Can the comps not really be comps?

[kwynn]

My family saw a FSBO for me. My realtor actually told me he didn't want to know what it was listed at...he was going to do some comps if my family liked it.

They did like it. It was small, but decent. I posted it here previously. Okay, so they're asking 115k. They paid 80k for it 4 years ago (and there was a homebuyer's credit then too). If they don't get an offer, they will go with a realtor in a few weeks.

My friends that live in Pittsburgh (and some have bought houses within the past two years) liked it, but said it needs to come down about 20k. They are not realtors, just recent house buyers.

The current owners did some decent upgrades to it, I believe, brand new bathroom, decent kitchen, fixed up the front, the place is very well cared for. My friends pointed out: "They didn't add anything significant (it's still a 2 bedroom, 1 bathroom). They can't expect to get their money back completely as it's not a flip, they lived there."

One friend said, IF I offer, to go at 90k. Hope to end up at 97k. That seems insulting?

Using fast math based on the public records, you can sort of guesstimate how much sellers still owe on the mortgage.

My realtor sent me comps and the last page said he estimates it to be worth 75k.

And then he sent me a line an email that said the seller paid more than that 4 years ago, so...like basically, he didn't really know where we wanted to go from here.

I mean, I cannot offer 75k. That's just a slap in the face, right?

The comps seem to *only* compare neighborhood, size, room size, age of home, etc, and don't take into account the nicer upgrades.

Is it possible these all are not good comps? Should I ask the realtor to run it again?

Has anyone ever made a really low offer on a house? I just see this as an impossibility.

My MAX budget is 130k, so I've ONLY been looking up to 140k max. But now a lot of people are telling me to look at 145k's because they might be like 25k overpriced (things sitting on the market a long time).

I don't know, doesn't that seem extreme? I thought offers were usually like 10% wiggle room, not 40k on a 100k home.

I really, really, really appreciate you ladies and all the advice you give me. I live alone and I have zero ppl I can discuss this with in my life, seriously, so I just wanted to say thank you so much for educating me and I promise to pay it forward.

[vanillacourage]

Will the FSBO pay your realtors commission if you use him?

[kwynn]

Feb 9, 2013 6:56:56 GMT -5 vanillacourage said:

Will the FSBO pay your realtors commission if you use him?

Yes, prior to seeing the house I consulted with my realtor.

He said if I wanted him to be involved in the transaction and view the house, he would do it and he'd get 3.5% of the price (finder's fee) or $1750, whichever is greater.

I then consulted with the owner of the home and he said yes, he was willing to allow ppl with realtors to see it and yes, they would be amenable to paying for the buyer's agent, the standard 3.5% fee. They would be representing themselves, so they would save that part of the fee.

My realtor gave me the option to go alone, but I reassured him I would never, ever cut him out of the deal like that and I want representation as a first time buyer! Plus he's shown me so many other houses that I feel it isn't fair.

I checked all that out prior to going because I know that's a sticky situation. Was that handled right?

We are *only* starting to look at FSBO's because we've pretty much seen everything on the market we want to see. It's a low inventory time and most things out there have been sitting for months and months (since last April or June), it seems, and are priced too high for the value.

[SusanBAnthony]

We are in OH, and are having a similar experience with not having much on the market, and what is on the market is either wildly overpriced or has flaws that are not easily correctable.

We just bought a house that was on the market for 1 day, because as nice, well priced houses come on the market, they are snapped up immediately. Our house was priced about 10K under comps, so we offered full list. The other houses sitting on the market are priced at 10-30K over comps.

Since October, we have made 2 offers a decent amount below list and been turned down. We also had our realtor feel several more out on price verbally who refused to come down even though the comps show they are overpriced. We didn't bother to formally offer. And guess what, of the 4 houses I can think of off the top of my head, 3 are still sitting on the market.

So you are definitely not alone in this problem. I would be inclined to throw out an offer if you love the house, but don't count on it getting accepted. And if you feel the house is worth 90K or however much more than your realtor does, ask him/her to go see the house, and ask detailed questions about how its condition compares to the comps. Then you may have to decide whether you think you want to pay 90K for a house that you may have trouble selling for that price later on- which probably mostly depends on how long you will live there.

[Deleted]

One of the problems with FSBO is a lot of sellers price their property off of what *they* think the property is worth, not based off of recent comps. This is part of the reason some sellers have a hard time selling by owner. They very well may taken the price they bought the house for, added the cost of all of their improvements, added the cost of a REA commission and then used that number as their selling price. That is not really how it works. Upgrades are worth something but they are not worth the price difference here.

If you think your REA's number is not accurate then question him. However, i would trust those numbers more than a friend's estimate on how much the house is worth. In this situation I would not be worried about insulting the owners. If you were to offer something in their ballpark then you would automatically have an underwater mortgage when you buy the house.

[kwynn]

cuadrado, it's a cash purchase. But yes, I don't want to overpay for the house.

I think honestly the ballpark is between my realtor and my friends. They're more educated than me because...

Asking: 115k
Sold in 2008 for: 80k
Realtor says: 75k
Friends say: 90-99k
I thought: 105k

I'd be happy with 85k? 88k?

I think I have an overinflated sense of what it is worth because it is the first place I've seen in my price range that's in a preferred area that's not really, really bad inside.

Do you think the market has fallen in 4 years or risen?

[Deleted]

That really depend on the area. Where we own a home (that is now rental property), the market is a little worse than it was in 2009 when we bought our house. We bought and listed it for the same price and couldn't sell it. That was with a kitchen renovation.

[krystee]

I would not go above $85K, as that is more than 10% above market value, according to your realtor. Don't worry about them being offended. Your realtor can explain the comps. It's business.

Is a one-bath house practical given that there are clients using it on top of the two of you living there? And did you ask your realtor what the house would be worth with a finished basement? I worry that if you overpay to begin with and put in a $30K basement, you may have paid much more than market value.

[jenjen]

If they bought in 2008, then they likely overpaid (due to conditions now) and like others said aren't seeing the actual value. However, since this is a cash purchase, will you have an appraisal clause? If not, then offer what you are comfortable at. Cash offers are way better than financed offers and they don't have to worry about a banks appraisal. (Often I worry that the appraiser knows the selling price and would let that sway the actual appraisal).

However, for your question of comps. When we refinanced, they used some crazy comps. We have gutted and remodeled most of our house but that wasn't really given any credit. I even appealed and pulled my own comps without any luck. They use age of home, beds/bath, and sq footage and then lot size. We have a large lot on a very nice road but our comps included a 112 year old farmhouse on similar acreage, and then random homes in lesser quality neighborhoods with no upgrades.

[pamela]

What they owe had no bearing on what it's worth. Neither does what they previously paid. Only the current market. And the value of their renos doesn't matter if it was a flip or owner occupied. Heck, most would prefer owner occupied because they were less likely to cut corners. I know a lot of realtors say upgrades don't count for an appraisal, but they really do to the buyer which is ultimately what sets prices. Make sure your realtor is using comps that really are in the same class and then offer based on that. Don't trust a FSBO to set the right price. If it doesn't work, wait to see what happens when they have to list it with a REA

[scout8]

What they paid and what they owe has no bearing on what the house is worth today. If you want to offer much less than where the house is listed, don't worry about being insulting. Your real estate agent is the one who will be dealing with them. If they won't come down to what you are willing to pay, then you move on to the next house.

[bunch]

Feb 9, 2013 8:15:37 GMT -5 pamela said:

What they owe had no bearing on what it's worth. Neither does what they previously paid. Only the current market. And the value of their renos doesn't matter if it was a flip or owner occupied. Heck, most would prefer owner occupied because they were less likely to cut corners. I know a lot of realtors say upgrades don't count for an appraisal, but they really do to the buyer which is ultimately what sets prices. Make sure your realtor is using comps that really are in the same class and then offer based on that. Don't trust a FSBO to set the right price. If it doesn't work, wait to see what happens when they have to list it with a REA

This. If you really want it, make your offer contingent on an appraisal so that you don't over pay. You've been doing a lot of shopping lately, what does your gut say? Does it look similar to other 75k listings?

[bunch]

And comps can be pulled to justify any price, so they can absolutely be wrong.

[kwynn]

Feb 9, 2013 8:47:47 GMT -5 bunch said:

Feb 9, 2013 8:15:37 GMT -5 pamela said:

What they owe had no bearing on what it's worth. Neither does what they previously paid. Only the current market. And the value of their renos doesn't matter if it was a flip or owner occupied. Heck, most would prefer owner occupied because they were less likely to cut corners. I know a lot of realtors say upgrades don't count for an appraisal, but they really do to the buyer which is ultimately what sets prices. Make sure your realtor is using comps that really are in the same class and then offer based on that. Don't trust a FSBO to set the right price. If it doesn't work, wait to see what happens when they have to list it with a REA

This. If you really want it, make your offer contingent on an appraisal so that you don't over pay. You've been doing a lot of shopping lately, what does your gut say? Does it look similar to other 75k listings?

It's SO much better than the 75k listings I've seen. I saw a 3/1 in this same neighborhood for 99k that was WAY worse in quality, but it did have a family room, so that was additional square footage.

I think when they list with a realtor, they'll list even higher, to be honest.

The biggest drawback to the house is that it's just too darn small. I wish they had added another bathroom because then I'd be sold.

I can't figure out where to compromise...I have to take something off my list in order to find a place to live soon!

[kaylie]

I would go ahead and offer what you think it's worth and not worry about offending them. As a cash buyer you have an advantage in that they won't have to worry about the appraisal. If they sell to someone who needs financing it sounds like the appraisal might not match their asking price and they'll either have to come down or the deal falls through.

[vanillacourage]

I wouldn't buy a house that you already feel is "too darn small" before you've even moved in.

Sorry, Debbie Downer over here.

[SusanBAnthony]

How is the yard? Is there room for an addition?

Our rental house is a 760 sq ft 2/1 with no basement. It has a sunroom addition on the back that is amazing- it is the length of the house and about 8 ft. deep. One end has the table, the other end is kids toys for us, but it could be a nice sitting area, etc. Or, if the house has a basement that is dry and can be finished.

Now, those things cost money. But if you could get the house for 80K, say, then you have 20K to make changes, compared to the 3/1 house you mentioned. You can add a family room for that.

[Pilsy]

Feb 9, 2013 9:14:38 GMT -5 vanillacourage said:

I wouldn't buy a house that you already feel is "too darn small" before you've even moved in.

Sorry, Debbie Downer over here.

Same!  But I haven't been following your story from the beginning, so maybe you already know there is little or no chance of finding exactly what you want in your price range.  Will your budget allow for an addition?  

But aside from that, I agree with Pamela that you shouldn't give a hoot what they paid and owe.  Those facts really don't matter.  And I wouldn't worry about insulting them, either; this is probably personal for them, but it's all business for you, *and* you are working with a real estate professional, not dreaming up a low number on your own. 

If you truly believe the comps are poor and haven't yet discussed them with your realtor, why not start there?  He can either defend them or pull a few more.  

And if you pursue this, please be sure to include clauses in your P&S that allow you to walk away without any loss if the appraisal and inspection say anything that troubles you.  

Best of luck!

[Pilsy]

Feb 9, 2013 5:07:26 GMT -5 kwynn said:

My MAX budget is 130k, so I've ONLY been looking up to 140k max. But now a lot of people are telling me to look at 145k's because they might be like 25k overpriced (things sitting on the market a long time).

I don't know, doesn't that seem extreme? I thought offers were usually like 10% wiggle room, not 40k on a 100k home.

Oh, and one more thing: that would be extreme, but that ($40K of wiggle room on a $100K house) isn't necessarily what needs to be the case for a $145K home to be within reach.  You're not necessarily looking for a $100K home that's been overpriced by $45K; you'd be looking for a $130K home that's been overpriced by $15K or maybe a $125K home that's been overpriced by $20K.  

Like I said, I haven't followed your whole story, but I have read a couple of the posts and remember more than one instance of your mentioning renovations.  If you aim for a house well below your budget but have to do work, why not consider something at the top of the range that will not require upgrades/additions/etc.?  

If you find something you really like that's priced at $145K and you make an offer in an attempt to get it for $130K, what is the worst that happens?  They don't accept.  What's the harm?  You realtor should be able to tell you where most sales are falling in terms of asking price.  We bought at 93% of asking; I bought my old condo as 85% of asking.  Apologies if you've already referenced those stats and I'm late to the party; but if you haven't, arm yourself with that information.  

I have told friends not to look at wedding gowns outside their budget, but I don't feel the same way about houses.  

[mollybrown]

I'd want to see the comps that the realtor is using to determine the value. As others have mentioned, what they paid and owe have no bearing on the value. A house is worth what someone will pay for it. I sold my house for more than it appraised for. They buyers loved it, and there was nothing comparable on the market. I could have sold it for more if I had waited until this year. Your friends may also have no idea what the market is like if they bought more than a year ago.

I agree that I wouldn't seriously consider a house that I thought was too small. It will only seem smaller once you move your stuff in.

[aurora]

I agree that it really doesn't matter what they paid for it or what they owe. However, I would be skeptical about the house really having appreciated by almost 50% in 4 years with just some re-touching indoors (as opposed to adding an addition or something like that which really changes the function of the house).

We absolutely looked at houses above our price range and ended up buying one - our final negotiation ended up at 7% less than listing, and that was in a stronger seller's market. So, if your max is $140k I think it would be fine for you to look at houses up to $150 or maybe even a little higher.

Good luck!

[shopgirl07]

People are often delusional about what their house is worth.

You should offer what you believe fair market value is based on the comps. It doesn't matter how much they paid for the house or how much they owe. DO NOT OVERPAY.

I'd offer $75K and have a max in mind, maybe $80-85K. See what happens.

[regina22]

Are you personally offended that they're trying to claim a $35k profit in four years? Then why are your worrying about personally offending them for bringing them back to reality on what their house is really worth.

You're not telling them that you think their kid is ugly. You're negotiating a business transaction. Most FSBO are overpriced because they don't have access to the comp information your realtor does. He's the professional, don't discount his opinion. By advising you to make a lower offer, he's actually reducing the commission he would make. That alone should help convince you that he has your best interests at heart.

[imojoebunny]

Since you think it is really too small, I would look at the dumper houses and think what you could do with the extra money. If you can get a dumpy three bedroom and have $45k left over ( I think your paying cash?)) then it might be better to go with more square feet and plan to gut the kitchens and baths and have the whole place painted. You can do a smaller kitchen for less than $20k, maybe even $10k, if you use the old boxes and reface, a bath for about $10k, paint yourself or for about $300.00 a room. New flooring runs between $2.00 and $7.00 a square foot. Then you would have the best of both worlds, the upgrades you want, and the space.

[Deleted]

I agree with your friends that you should look at more of the $145s to see if that ups your options a bit.

[Deleted]

If you make an offer based on comps, include those so they know you are approaching it from a business transaction (which it is) and that's what the market is willing to pay. Especially with the only two bedrooms, it's not really comparable to a 3 bedroom with more square footage.

[awkwardpenguin]

Feb 9, 2013 15:04:43 GMT -5 @randomcdn said:

If you make an offer based on comps, include those so they know you are approaching it from a business transaction (which it is) and that's what the market is willing to pay. Especially with the only two bedrooms, it's not really comparable to a 3 bedroom with more square footage.

This is great advice.  Comps are usually completed sales in the area, and if you were financing, the appraiser would use comps to determine the value of the house and how much you could finance for.  So you shouldn't be thinking does it look like other $75k listings, your realtor should pull out other 2 bed 1 bath completed sales from the neighborhood and see how much they sold for.

Comps aren't perfect, but they're pretty good.  If there's an extreme outlier, I might throw that one out, but a real estate appraiser would keep it in.  We accepted an offer of $119k on our house, appraisal came back at $113k based on comps, which unfortunately included a house that short sold at $80k that we all knew was in terrible condition.  There was nothing we could really do - we negotiated $115k with the buyer bringing cash to closing.

Any room on the first floor to add a half bath?

[mariafromnj]

$75K sounds very low and if noting you look at on the market comes close the house in the $75K range than you know it is worth more. Your friends suggestions sound good to me. Why not offer $90K and see what they come back with.

[DarcyLongfellow]

I absolutely agree that you don't need to worry about what they paid, and certainly not what they owe.

FSBO's are notorious for being overpriced. People always think their home is worth more than it is.

Could the comps be "bad"? Sure. But your realtor is working for YOU, and he actually stands to get a lower commission for a cheaper house. So I'd believe him when he says what it's worth.

Also, you say in your OP that you could never offer that much less than an asking price. Why? Asking prices aren't like prices in a store. If I put my house on the market, I can list at any price I want. I can put a house worth $250,000 on the market for $1 million if I want to. I wouldn't feel bad at all about offering a lot less an the asking price. Present the comps with your offer so they know where you came up with that number.

When DH and I were looking at houses last spring, we made an offer on a house that was over $100,000 less than the asking price (this was not a million dollar house -- our offer was way lower than the asking house, percentage wise). We backed our offer up with comps and a list of all the repairs that needed to be done to the house immediately (new roof, new A/C), but the owner was hugely insulted and was kind of rude to our realtor. Oh well -- no skin off my nose. (And, that house sat on the market another six months before it finally sold for less than we had offered.)