how do you bid on a house? (1 Viewer)

[Dan Keefe]

My wife and I are disagreeing on this process...We are looking at houses...some have been on the market 4 months or more. One house we looked at has had zero offers put in on it. They are asking 129,000 (which is expensive where I come from)it is tax assessed at 64,500...I told my wife we should bid 75,000...she says that figure is insulting and we should bid higher...anyone else have an opinion? I think if there have been no bids, the people will at least counter offer. Has anyone else gone though this process? Last time we bought a house, it was on a land contract. This is a relatively new concept for me...any secrets for negotiating a house price are welcome


thanks,
dan

 

[Jed M]

I bought my house new so I can't comment on the bidding process itself but if somebody offered me that I would be insulted, but like you said, maybe they are desperate. I would think the lowest you could possibly offer in good taste would be 90,000. But I think 100,000 would be more appropriate. Besides, if it doesn't sell eventually they will lower their price. I think there is a reason they have not had an offer based on their tax assessment, but its usually better to let them realize the error. So in your situation you have two choices, either low ball them or just move on, as it seems others have.

In the long run, just bid what you are comfortable paying for the house and if they say no then no bid deal, because to you the price you offered is what it was worth.

 

[MikeAlletto]

Are you working with a realtor or by yourself? You got to remember tax assessment is based just on sq ft to determine the price (I think). So if they put 60k or so extras into the house that would explain the markup. An appraisal of the house would be what you would look at to determine what to offer for it.

 

[Chris Lockwood]

Something is wrong if the seller thinks it's worth 129, & you only think it's worth 75. At least one of you doesn't know what market prices are in the area.

If the house is listed by a realtor, I'd ask a realtor for some comps (recent sales of similar homes) on the house to get an idea where the market value is. Then if you want to make an offer, you just tell the realtor what your offer is, & they write it up & submit it to the seller. Usually when realtors are involved you won't communicate directly with the seller, which I think makes it easier. You just make the offer & wait a day or two for the answer.

I wouldn't worry about offending someone with an offer. If they think it's too low, they're free to say no or make a counteroffer, which is usually what happens anyway.

If the house is for sale by owner, & you think the price is way high, ask them how they came up with their price. Has the house been appraised recently, or have similar homes nearby been sold? In this case you'll probably end up doing your own comps.

You might try a site like homegain.com which helps you find comps.

Ignore the tax assessments for now. They're rarely close to market value.

 

[Tom Meyer]

Ignore the tax assessments for now. They're rarely close to market value.

Exactly. Assessed tax value is almost *never* anywhere near the market value. For example, my place is assessed at 116k yet could sell for 275-300k. You need to look at comparable sales in the area to help you make a decent bid.

 

[Eric_L]

A very rough rule of thumb is to find out what a contractor would charge per square foot to build a similar house. It varies by area and contractor, quality, etc. so check your own area.

Once you know that get the square footage of the house, do some math, and you get a very rough value of it or any house like it.

Next, look at extras and faults. Extras would be anything from a pool to rounded corners where the walls meet. Faults would be an old roof or outdated kitchen - but don't go overboard on the faults, square footage is most important.

Your wife is right. (didn't you know? That's part of the deal when you get married!)

When negotiating an offer 40% below asking is an insult, and not likely to be taken serious. It is a good chance this is their home and they are proud of it. If they are desperate they will lower the price.

Your agent is REQUIRED by law to propose any offer you make, even if it is against their best advice.

 

[DaveF]

I'm looking to buy my first home, and I'm reading "Home Buying for Dummies." Two points are made in the book about this type of situation. First, as Chris said, what really matters is the sale price of equivalent homes in the area. If the asking price reflects sale prices, then it's reasonable. Another possibility is that the sellers have priced their house too high because they don't actually want to sell it.

 

[KyleS]

Also you could have an appraisal done on the house. Of course you would have to pay for it but it is in your best interest to know what the house is actually worth so that you dont get screwed out of the house. Talk to the sellers if possible to get an idea of how motivated (desperate) they are to sell the house. If they just lost their job or maybe it was a deceased parents house? Point is the more you can get the house under what its worth means principle in YOUR pocket.

If they dont like your offer they will simply reject it. If its not that far off they may counter offer against you. For a house in that price range it shouldnt cost you more then $200 or so to get that appraisal.

KyleS

 

[Eric Samonte]

We looked at a house selling for $189K. Sitting at a 1.68 acre lot, a nice 2866 sq. ft.2 story house built around 1978 with 6 bdrs, 3 full baths, inground 18x36 pool, pool house with full bath as well, 3 car attached garage, new kitchen and even has a baseball diamond or whatever its called and a sand volleyball court separately. We didn't know if anyone has made an offer but we told our realtor we can only afford $150k. Counteroffer was at $165 but we still stuck to our price. They caved after a week.
From what I read, u can "haggle" down to 15%, but we just came up with our price from calculations based on $60/sq. ft if u build a new one. Of course some of the new stuff like the pool and kitchen, we threw in as extras.

 

[Dan Keefe]

Thanks for all the input...I might pick up that dummies book. I never knew that a real estate angent would offer comps in the area, never even occurred to me to ask.
What I know about the situation is...it is a divorce situation, owner cannot afford the payments, brand new 40-50K kitchen, roof needs to be replaced in the next three years...Couldn't get into the basement, but the foundation is stone and looks like it may need some work. There is a gas well on the property, which means whoever owns the house gets FREE gas. 10.5 acres....

how much is free gas really worth? I have no clue...Thanks for all the feedback, if anyone else has anything to add please do...

thanks
dan

 

[DavidAM]

I'm a real estate appraiser and can tell you the assessed value means absolutely nothing to what the market value is. Assessed value is like a neighborhood average based on the size of the house and like someone else mentioned, does not take into consideration the condition and improvements done to the house. I've seen houses that were both assessed for $65K and one sold for $80K and one was $150K, so don't base your offer on the assessed value. Try to find some similar sized homes in the area that have recently sold and see what their sell price was. You can find this on the internet on the property appraisers website. The problem with this is you won't know the condition of those homes compared to yours. Also remember that the kitchen and bathrooms are the most expensive rooms in the house, so if they have a remodeled kitchen and baths, but have average carpet throughout the rest of the house and an old roof, then that's just a couple of thousand to update rather than tens of thousands to update the kitchen and bathrooms. I'll also tell you if its listed with a realtor, its probably almost at market value; there's some padding for negotiation, but a realtor won't waste their time listing a house for $50K more than market usually. Its probably $5-10K over market but if they NEED to sell, then they might accept a lower offer to get rid of it. Whatever happens, good luck!

 

[Bill Lucas]

The other point that matters is that they currently have a mortgage on the property. If they can't sell it for enough to cover their costs and to pay off their current mortgage it does not matter how desparate they are. They have to be able to cover themselves to sell.

And yes, a $75K offer on a property in a neighborhood of $130K homes is an insult and won't be taken as a serious offer.

 

[Scott Merryfield]

In Michigan, the assessed value of a home for tax purposes is supposed to be 50% of the real value of the home. In reality, it is usually even less than that, due to legal limits on raising assessments.

If you bid $75,000 on a home that's asking price is $129,000, you will not be taken seriously. Also, you run the risk of pissing off the sellers, if you are really interested in the home.

We purchased our current home 8 years ago. It had been on the market for 5 months when we bid on the house (mainly because they tried to sell it over the holidays, and homes do not move well then). Another couple was also bidding, but they had placed a previous bid earlier that was $50,000 below asking price at that time -- they were from Texas, and the value of their home there had dropped quite a bit, so they thought that these circumstances applied throughout the country.

The other couple and we each bid the exact same amount on the house. We got the house because the other couple had really pissed off the sellers with their initial ridiculously low offer.

The moral of the story -- know the market where you are buying. Check the selling price of similar homes in the same neighborhood.

 

[Bryan X]

calculations based on $60/sq. ft if u build a new one

Where did you come up with that number? From what I've researched $100/sq ft. is about average (midwest).

 

[Jeff Ulmer]

Tax assessments can be useful, but they aren't based on current information, at best they reflect the market a year ago. I'd agree with finding out pricing for recent sales, but would disagree that lowballing is a bad idea. If the vendor is motivated enough, they may look at an offer way below their asking price, and you are always free to submit a second higher offer if the first one is flat out rejected.

Also, when it comes to negotiating price, remember that all agents are bound by law to work in favor of the seller, whether they are working on your behalf or not. Their commission is based on the seeling price, so don't tip your hand as to what you can afford or not, even to your own agent.

Many people list properties simply to fish, and have no bearing on what the property is actually worth in the current market. Sure, that one in a million person could come along and offer them a million for a one bedroom mobile, but realistically they aren't in the market. If the property has been sitting, especially in an active market, then it is overpriced. Homes that are priced properly move fast, and often don't even have a chance to get a sign up.

I would also be leery of a gas well on the property. Have you looked into what insurance on the house would cost? A new roof is a pretty substantial investment as well, not as much as a bathroom or kitchen, but depending on the size of the house can easily hit $7-10,000. I would also make sure that any offer is subject to a building inspection and financing. There is no telling what problems lurk in a structure, from foundation issues to rot, termites or mold. If you are taking out a mortgage, your bank has to approve of the property as well. I have had mortgages refused when the bank deemed the property a poor investment (thank you bank!).

$100/sq ft sound about right for building new.

 

[Dan Keefe]

Jeff, what is to be leery about a gas well? Everyone I talked to think its great...is there a downside to it?


dan

 

[Tony Whalen]

roof needs to be replaced in the next three years...Couldn't get into the basement, but the foundation is stone and looks like it may need some work.

I'm surprised that noone has commented on this.

OR the fact that the home has been listed for over four months now, and hasn't sold yet.

According to the realtors I've worked with, a listing that has been active for that long indicates a problem. USUALLY that the asking-price is too high. Again, comps against other properties in the area are a good idea. Has the price been lowered at all in those four months? Also not generally a good sign...

HOWEVER... there is a good chance that this place hasn't sold in four months because of those two problems.

A new roof is needed, and you couldn't SEE the basement? Why not?

Sorry... I wouldn't even be looking twice at that point.

If you are still interested, you should see if you can get a rough number on what fixing the roof is going to cost. That is not a small expense. Not to mention a foundation that needs work. Two BIG red flags in my eyes.

..just my two cents as a recent home buyer.

 

[Dan Keefe]

Tony,
The realtor showing the house, didn't know how to get to the basement... The house is nice except for those flaws(major I know) and yes there was recently a 10 thousand dollar drop in price and still no offers...I am going to look again for the sole purpose of getting to the basement and attic...

thanks
dan

 

[Jeff Ulmer]

Jeff, what is to be leery about a gas well?

Your insurance company may think it is a risk, which will be reflected in your premiums. I'm not sure I'd be comfortable with a gas well on my property.

The roof is a consideration in the price, as is the condition of the foundation. From the description, I'm not sure I'd be looking at it myself.

 

[Scott Merryfield]

For most "average" sized houses, a new roof will cost $2,000 - $3,000, assuming there is no underlying damage. If you are serious about the house, hire a good home inspector who will check for any additional damage underneath the shingles, as well as the foundation. You can make an offer contingent on a satisfactory inspection (or, of course, you can just look elsewhere).