Should I quiblle over $5,000 dollars when making a home offer?

[mattr249]

Hello,

First time home buyer and poster here. My wife and I are looking at purchasing a home. Its in a great location within walking distance to everywhere we need to go and has two units so that we can live in one unit and rent the other. It was listed at 115k, we made an offer of 100k, they countered at 114k, we countered at 105 and now they have countered at 110.

I have a friend who has bought and sold many homes over the years (he's a retired landlord), he thinks that 105 should be our final offer and that we should go no higher than that. Our real estate agent thinks 110 is a great deal. Given that it is in the perfect location and has everything we want (mainly the two units for rental income) I tend to lean toward thinking an extra 5k isn't that big of a deal. It will only result in paying about $25 more/ month on the mortgage according to our financier. What do the more experienced mustachians think?

Thanks!

[Numbers Man]

It depends. Are there a ton of homes just like this one in the area that you are tying to buy? If so, then don't be so quick to give in to the seller. Are housing prices trending up or down in your area? If this is your dream home than go for it. Otherwise you need to keep looking for the right home at the right price.

[mattr249]

There are several other homes like it in the immediate area, but none like it currently on the market. A little further out (4 or 5 miles) from our ideal location are a couple of homes that could be turned in to multi-unit places with some work, but none ready to move in. Home prices in the last year seem to be pretty flat. And over the past five years they have gone down, but now have recovered to the same level they were at 5 years ago.

[Jack]

If you make $105K your final offer and don't get the house, how much would you regret it? In particular, would you regret it more or less than overpaying by $5K?

[iris lily]

I don't quibble in amounts like that for real estate.

Related long story: I was talking to a friend yesterday. She's been unemployed for most of 2 years. She is single, no children at home. She had higher end jobs in IT but can't get another job now. I've been to her house in a nice suburb (but not ritzy) and I thought that her house was--big. It's got one of those soaring ceiling Great Rooms--BIG! That's really my main impression since I don't pay attention to newish houses, they all look alike to me and are completely
uninteresting with a sea of drywall and hideous flat windows. It was neat and tidy and,yes, big.

So I've been wondering how she made it through year 1 of unemployment. She was talking about putting her house on the market to be able to move to a job out of state if she got one. And I wondered at the time "why aren't you doing that proactively, anyway, regardless of your employment situation? You are 58 years old, surely you aren't going to stay in the giant house and clean 4 toilets for yourself." But that's me.

Some time went on and she got another job, but oddly, didn't last in it. Not sure what's going on with her. She is still living in the big house. Yesterday she said that she had put her house on the market but took it off again, now was putting it back on but "people just wanted to steal it." She revealed that she got an offer for $30,000 less than her asking price last spring. When I looked up her house, the list price is $389,000.  So that offer was for more than 90% of asking price.

Given her financial situation, I  can't comprehend how she is making payment on this thing. But to not accept that offer last spring--madness!

Tl;dr: a difference of 5% of any real estate deal, as long as you the buyer are making a rational decision (not buying something from "love") seems fine to me. Same for selling. Don't sweat the small stuff, assuming that your financial house is in order and you've got lots of means other than all net worth sunk into your house.

[mattr249]

That's a good question. I suppose it depends on if and how quickly we are able to find a similar opportunity. The primary purpose of purchasing at this point is to gain the rental income. Neither my wife or I are in a high income industry and we would like to experiment with owning rental properties. This place (or one like it) would allow us to move in to a finished apartment at the basement level and rent out the main level of the house.

This would (in theory) provide enough income to pay the mortgage and then some (based on local renting rates for similar units). If for some reason renting didn't work out, we would still be in a better home then the current apartment we are renting for the same price. Plus my commute will be eliminated.  Because of this, if I found out I over paid by 5k I don't think I would be too upset, simply because the opportunity seems to be pretty good.

Of course, if they declined an offer of 105k, I think my level of disappointment would depend on if, and how long it takes to find a similar opportunity.

[Forcus]

I think everyone else has already said it but "it depends". If it's everything you want and you are sure you want it, I wouldn't even hesitate. Other option is to offer to split the difference, 107.5k. Because the best compromise is where no-one is completely happy.

[johnhenry]

That's a good question. I suppose it depends on if and how quickly we are able to find a similar opportunity. The primary purpose of purchasing at this point is to gain the rental income. Neither my wife or I are in a high income industry and we would like to experiment with owning rental properties. This place (or one like it) would allow us to move in to a finished apartment at the basement level and rent out the main level of the house.

This would (in theory) provide enough income to pay the mortgage and then some (based on local renting rates for similar units). If for some reason renting didn't work out, we would still be in a better home then the current apartment we are renting for the same price. Plus my commute will be eliminated.  Because of this, if I found out I over paid by 5k I don't think I would be too upset, simply because the opportunity seems to be pretty good.

Of course, if they declined an offer of 105k, I think my level of disappointment would depend on if, and how long it takes to find a similar opportunity.

There's no such thing as a perfect house, but this sure sounds like a place that's "perfect for you".  If this was just an investment property, I'd tell you to buy only if the numbers looked great and you knew you couldn't get a better deal elsewhere.  But if this is where you plan to live, there are lots of intangibles to consider and based on what you've said, this one has many in its favor.  Close to jobs, has potential to be sublet, price still affordable.  And you will continue to spend money on commute and rent while you continue to find another place that meets your desires.  If the buy vs. rent math makes sense at $110K, I'm guessing it still looks pretty good at $115K too.   

I'm not sure how long you've been looking at RE in this area and how well you know the market.  If you've been looking for a while, you should have *some* idea of how likely you are to come across something that meets your needs as well as this does. But it sounds like you know what you want in a home.  If this place has all those things, I'd lean towards buying.

With that said, if I were negotiating I would know these things.  How much they paid for the place, and how long ago.  Do they still live there, or is the place vacant.  And, how long has it been on the market.  Those things, along with how they've negotiated so far, should give you an idea how willing they will be to walk away from your offer and wait for a better one.

Hope that helps.

[retired?]

107.5 could be a good compromise.  It is reasonable for them to assume that, having originally offered 100, you might expect to meet in the middle, i.e. 107.5.  You've each moved 5k so far.  Normally, I'd say "no" to a 5k difference, but the homes I've bought have been more expensive.  On a % basis, 5% is large.  But 4-wise, still not large.

Look at sales price to list ratio.  days-on-market, $/sf.  Are homes currently appreciating there?

How long do you expect to own it?  The longer you hold on to it, the less the extra $$ will matter.

How much would it "cost" you to search for another home?

Lastly, there are two negotiating parties.  They are likely asking themselves the same thing.

[mattr249]

Thanks everyone for the input, just to fill in some of the details John Henry mentioned. The house was listed in January for 125k, since then they have dropped their asking price to 115. The last tax assessment valued the property at 125. The property is vacant and has been on the market for 10 months.  The current offer sits at 110. The property last changed hands in 2002, the sale price was $0.00? I suppose that means it was bequeathed or something along those lines? But I'm not sure.

[mozar]

So you already made an offer? Did they counter? From my experience you can't offer more than 20% off asking price without them being insulted. It's already a deal if it was assessed at 125k.

For my house I offered 110k for 130k asking price. They rejected it and I came back with 118k. They accepted it and paid closing costs. It was appraised at 119k which I didn't know until after I made an offer. It had been on the market for a year and they were desperate. A year later it appraised at 134k. Booyah!

[Jack]

The last tax assessment valued the property at 125.

Just FYI, the tax assessment is absolutely, completely, 100% irrelevant* to the actual market value of the property.

If it was appraised at $125K by someone who actually inspected the property and then looked at real comparables, that would have been different.

The house was listed in January for 125k, since then they have dropped their asking price to 115. ... The property is vacant and has been on the market for 10 months.  The current offer sits at 110. The property last changed hands in 2002, the sale price was $0.00? I suppose that means it was bequeathed or something along those lines? But I'm not sure.

The house clearly is not worth $125K; if it were it wouldn't have sat on the market for 10 months. How long ago was the price dropped to $115K? If it's been a while since the price drop, your bargaining position is better than if it dropped to $115K right before you made the offer.

(* This isn't actually true, but it's close enough.)

[johnhenry]

Thanks everyone for the input, just to fill in some of the details John Henry mentioned. The house was listed in January for 125k, since then they have dropped their asking price to 115. The last tax assessment valued the property at 125. The property is vacant and has been on the market for 10 months.  The current offer sits at 110. The property last changed hands in 2002, the sale price was $0.00? I suppose that means it was bequeathed or something along those lines? But I'm not sure.

If it's been on the market 10 months and it's vacant, I'd say you are in a good negotiating position.  When did the price drop occur?  Unless it just recently reduced, I would think they'd be willing to deal.

When I was younger I was much more hung up on getting a great deal on anything that involved negotiation.  I remember being young and bragging a little to someone older and wiser about a deal that I'd struck.  He said "You are just like your dad.  If you buy something, you aren't happy unless the other guy takes a screwing". 

I've come to realize that good value can be had without getting a "great deal".  But to get great deals, you have to be willing to walk away and lose some deals.

If it's important for you to get a great deal, stand your ground and you may well get one.  But you have to be prepared to leave empty handed.  If you've done the due diligence and are confident in your analysis of what the place is worth to you, don't be afraid to pay what you think it's worth.

[sol]

I would absolutely quibble over $5k, over a house or a car or a cup of coffee should make no difference.  Don't borrow money to pay more than an asset is worth.

Real estate agents will ALWAYS encourage you to overpay.  Their incentive is to get the house sold as quickly as possible, at any price, and they don't care if you pay too much as long as they can close the deal and move on to the next one.  Tell your agent to stfu and stop helping the seller rip you off.

The fact that they're negotiating with you so heavily means they want to sell to you, rather than to somebody else.  Do you think your 105 is currently their best offer?  Then don't raise it under circumstances.  If $5k is really no big deal, then they can come down $5k instead of you going up $5k. 

Remember that everyone else in this deal is making a profit except you.  You are the only party bringing cash to the table and therefore you have ALL of the power in this negotiation.  If they turn down your offer they'll have to pay at least another month's mortgage to find and negotiate with another buyer, so they have some incentive to sell to you.

Don't outbid yourself just because they asked for more money.  You can raise your price to outbid another bidder, but haggling over your price versus the seller's price is stupid because the seller's fantasy price is irrelevant, only the buyers' prices matters to the market.  Everyone will try to squeeze that lost few thousand out of you, but unless you're competing against another buyer there is absolutely no reason for you to give in to that pressure.

When we last bought a house, we had three different people refuse our 95% offers and then get stuck sitting on their empty house for another 6 months or a year paying the mortgage and losing far more money than they would have given up by selling to us.  Fine with me, idiots, your loss. 

As long as you're prepared to either buy the house at a fair price or not buy the house because they're charging to much, then let your offer stand.

[Forcus]

If it's important for you to get a great deal, stand your ground and you may well get one.  But you have to be prepared to leave empty handed.  If you've done the due diligence and are confident in your analysis of what the place is worth to you, don't be afraid to pay what you think it's worth.

I think also the key point is this house / area much better suits the OP than some others, in (1) commuting / travelling distance is cut greatly and (2) the other unit is immediately rentable. So in other words, by passing because of the up front cost (or pride), you may be losing opportunity. To wit, my old house is listed at 99k, no bites (so value is somewhere south of 99k), it fairly inefficient, is ~45 minutes from work, and has high (for the area) property taxes. My new house I bought for $175k, is less than 10 minutes from work, has spray foam insullation, and moderate property taxes. All expenses accounted for my new house, at almost twice the price if the old one, is cheaper by several hundred dollars a month. Counter-intuitive but true.

[mattr249]

To add some more information and answer some of the questions. The price was cut from 125 to 120 in April, and then from 120 to 115 just a couple of weeks ago. So the slash in asking price is relatively recent.

As of now they have countered our offer with an offer to sell at 110. They cover up to 4600 in closing costs and the deal is contingent on inspection.

Also, to answer an earlier question, we plan to live in the area long term, barring an incredible job opportunity in another city this is where we intend to stay.

[justajane]

We overpaid for our house by approx. $5,000, at least that was my sense at the time.

Seven years later it might irk me a little, but it doesn't burn or anything. But we love our home. If you end up buying a lemon or hating the place, you might feel differently.

[retired?]

Yes, key thing I learned early on about real estate agents is that once they have as a client and know your range, e.g. 100k, 200k, etc. they don't care too much if you actually pay that amount +/- 10% since they get about 1.5% after they pay their firm (e.g. Coldwell Banker).  Each agent's take home commission, listing and buying, changes by only $75 for each $5k change in price (1.5% of $5k)

Even on the seller side, they'd encourage the seller to accept less to get the deal done since, while a lower price reduces their commission, it is minimal.  We've had listing agents that, once a contract is initiated, seem to almost turn into a buyer's agent - i.e. doing everything possible to close the deal, regardless of who it benefits.

[dragoncar]

I would absolutely quibble over $5k, over a house or a car or a cup of coffee should make no difference.  Don't borrow money to pay more than an asset is worth.

But at this point, we haven't heard what OP thinks the house is worth.  Before you made your offer, what was your assessment of fair market value based on comps, etc.?

I would be willing to (and might have) paid more than fair market value for a house, if it's truly the perfect house I expected to stay in for many many years.  Because the market doesn't necessarily have the same values as you do.  In this case, I'd expect the seller might come down more, but I'd probably be willing to pay an extra $5k.  How many weeks worth of savings is that for you?

they all look alike to me and are completely uninteresting with a sea of drywall and hideous flat windows.

Look at this fatcat here, with her fancy curved windows.

[Psychstache]

I would absolutely quibble over $5k, over a house or a car or a cup of coffee

Talk about an anti-MMM coffeehouse.  :)

With a 10-month on the market time, it seems like you are in the driver's seat. Don't give away money you don't have to.

[Beric01]

I would absolutely quibble over $5k, over a house or a car or a cup of coffee should make no difference.  Don't borrow money to pay more than an asset is worth.

This.

Think about how much time it takes you to earn $5K. We're worried here about an extra .5% of an expense ratio on a mutual fund, and yet don't care about $5K on a home? $5K is a LOT of money. It's definitely worth your time to quibble over, assuming you can reduce the cost with more work. For goodness sakes, it's 5% of the property's value! If this is purchased via mortgage, you will be paying interest on this $5K as well.

[magnuminator]

they all look alike to me and are completely uninteresting with a sea of drywall and hideous flat windows.

Look at this fatcat here, with her fancy curved windows.

Brilliant!

[wtjbatman]

they all look alike to me and are completely uninteresting with a sea of drywall and hideous flat windows.

Look at this fatcat here, with her fancy curved windows.

Those are the windows you can snap in half with your bare hands.

[Terrestrial]

Of course your realtor thinks it's a great price.  If you don't buy that one, it's more of his time spent showing you more houses.  And the more you spend the more he gets paid.   I try not to question their professional ethics but the way buyers realtors are compensated does not incentivize them to getting their clients good deals.

I think 5k in real estate can go either way in importance.  Part of it depends on the house price.  5k more or less on a 500k house isn't really as 'big' a deal...1%.  5k on a 100k prop is 5%...that's probably a couple years of appreciation if you describe your market as 'flat'....it's a tangible difference.   

The other hard part about real estate is there is no perfect 'comp' for most houses.  You kind of have a range of what it's probably worth but it's hard to find direct comparisons for anything, especially if it's not new build.  No other house will have the exact same lot, upgrades, etc etc etc to compare it to.

In the end it depends what it's worth to you and what the market looks like (available inventory/days on market/etc).  If you don't want to pay 115k but your next best option on the market for an equivalently suitable place is 125k, and everything else is selling quick, it's probably smart to just pay it.  If there's tons of inventory and nothing is selling, hold your line and have your realtor put it back on them.  It costs them to have a deal fall through as well...more time on the market, more mortgage payments and prop taxes spent waiting for it to sell.  You are in a stronger negotiating position than them if it's been on the market that long, especially since it's vacant.  If there are other suitable properties that you are willing to buy then drive a hard bargain.   Value earned in real estate largely comes based on the price you pay.

[Beric01]

5k more or less on a 500k house isn't really as 'big' a deal...1%.  5k on a 100k prop is 5%...that's probably a couple years of appreciation....it's a tangible difference.

$5K is still $5K, whether it's part of a $500K or $100K purchase. Jacob at ERE lives off $7K a year! Why would you ignore this cost just because of its percentage of total spending? This is extremely anti-Mustachian IMO. If you can spend 20 hours finding another such place for $5K cheaper (whether on a $500K or $100K purchase), you just made $250/hour. Not bad.

[Terrestrial]

5k is still 5k, yes.  My point was the importance of the 5k MIGHT be considered less (or intangibles of the house might more easily outweigh it) when the person can afford a 500k house, and I would be less likely to have it kill a deal for me in that context.   

It's in the same vein that Bill Gates and I view a million dollars very differently, but it's still a million dollars.  For most of us it's enough to be set for life.  For him it's a completely meaningless rounding error (or toilet paper).  Was not trying to make light of the 5 g's just point out that it can be viewed different depending on the context.

[dragoncar]

5k is still 5k, yes.  My point was the importance of the 5k MIGHT be considered less (or intangibles of the house might more easily outweigh it) when the person can afford a 500k house, and I would be less likely to have it kill a deal for me in that context.   

It's in the same vein that Bill Gates and I view a million dollars very differently, but it's still a million dollars.  For most of us it's enough to be set for life.  For him it's a completely meaningless rounding error (or toilet paper).  Was not trying to make light of the 5 g's just point out that it can be viewed different depending on the context.

Exactly... $5k is $5k, but it takes us a week to save that.  If quibbling over a week's worth of savings means I spend another 3 months overpaying on rent while I look for a comparable house, and leave work early 12 times during those 3 months, I'm willing to pay up.  But as above, it depends on the market, how "perfect" this house is, and what you earn.

[Beric01]

5k is still 5k, yes.  My point was the importance of the 5k MIGHT be considered less (or intangibles of the house might more easily outweigh it) when the person can afford a 500k house, and I would be less likely to have it kill a deal for me in that context.   

It's in the same vein that Bill Gates and I view a million dollars very differently, but it's still a million dollars.  For most of us it's enough to be set for life.  For him it's a completely meaningless rounding error (or toilet paper).  Was not trying to make light of the 5 g's just point out that it can be viewed different depending on the context.

Exactly... $5k is $5k, but it takes us a week to save that.  If quibbling over a week's worth of savings means I spend another 3 months overpaying on rent while I look for a comparable house, and leave work early 12 times during those 3 months, I'm willing to pay up.  But as above, it depends on the market, how "perfect" this house is, and what you earn.

Exactly, you have to do it based on your own situation. How valuable is your time in your situation?

Personally, it takes me a bit more than 1 month to save $5K. YMMV.

[Zamboni]

Real estate agents will ALWAYS encourage you to overpay. 
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Remember that everyone else in this deal is making a profit except you.  You are the only party bringing cash to the table and therefore you have ALL of the power in this negotiation.  If they turn down your offer they'll have to pay at least another month's mortgage to find and negotiate with another buyer, so they have some incentive to sell to you.

Don't outbid yourself just because they asked for more money.  You can raise your price to outbid another bidder, but haggling over your price versus the seller's price is stupid because the seller's fantasy price is irrelevant, only the buyers' prices matters to the market.  Everyone will try to squeeze that lost few thousand out of you, but unless you're competing against another buyer there is absolutely no reason for you to give in to that pressure.

Sol is right on the money on this one, and sometimes a real estate negotiation can feel like 3 against 1 (both other agents and the other party vs. you.)  If they have no other buyers making offers, and it's been sitting vacant for 10 months, then the pressure is on them to get the deal done with you.  "A couple of weeks ago" can be considered a long time in real estate . . . so don't feel like they lowered the price yesterday and suddenly everyone wants to buy it.

I feel especially lucky to have an agent who never pressures me to offer more.  In fact, twice I've been in "bidding wars" where the seller played the "okay, we have multiple offers, so now everyone submit to us their highest offer" trick (which I think is bogus, but it seems to be the way people roll here.)  Both times my agent advised to tell them that they already have our best offer with the rationale that it might already be the highest and we'd trick ourselves into paying even more.  One time I won, and one time I lost to a substantially higher offer.   Both times I felt good about it. 

[soccerluvof4]

As i go down the thread it appears to me the house offers what you want/ where you want it etc... You always have the inspection to use as a tool to back out BUT i agree you are in the drivers seat AND your Realtor might kick in a bit as well some of there commission to close the deal. I wouldn't rush it, i would counter again. Act like your not sure and overplay it till you get the best possible deal BUT if you want it don't let it slip away.

[BlueHouse]

It sounds to me like this is less about the money at this point and more about "winning". The seller may feel like he is losing his shirt on this already. Find a way to make both parties feel like winners and do it. Find creative methods, etc. also, since both agents are so invested in the sale, ask them both to lower their commission by 2500 each. After all, it's "only" $5k.

[mattr249]

Thanks everyone for your input, I think I'm learning a lot from the discussion going on here. The vibe I am getting is that this is a deal, just not a steal. (based on comps). The place is more valuable to me then it may be to others, because it's in walking distance of work (and everything else) and because of our desire to establish rental income.

To update, it looks like the place may need a new roof. We won't be able to qualify for financing if it does.

I'm considering countering the offer with the same 110, with the additional caveat that a new roof must be put on before closing.

Thoughts?

[Forcus]

To update, it looks like the place may need a new roof. We won't be able to qualify for financing if it does.

I'm considering countering the offer with the same 110, with the additional caveat that a new roof must be put on before closing.

Thoughts?

Your comments highlight what I was trying to say earlier, that what is valued by you might not be valued by others. I put the walk to work factor very high. It can mean the ability to eliminate thousands of dollars in cost for maintaining a vehicle, etc.

The roof thing sucks. We had to fix the peeling paint on our first house before buying, and add storm doors (could have made it contingent but since it was our loan that was requiring it, I thought it was an unreasonable burden to the homeowners). Roof is a bit different, my expectation is that any house other than a complete renovation will have a serviceable roof. Unfortunately though, whether a roof is serviceable or not is kind of a judgment call on behalf of the inspector. Our inspector said that we needed a new roof within a year. I waited 6 years with no ill effect. So be aware the sellers might balk at paying for a new roof if its not strictly necessary.

[nobody123]

I'm considering countering the offer with the same 110, with the additional caveat that a new roof must be put on before closing.

Thoughts?

Figure out what the roof (quality / style) you would put on would cost, and ask them to reduce the price by that amount.  Otherwise, assuming they even accept your offer, they will spend the absolute least amount of money repairing the roof.  They will probably just put the cheapest shingles possible on top of the existing ones.

[frugaliknowit]

5K IS a lot on a $115K house.  You're the one with the leverage; they've been sitting and reducing all year!

Find the best set of sold comparables you can find that make your case (don't expect the realtor to do this for you...) and present them to the seller.  If you don't think the value is there, walk.

[dragoncar]

It sounds to me like this is less about the money at this point and more about "winning". The seller may feel like he is losing his shirt on this already. Find a way to make both parties feel like winners and do it. Find creative methods, etc. also, since both agents are so invested in the sale, ask them both to lower their commission by 2500 each. After all, it's "only" $5k.

Yes -- and sellers aren't always rational.  This seller has already come down a lot from the original ask.  Now, we all know that means it was overpriced to begin with, but the seller's mind is still anchored on that price.  I've seen many real estate forum threads like this where the seller wanted too much and walked away, then ended up selling much lower a year or two later.  I'm not trying to scare OP, I'm just pointing out that the seller probably isn't a mindless capitalist robot, but a human being who can get pouty and take his ball home.

Find the best set of sold comparables you can find that make your case (don't expect the realtor to do this for you...) and present them to the seller.  If you don't think the value is there, walk.

OP just said that $115k is a "deal" based on comps.  So it'll be hard to use comps to lower the price.  On the other hand, the roof thing could easily kill it.

But correct me if I'm wrong: mattr249, what do your comps suggest the actual value (range) is?

[mattr249]

According to the comps our agent assembled, 87k is the low 102,900 is the median and 119k is the high. This is based on 13 houses sold in the past 6 months. The avg price per square foot has been $59.78. At 110 this place would be $52.30/sqft.

To update, the last counter offer we received was for 110k and seller covers closing. We decided to move forward by countering their offer at 107.5 and seller covers closing costs. This is half way between their asking price and our original offer.

[Credaholic]

Here's what I would probably do in this situation, and it is kind of annoying of me, but all's fair in love and real estate.... Accept their counter offer, do the inspection, and then write up every little thing found wrong with the place and ask for $5k back (or more even depending on the report) for inspection items. Sellers tend to like paying a flat fee on inspection items rather than correcting them since it takes time/work to correct, and the buyer could quibble that things weren't completed correctly, etc. if the seller does agree to actually repair items. They might be mad that you're essentially driving them down to their original offer, but in the case of a property that's been on the market a long time, they're not going to want to lose their only buyers, and it doesn't look great to have the property come back on the market again after inspection; people might wonder what was wrong with it. Faced with the option of coming back on the market, continuing to pay the mortgage, and possibly having to do another price drop (which would probably result in an even lower agreed upon price in the future) they'll probably suck it up and go with it, or at least meet you somewhere in the middle. Even if they refuse, at least you're under contract on the property that works so well for you, and have the option of either buying or walking away unscathed (besides inspection fee) whereas right now you could have the property stolen from under you if another buyer submits an offer while it's still active. Also, keep in mind that if $5k shouldn't be a big deal to you, it shouldn't be a big deal to the seller either, so might as well be in your pocket ;)

[mm1970]

I would absolutely quibble over $5k, over a house or a car or a cup of coffee should make no difference.  Don't borrow money to pay more than an asset is worth.

Real estate agents will ALWAYS encourage you to overpay.  Their incentive is to get the house sold as quickly as possible, at any price, and they don't care if you pay too much as long as they can close the deal and move on to the next one.  Tell your agent to stfu and stop helping the seller rip you off.

The fact that they're negotiating with you so heavily means they want to sell to you, rather than to somebody else.  Do you think your 105 is currently their best offer?  Then don't raise it under circumstances.  If $5k is really no big deal, then they can come down $5k instead of you going up $5k. 

Remember that everyone else in this deal is making a profit except you.  You are the only party bringing cash to the table and therefore you have ALL of the power in this negotiation.  If they turn down your offer they'll have to pay at least another month's mortgage to find and negotiate with another buyer, so they have some incentive to sell to you.

Don't outbid yourself just because they asked for more money.  You can raise your price to outbid another bidder, but haggling over your price versus the seller's price is stupid because the seller's fantasy price is irrelevant, only the buyers' prices matters to the market.  Everyone will try to squeeze that lost few thousand out of you, but unless you're competing against another buyer there is absolutely no reason for you to give in to that pressure.

When we last bought a house, we had three different people refuse our 95% offers and then get stuck sitting on their empty house for another 6 months or a year paying the mortgage and losing far more money than they would have given up by selling to us.  Fine with me, idiots, your loss. 

As long as you're prepared to either buy the house at a fair price or not buy the house because they're charging to much, then let your offer stand.

My friends tried to buy a house as a short sale, and the bank did not approve it.

The bank foreclosed, and then put the house on the market a year later.  My friends got it for $100k less than they'd offered at the short sale.

I'm going to say this:
1.  It's $5000.  $5000 is a lot of money, regardless of whether it's a small "percentage"
2.  My answer would totally depend on whether there are other similar houses on the market.

[Sunnymo]

Have you thought about an offer of $108k? This is a variation on the 'meet them in the middle' theory. By moving slightly on to their side of the mid point between the two offers it gives the vendor the feeling of having 'won'. You secure the property and while it is not your preferred position of $105k you haven't given up the full additional $5k.

[electriceagle]

The gist of the responses thus far seems to be "it depends" or "if you can save the $5k, do so. If not, don't". These are all arguments about market value. The thing is that, unless you intend to sell the house tomorrow, today's market value doesn't matter very much to you.

What does matter is operating value.

Take the cost of your next-best option for living space, subtract the anticipated income from the rental portion (don't forget to include depreciation) and the savings from the shorter commute. Figure out what this is worth in monthly payments. Treat 4% of the downpayment as an additional monthly payment. Decide whether the deal is worthwhile.

[Goldielocks]

I would (did) pay the difference, and ask(ed) for the sofa, lawn mower, hoses, washer and dryer to be included now too.

First home, we did not have some of these things, and they were worth more to us than the owner.

[jexy103]

OP, you said that this is in a great area within walking distance to everything you need. If you re-read MMM's true cost of commuting article (http://www.mrmoneymustache.com/2011/10/06/the-true-cost-of-commuting/), he argues that you should be willing to pay $15,900 more for a house that is one mile closer to work. Food for thought. :-)

Don't look at what the seller's original or current asking prices are; what is the home worth to you? Is it worth only $105,000? Stay there. Don't pay more than it's worth to you. The real estate agent just sees commission and getting you as the client closed out so he can move on to another customer. On the other hand, maybe you talk it over and realize the proximity of everything is worth another $3,000, since you save $795 per mile per year and you plan to stay there at least four years. As sol said, you are the buyer and you are the one paying. Pay only what you are willing to pay.

[Overseas Stache]

You said the place needs a new roof.

Do you know if there has been storm damage in the area in the last couple of years? If so you might be able to get the insurance company of the seller to pay for the new roof. When I was looking for my second investment property I found a triplex already rented, after some after some bargaining I got them to drop the price from 165K to 140K. We signed deal contingent on home inspection. During the inspection we discovered that the roof was in bad shape so we got a roofer that i know to come out and he said there was hail damage from like 3 years ago but he could get the insurance company to pay for the new roof. So I told the owners that the new deal was the same price but they replace the roof with their insurance paying for it, and a couple of other small things found at inspection. They agreed we all signed the agreement and they completed all the work. Interestingly, after they sent us pictures that the work was done they must have had a change of mind or something because they refused to finalize the sale. They literally just would answer any communication. Their Realtor said something about them being busy. Anyhow I just moved on and found a better property, about a month after the fall through they relisted the property for 145K and it sat at that price for 7 months and then they took it of the market.

Sorry for the long story, basically if it is storm damage to the roof even from a couple of years ago you can get the insurance company to pay for it.

[Elderwood17]

According to the comps our agent assembled, 87k is the low 102,900 is the median and 119k is the high. This is based on 13 houses sold in the past 6 months. The avg price per square foot has been $59.78. At 110 this place would be $52.30/sqft.

To update, the last counter offer we received was for 110k and seller covers closing. We decided to move forward by countering their offer at 107.5 and seller covers closing costs. This is half way between their asking price and our original offer.

Sounds good -- good luck!

[Forcus]

OP, you said that this is in a great area within walking distance to everything you need. If you re-read MMM's true cost of commuting article (http://www.mrmoneymustache.com/2011/10/06/the-true-cost-of-commuting/), he argues that you should be willing to pay $15,900 more for a house that is one mile closer to work. Food for thought. :-)

Don't look at what the seller's original or current asking prices are; what is the home worth to you? Is it worth only $105,000? Stay there. Don't pay more than it's worth to you. The real estate agent just sees commission and getting you as the client closed out so he can move on to another customer. On the other hand, maybe you talk it over and realize the proximity of everything is worth another $3,000, since you save $795 per mile per year and you plan to stay there at least four years. As sol said, you are the buyer and you are the one paying. Pay only what you are willing to pay.

Man I thought I was the lone voice on this one. My thoughts exactly.

[mattr249]

Well, its been over 24 hrs since we put in our offer. The seller claims someone else is putting in an offer so they are waiting to review that before they respond to mine. Should I be worried?

Remember, this house has been on the market for 10 months, and is empty.

[Forcus]

Well, its been over 24 hrs since we put in our offer. The seller claims someone else is putting in an offer so they are waiting to review that before they respond to mine. Should I be worried?

Remember, this house has been on the market for 10 months, and is empty.

Hard to say. Are you working through a realtor? Do you trust that realtor? Might dig for more info with that realtor to see. This is why my stance was not to quibble over $5k (though the roof added a new dimension to it). When there is something I want, I want to secure it, and make sure I don't lose it over the need to "win" (this is not the same as instant gratification). I see the within walking distance of work and the ability to rent the second unit out right away as huge wins that way override the $5k both financially and in principle. In any case I've beat that horse to death and I'd say see if your realtor can get inside info on whether they are gaming you or of it's really true, then figure out what it is worth to you. If they exceed that, then you can walk away and feel good about it.

[dragoncar]

Well, its been over 24 hrs since we put in our offer. The seller claims someone else is putting in an offer so they are waiting to review that before they respond to mine. Should I be worried?

Remember, this house has been on the market for 10 months, and is empty.

That sucks.  Could be a tactic, could be real.  Real estate practices  vary by location, but around here my impression is that a realtor would not make up a fake offer.  They'll go so far as to say " we are EXPECTING 3 offers" or whatever, but will grudgingly admit when they have no offers.  That's here, though, and by no means a rule.

I've heard anecdotal beliefs that houses often can sit on the market a long time and end up entertaining multiple offers.  The real question is how long it's been at the current price. As sellers come down, they more people get interested.  When I was looking for a place, I tried to identify homes that looked like they were going to price drop and then low offer before that happened.  I didn't want to compete with all the new buyers who would suddenly see that house because it just dropped under their max price filter.

Either way, the above advice is good:  determine a priori what it's worth to you.  Don't budge above that price but be honest when assessing it.  For some people, that price will be 10% under market and they'll get a deal or walk away.  For others it's 10% above market price, and they'll overpay but maybe it fits into their financial plan still.  Good luck!

[johnhenry]

Well, its been over 24 hrs since we put in our offer. The seller claims someone else is putting in an offer so they are waiting to review that before they respond to mine. Should I be worried?

Remember, this house has been on the market for 10 months, and is empty.

Thanks for keeping us posted.  This is a neat case study..... not easy to lay bare all the details.

Instead of you asking us "should I be worried?"  we should be asking you "how worried are you?".  You are the one who knows the intricacies of your local RE market and your internal determination of value.

If you continue to keep us posted with details, you are likely to get "I told you so" from one side or the other, or maybe both! 

If this deal falls through for you, I hope the place right next door comes up for sale, is just as perfect for you and is $10K less!  If you can accurately estimate how likely that is to happen, that may help you decide how worried you should be.  :)

Good luck!!