I made contingency-free, cash offers on three different houses this week. I used recent sold comps (comparables) and price-to-rent ratios to calculate a reasonable price.
All three listing Realtors refused to present my offer to their sellers “because my bid wasn’t close enough to their asking price”.
Even though Realtors are legally required to present all offers, sometimes they don’t. If I was in the mood for it, I’d get stinky and insist upon it. But obviously, I know these Realtors won’t present my offer in a positive way to their clients. I’d be wasting my time. My contingency-free cash offer might be good for their seller, but the lower price would mean a lower commission to the Realtor…
The Realtors in our local market appear to be in denial about the state of our current economy and still have their heads in the sky about house valuation. Houses are getting contracts, then failing to close because they fall short when it comes time for loan appraisal.
During my housing search, I’d ask the listing Realtor how they arrived at their price. What comps (comparable sales) did they use? Most of the Realtors told me they used “active comps” (houses currently for sale) rather than “sold comps” to set their price!
…so what that those overpriced active comps have been languishing on the market month after month…
Their rational went something like this:
“It isn’t fair that appraisers include foreclosures and short-sales in the sold comps. They haven’t walked through those houses to compare interior finishes and condition with the house we are selling.”
Helloooo? Appraisers have NEVER walked through sold house comps to compare finishes and condition. Why should it be different now? Furthermore, appraisers can’t use active comps in their appraisal report.
Here are some of the other ridiculous things we were told:
“It’s not a house, it’s your home. Your daughter needs a home.”
Wherever you share love and laughter is home. Calling a house a “home” is a manipulation of your emotions for their profit. As I’ve said before, whether you pay rent to your landlord or pay interest to your mortgage company, you are buying shelter.
“You can’t paint your walls when you rent.”
Why not? We rent, we paint. Here are pictures of our living room and dining area:
If your landlord doesn’t care for the accent colors you’ve chosen, simply paint those walls back to white when you move out. Our landlord loves the colors we’ve used, so we’re good to go.
Or use the white as a backdrop for colorful furnishings. Here’s how we spiced up the white in one of our bedrooms:
“Real estate is local. Our local market won’t continue to suffer like the national market is because….. (fill in the blank with an odd assortment of rationales)”
Yes, local markets do vary. But lending is global and loans are harder to get. As long as credit and lending standards are tight and unemployment climbs, house prices will continue to drop everywhere.
“Mortgage rates are low. Hurry! Buy now before interest rates goes up!”
Think about this one: What will happen if/when mortgage interest rates go up? I’ll tell you: Buyers will qualify for smaller loans. This will dampen house prices even further. We can pay cash for our next house so the higher the mortgage rate is, the lower the price, so all the better for us.
“Rents could go up, but your mortgage payment will always stay the same.”
My response to this one could easily fill a whole ‘nother post, but let me just say this for now: Rents are limited by the amount of money people earn — rather than how much they can borrow. Besides, mortgage expenses do increase over time: think maintenance and repairs, property taxes, insurance, HOA fees.
We are renewing our house lease. We will compare our cost of renting versus buying again next year. If our local Realtors are still playing these silly games, we’ll focus our search to properties listed for-sale-by-owner. Undoubtedly, house prices will have dropped even further by then, making it easier to win a favorable bid. In the meantime, we are happy to be home.
Read more housing crisis articles:
When Should I Buy a Home? Have We Reached Bottom Yet? What Is The Right Price? written by me
Why Downsizing To A Smaller Home Can Make You Happier written by me
Can’t Sell Your Home In Today’s Market? Here Are Some Suggestions written by me
10 Things Your Real Estate Broker Won’t Say by SmartMoney
Housing Crash News from Patrick.net
Related posts:
- When Should I Buy a Home? Have We Reached Bottom Yet? What Is The Right Price?
- Can’t Sell Your Home In Today’s Market? Here Are Some Suggestions.
- Why Downsizing To A Smaller Home Can Make You Happier
- Hyperinflation or Prolonged Deflation? Coping and Investing Strategies For Either Scenario
- Readers’ Questions Answered
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As a realtor … and a very good one … I am saddened at what I am reading on this blog.
1) First and foremost your offers should have been presented to the sellers … it is the responsiblity of every listing agent to present every contract that comes in … even if they already know their client may balk at it.
2) It is NOT a contingency free offer if you have a home inspection. Contingency free means just that … no contingencies.
3) A realtors commission does not really change that much if the offer is less in the grand scheme of things. Let me explain this to the mass public.
Typical commission is 5.5% – 6% which must be split between both the listing and selling agent. So really the commission is 2.5% or 3%. Of that 2.5% or 3%, the agent must split that commission with their broker … which is anywhere from 15%-50% depending on how much volume they produce for their broker. So for a sale of a $250,000 home the commission would break down as follows:
6% = $15,000
3% for the listing agent is $7,500
3% for the selling agent is $7,500
Out of that $7,500 … the agent may have to give anywhere from $1,125 to $3,750 to their broker … leaving them with only $3,750 to $6,735.
So if the house sold for $50,000 more, the agent would really only walk away with another $750 to $1,275. And this is all before taxes. Remember, we still pay taxes like everyone else.
4) The tax record doesn’t tell you what the seller owes on the house … it only tells you what they originally paid for it. The seller could have finance their kids college with the home, or paid medical expenses, or had to take out a loan because they lost their job. So although you may think they may be making money … they could have used their house as an ATM card and owe much more than that tax record can ever tell you.
Those who have said they don’t trust realtors have obviously not worked with the best of us. The public has no clue we work 24/7 … are at everybodies beck and call … can work with clients for months and never get paid … and many people feel are time is not valuable. As if we do not have families we would much rather be with then driving people around for months looking at hundreds of houses only for that person to walk into a model home and buy a house without representation.
The best realtors are the most honest and straight forward people I know. Like all professions, their are the bad ones … but a good realtor will keep you out of trouble and is worth every penny they make.
I have been in real estate for the better of the past decade … before that I was a VP in marketing making plenty of money. I just wanted to work for myself. I am proud of the business I have built and I have an extremely long list of very satisfied clients.
I hope someday you find a Realtor you can truly trust.
Catie, I just made a large offer on a piece of land that is adjoining to our property’s. We have been coddled by both the financial institution and the Realtor for the seller to make this work. “Don’t get an attorney, Don’t get a buyers Realtor, we need this to go through and will help all the way till it’s yours. Well, after soliciting us all Summer and phoning practically every day, we finally signed a purchase agreement and have heard nothing since. I feel they are taking our offer and using it to refinance or show proof of its value. I deliberately added in the agreement that the offer is that of sentimentality, not at all close to the low actual market value hoping they couldn’t do this. But, we are in the dark and very hurt. Isn’t there a commission that oversees Realtors? Forgetting to mention they delibrately did not inform us of a second mortgage, a mechanics lean, unpaid taxes and assessments. We found these things on our own. Thanks for anyone’s time in advance….Stu
Brief update on the three homes we made offers on:
#1 home still on market at same asking price. This property has been sitting on the market for about two years now.
#2 home still on market. Recently dropped their asking price by 2%.
#3 home pulled their sign. Waiting to see if record of sale shows up in local public records and if so, at what price.
I will have to say as a realtor myself I am pretty disgusted by your local realtor experience. They should have presented your offer. When an offer is cash it is often lower than the asking price, but still a good offer if not better, because it is cash.
If your realtor knew he would not accept the offer he/she should have given you the reasons as to why. Because it was lower than asking price is not a reason, unless she knows that he owes more on the house than your offer price, that would be a good reason.
In my area, prices are insanely low, but the offers are going for more than the asking price. We still get clients that don’t believe us. We tell them that the offer might be too low and wont be accepted. They don’t believe us, so we submit the offer anyway (doesn’t hurt to try.) We do this over and over on different houses till they realize that if they want a house they do have to go a bit higher.
Thats ok though, it is our job. We don’t want them paying more than they want to or buying a house they don’t really like.
I am shocked that any realtor would use active comps. Sold houses are the only way to get the true value of a house.
I am sorry that you had a bad experience. There are good ones out there.
Isn’t there something to be said about paying off your home and not having a mortgage. You have to consider that every month some of your mortgage payment will go to principal, so even if your mortgage is the same as a rent payment, its still a better deal in the end, if you plan on staying for a while. Also, there are good real estate agents out there. You need to find someone you like, and who you feel has your best interest in mind. Good luck!
Well, check this out, my wife and I put a home under agreement for $430,000, pre-approved, made the down payment, paid for the home inspection, paid for the appraisal, and then when the loan went to the underwriter, they said the comps did not represent the market value of the home. They said the house was worth $406,000. So that means our agent and the listing agent were $24,000 off ????? So much for hiring a pro. Now the mortgage company swears that no bank will give the sellers more than $406,000 for the house. If it works out in our favor great. If not, we are out $1,000 for the home inspection and the home appraisal. It makes me mad that we can be on the hook for $1,000 because one Real Estate Agent came up with a fake price and another Real estate agent was not able to tell that the price was $24,000 too high. I find out Monday if I lose $1,000. The system is messed up. Any way to sue these Realtors seeing that we signed contracts?
Boston, you want to sue a realtor because they were asking “too much”? Really? Maybe you should sue your lender for hiring an appraiser that didn’t use the right comps? Or, maybe you should sue the appraiser for finding some comps that were too high for your sale to go through. Or, I got it! Maybe you should sue the previous owners of the houses that were used to create your appraisal for selling so low?
Steve, you are way off base. I wanted to know if we could recover the cost of the $1,000. The system is messed up right now in this market. Why would you pay $500 for a home inspection before you paid $500 for the appraisal to see if any bank will even write a loan for the amount that you agree to buy the house for? It seems pretty messed up that a listing broker can pull together comps for a house and list it for 8 months, then the potential buyer pulls comps that have to go back 2 months, in a bad market the 8 month old comps are useless. There is no use putting an offer on a house until you get the new appraised value. The buyer puts out all the risk, the seller gets put over a barrell if they “have to” sell, and the Realtors and the mortgage company collect their checks no matter what. Turns out that the underwriter came back at a market value of 410,000. The seller had two choices, sell it at that price or wait out the market………. so much for paying a commission to a listing broker in this market.
So you know, the lender used two different appraisers and appraisers are assigned to cases here so you can’t just go use any old appraiser, but I’m sure you knew that, right Steve-o. Apparently the listing broker used colonials to comp out a split level. So yeah I was pretty pissed when I found out that I just spent $1,000 to tell the buyers that the offer we agreed to was off by $24,000………
Boston, I highly doubt that a Realtor priced the house too high on purpose. A Realtor does not get paid one penny if a house does not sell, so they would not purposely price a house for more than it is worth because that would inevitably make it fall out of escrow. No one is going to pay over what the bank will lend.
I don’t know your area but within the 8 months the price of the house could have gone down or not (it all depends on your area.) If your Realtor was experience she should have lowered it according to the market, plus lowering the price is based on how desperate you are to sell.
What often happens that causes situations like that in my area is the banks appraiser doesn’t know the area and almost always appraises the house wrong, due to that. We can choose are own appraisers in my area, but on occasion a bank requires us to use their appraiser and it often ends up being an appraiser that doesn’t know the area.
Sometimes a Realtor can depute the appraisers appraisal to the bank with their own comps and appraisal. It all depends.
It all comes back to the fact that a Realtor does not get paid if a house does not close escrow. Realtors can be working with the same people for a year or more (driving them around or paying to advertise their house) and if they never close an escrow all the Realtor gets are memories and an empty pocket book.
A good piece of info : Use http://www.zillow.com to get a better idea of what the homes “should” be going for.
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