your home.
Source: Forbes, Stephanie Fitch (12/10/07)
Monday, November 26, 2007
Holiday Shoppers on the Market
I've seen a resurgence of buyer activity in the last few weeks, with serious buyers coming out, calling on properties, making offers, making deals, and closing escrows.
For individuals and families, particular circumstances, needs, and financial fortunes are always the drivers of decisions, but after a few months of sluggish activity this resurgence is welcome.
Could it be that deep price cuts have dropped prices on enough properties to entice some of the buyers sitting on the sidelines? Could be. Maybe its a little higher level of knowledge about the price/interest rate inverse relationship... that is, in general when prices drop interest rates tend to rise. The result? A wash in affordability. Maybe its the last sweep of the sponge on less than prime mortgages, where the late comers are picking up the crumbs of liberal loan offerings, thinking that tightened lending standards in the near future will eliminate them from the buyer pool. Maybe its a growing awareness that the system will not allow the housing market to crash, and that between Fed infusions of cash, the potential for raising the limits on conforming loans, or any number of politically motivated proposals leading up to the 2008 election may bail out any buyers in trouble (this last belief is largely mistaken IMO), everything will turn out fine in the end.
Then again, maybe it's just my business, going up contrary to some larger market trends. If so, it's fine with me! Keep it coming!!
Whatever the individual motivation for taking action, give the SCV Home Team a call at 661-287-9164 and let's work out the best path for you!
For individuals and families, particular circumstances, needs, and financial fortunes are always the drivers of decisions, but after a few months of sluggish activity this resurgence is welcome.
Could it be that deep price cuts have dropped prices on enough properties to entice some of the buyers sitting on the sidelines? Could be. Maybe its a little higher level of knowledge about the price/interest rate inverse relationship... that is, in general when prices drop interest rates tend to rise. The result? A wash in affordability. Maybe its the last sweep of the sponge on less than prime mortgages, where the late comers are picking up the crumbs of liberal loan offerings, thinking that tightened lending standards in the near future will eliminate them from the buyer pool. Maybe its a growing awareness that the system will not allow the housing market to crash, and that between Fed infusions of cash, the potential for raising the limits on conforming loans, or any number of politically motivated proposals leading up to the 2008 election may bail out any buyers in trouble (this last belief is largely mistaken IMO), everything will turn out fine in the end.
Then again, maybe it's just my business, going up contrary to some larger market trends. If so, it's fine with me! Keep it coming!!
Whatever the individual motivation for taking action, give the SCV Home Team a call at 661-287-9164 and let's work out the best path for you!
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