Lowball Offers and Home Buyers.

Given the current buyer’s market in Yakima, a hot topic right now is “Making Lowball Offers”. Most stories you hear from friends these days that pertain to buying a house are preceded with one of two introductions, “Everything was going great…until” or “We got an amazing deal!” Don’t get me wrong, not all real estate stories are told to induce sorrow or jealousy from the listener… just the juicy ones. If the story is about their amazing deal, it almost always starts with why they decided to make an offer significantly lower than the asking price. Realtors commonly refer to this type of an offer as a “lowball” offer. In our current market, lowball offers are becoming more and more common. Does this mean all buyers should be making lowball offers right now? Not necessarily.

If you’re thinking about making an offer on a home, you don’t want to offer so little that the seller is insulted. On the other hand, you don’t want to pay more than what the seller is willing to accept. This is a classic conundrum every buyer faces when making an offer. So how do we know when to lowball and when to offer high? First of all, be confident that you know the true market value of the home. This isn’t the asking price, the county assessor’s price, or the zestimate on Zillow. This is simply the highest amount any buyer is willing to pay on the open market. Secondly, don’t let your emotions interfere with the transaction. Always be able to walk away from the transaction if the seller wants to sell for more than the amount the home is worth. The third piece of preparation is to determine the reason the seller is selling and how strong their motivation is. Is the seller still living in the home and hasn’t completely committed to moving yet because they’re waiting to see if they find a buyer? Maybe the home is owned as an estate with no mortgage and a beneficiary is trying to get it sold as soon as possible for whatever they can get. Always take the seller’s situation into consideration.

Making an offer on a bank foreclosure home is the most common scenario where a buyer feels there’s nothing to lose if they make a lowball offer. In this situation, the fact that the seller won’t be insulted by a low offer is mostly true. However, most of these homes are already priced below value. If you start with a low offer, it may be countered at full asking price, or simply rejected and ignored. In the meantime another buyer may step in and make an offer. Now demand exists and your chances of getting an amazing deal are slim to none. Some of these homes sell for more than the asking price, even in our local market.

In conclusion, there is no set formula or percentage that is considered to be a lowball offer. Sometimes a seller is ecstatic to get an offer 20% or more below their asking price, where in other circumstances a seller is insulted by an offer 5% below their asking price. As long as you’re prepared with the right tools and the proper knowledge, you’ll be able to find a great deal on a home that meets your needs.

In the month of November, the Yakima area real estate market recorded 108 total homes sold with an average sales price of $160,504.  How does this stack up against previous months?  Click below to view the monthly statistics chart.

Click here to view monthly statistics chart.

Your Local Real Estate Professional,
Cory Bemis

September home sales in the Yakima Area Real Estate Market decreased when compared to the previous month. While the total number of homes sold remained strong (4th most of any month this year), the average sales price dipped the lowest amount we’ve seen for any month dating back to January of 2009.

In the month of September, there were 104 total homes sold with an average sales price of $146,970.

Should we be concerned with the extremely low average sales price? Not yet. Two months ago, the average home sales price in July was $148,493 with 90 total sales. The number of homes currently for sale in the Yakima market continues to decrease. As of today, there are 1,202 homes for sale on the MLS of Yakima. At this time in 2010 and 2009, there were respectively 1,291 and 1,373 homes for sale. As the number homes for sale continues to decrease, sales prices should remain constant unless demand also begins to decrease.

Of the 104 homes sold this September, 25 of those homes were foreclosure sales. At 24% this month, the amount of foreclosure sales continues to grow when compared to total sales. Year to date, just over 20% of all homes sold have been foreclosures. Last year this number was closer to 15%. Prior to that, it was unusual for more than 5% of all sales to be foreclosure sales. Expect this percentage to remain high for the next couple of years. While banks are pricing these homes at or below market value, they are continuing to reject many low offers and wait for offers closer to market value. This is actually good for our local market as banks could very easily reduce their prices in order to sell the homes more quickly. In turn, this would undoubtedly lower the value of homes in Yakima.

It appears doubtful that the number of foreclosures will begin to diminish anytime soon. Many of the 5 year ARM (Adjustable Rate Mortgage) loans issued in 2006 and 2007 are now beginning to adjust. In many of these cases, home owners could see their monthly payment increase by 50% or more. If these home owners are unable to make the new increased payments, they are left with only a few options. The first option is to refinance the home. With interest rates nearly 3% lower than in 2007, a refinance could lower their payment back to the original amount. However, the qualifications for obtaining a new mortgage are much more stringent than they were 4 or 5 years ago. These increased credit ratings, increased down payment requirements and new debt to income ratios could make it impossible to refinance in some cases. Another option is to sell the house. Unfortunately, many home owners who obtained these loans haven’t built up enough equity to sell their home at the fair market value without having to pay for the difference. Quite a few banks are still allowing short sales (where the proceeds from the sale fall short of the debts owed on the property), which may be the only option left. Unfortunately, short sales will most likely negatively effect the sellers credit report.

Your Local Real Estate Professional,
Cory Bemis

Nation-wide, the current real estate market has been labeled as a “buyer’s market”. This has remained unchanged for the past two or three years. While interest rates and special buyer programs make up a large portion of why it’s a buyer’s market, the home values and absorption rates also play a significant role in each individual market. Is Yakima currently considered to be a “buyer’s market”? Absolutely. The good news about the Yakima market is that the average home sales price has only decreased 4.12% since the peak year of 2007. Unfortunately for sellers, the current absorption rate in Yakima is nearly 14 months. This means, based on the total number of sales in the past year, it would take 14 months to sell every home currently on the market assuming no additional homes were listed. Over the past few decades, a balanced market in Yakima will typically have an absorption rate of 6-7 months. A seller’s market would fall within the range of 1-5 months.

July home sales in the Yakima Area Real Estate Market decreased significantly when compared to last month. Total homes sold decreased by 19.6% while the average sales price decreased 17.1%. This July appears to be comparable to July of last year. In 2010, total homes sold in July decreased 42.8% with a 6.5% drop in the average sales price when compared to the previous month. Should we be worried? July is traditionally the “gap” month in the Yakima real estate market. March through June post the highest sales numbers nearly every year. The next three major real estate transaction months are generally August through October. Keep in mind, the majority of sales in July are generated from transactions which began in June.

In the month of July, there were 90 total homes sold with an average sales price of $148,493.

In my newsletter last month I mentioned there were an uncharacteristic 6 sales with purchase prices above $400,000. In comparison, this month there were only two sales above $300,000 with the highest being $390,000. The lack of high end sales this month was the primary factor for the 16.8% drop in the average home sales price.

May home sales in the Yakima Area Real Estate Market remained steady when compared to March and April. Traditionally, May has been the most active month of the year in Yakima. From 2005 to 2010, the average number of homes sold in the month of May was 164. This May there were only 101 homes sold. The average sales price this month decreased by 6.85% when compared to May of 2010.

In the month of May, there were 101 total homes sold with an average sales price of $162,568.

An interesting topic that has recently come up in the news is the amount of bank owned foreclosure homes on the market. Year to date in 2011, 21% of all residential home sales on the Yakima MLS have been bank owned homes. In 2010, only 15% of these sales were bank owned homes. Prior to 2007, this statistic was generally less than 5%.