Sometimes when selling a home you get ridiculously low offers, even if your home seems to be correctly priced. There are many reasons low ball offers can happen…
- Working in a sub-prime market
- House is not worth what you bought it for
- Comparable homes foreclosed or sold low
- Economic or Functional Obsolescence
- Located in a declining neighborhood or undesirable area
- Shot in the dark
- Limit of the buyers borrowing qualifications
- Buyer’s agent that doesn’t understand the local market
- Paying Cash
You might ask yourself, “What prompted this low ball offer? Why do they think my home is only worth X?” Some owners even take a low offer as a personal insult due to the time and care they have put into their home. This is certainly understandable because home ownership is very personal, however, becoming offended at low offers solves nothing.
Working in a sub-prime market
The sub-prime market refers to home buyers with bad credit scores or those lacking credit history. Sub-prime borrowers generally cannot qualify for mainstream “prime” financing terms. Many are approved for mortgages such as ARMs or adjustable rate mortgage or those with a very low credit score may not be approved at all for a mortgage. This flood of under qualified buyers could cause lower offers to roll in.
House is not worth what you bought it for
Many have heard of “underwater” homes. No, these are not homes literally in a flooded area, but rather they were purchased during a time when homes were selling for more than they were worth. This could have been due to high demand and low supply of houses. This exaggerated home value “bubble” grew and grew and eventually “popped” so to speak, causing many new homeowners to owe much more than their home is now worth.
Comparable homes foreclosed or sold low
When you go to a real estate professional to price a home, they look at homes similar to yours that have sold to come up with an approximate “value”. This is called a Comparable Market Analysis or CMA and is similar to what appraisers use to find the value of homes. If several homes around yours have either foreclosed or sold low, it could affect your homes perceived value.
Economic or Functional Obsolescence
Obsolescence literally means ‘the condition of no longer being used or useful’. In short your home is obsolete by the way it is constructed (functional obsolescence) or by the surrounding conditions (economic obsolescence). There are many different scenarios that could cause this. Perhaps your neighborhood has been re-zoned and now you have businesses all around your house. Perhaps the front door is 15 feet off the ground and you have to enter through the basement.
Located in a declining neighborhood or undesirable area
This situation is similar to the previous two situations; if the surrounding area around your home has become less desirable, your home will also become less desirable causing lower offers. Maybe your home has become surrounded by rowdy renters or perhaps your home is in a flood plain causing potential home buyers to need extra insurance.
Shot in the dark
Sometimes home buyers just take a shot at what they wish they could pay for a home, hoping that the owner will be so ready to sell that you just might accept the low offer.
Limit of the buyers borrowing qualifications
The potential home buyer may be offering the max amount that he or she has been approved for.
Buyer’s agent that doesn’t understand the local market
It happens quite often; an agent from one area will help a client re-locate or buy a second home in another area. Without firsthand knowledge of the local real estate market, agents sometimes assume that the new area is just like their own. Maybe that agent perceives a historic neighborhood as a rundown area where their client could score a deal. What seems like a reasonable offer to the “outsider” agent can be a slap in the face to a homeowner in the know.
Home buyers that pay all cash instead of financing will expect to reap some benefits. Because they have secured the funds and are not relying on financing, there could be fewer hoops to jump through during the buying process. Quicker closing times, less risk and no appraisal contingencies cause all cash buyers to lower their offering price.
Try to keep in mind that the low offer is not a slur on you or your home; it is simply the beginning point of negotiations. The trick is not to take a low ball offer personally. Simply reject the low offer or counter offer with something more reasonable and move on.
If you have more questions about pricing and offers on real estate, contact Your Hometown Real Estate Professionals at Carter & Roque Real Estate, 301-689-0100!