Wasting time with low-ball offers.

The Detroit Free Press ran a story this morning about a young couple that had finally found their dream home after 2 years, afte seeing over 40 houses and after five failed offers - http://tiny.cc/kPMd6. That article points out some of the issues that Realtors have to deal with and maybe some issues holding the market back right now - there's just too much choice and buyers have become oriented towards trying to see them all before making a decision and then making low-ball bids on everything.

Now, it's hard to fault the buyers for wanting to get a good deal, everybody wants that. But, the fact that they made five failed bids for houses that they liked enough to try to buy tells me that they either weren't getting good real estate advice or that they weren't paying attention to the advice that they were getting.

Banks that have repossessed houses seem to go through a couple of phases in their efforts to market then properties. Initially, they test the market at, or near, the price that they paid for the house at the Sheriff's sale, which usually represents what they had into the place. That can last a month or a year, depending upon the bank and the property. If the house is still sitting there after 5-6 months, many banks will enter phase 2 - the dump-it phase.

It’s the dump-it phase pricing that everyone waits for and most miss out on. During this phase the bank will aggressively price the house and may even engage in what looks like a Dutch auction – dumping the price every couple of weeks until it sells. When the price reaches “dump-it” level is when the pros swoop in and win and most amateurs lose. How? The pros know that they are getting a great deal already, so they don’t mess around with low-ball bids. In fact they most often bid above the asking price.

The amateurs see the dump-it price and think, “Well, they must be desperate to get rid of this property so I’ll bid 20% less.” In many cases the bank won’t even respond to these low-ball offers. They just wait things out, knowing that the pros will be there with a reasonable bid. Later, after they’ve lost the house that they really wanted, the amateur can’t understand why. “Why didn’t they at least counter my offer?” They often ask. Many mistakenly believe that the banks are under some obligation to respond to their low-ball bids. Not true. The banks make their own rules with foreclosed houses or short-sales and they have no obligation under any laws to respond to anyone.

So, I’ll take my stab at advising those who might be looking primarily at foreclosed properties. Your Realtor should be able to look up the history of the listing (if he/she can’t get a new Realtor). If they show you that the house has been on the market for a while (higher priced foreclosures may sit there for a year or more) and is now at a significantly reduced price (the dump-it price), DON’T LOW-BALL it if you want the house. You’ll just tick off the bank people and they will ignore you, or worse.

I’ve actually had clients who, against my advice, continually lobbed in low-ball offers in on a property, until the bank came back and just told them to stop and informed them that the bank would no longer consider offers from them. They got upset, but that is well within the rights of the bank. I’ve had many more clients be befuddled after they lost houses to others, when their low-ball bids were rejected. The winning bids were almost always for some amount greater than the asking price. “Why would anyone pay more than the asking price?” I often get asked by these people. My answer is simple, “Because they wanted the house.”

This isn't a game and Realtors who let their clients act as if it is a game deserve to waste the time that they put in with those people. The Realtor that entertains and encourages this type of activity probably doesn't realize that they are damaging their own reputations, too, with other Realtors and with the banks. Of course there are a few Realtor/Investors out there, too, trying to low-ball everything in sight and steal houses; but, then we’ll always have that sleazy fringe group around real estate.