Property Grunt

Tuesday, March 18, 2008

This time its personal

I'm not a cop tonight, Rog. This is personal.

Martin Riggs-Lethal Weapon 2

Lisa Prevost discusses the higher rate of lowball offers that are presented by buyers. Here are some points of the article.

James and Valentina Sbarra fit the last description, and they are relieved to be able to call themselves successful lowballers. Any nervousness they felt in making a stingy offer — lowballing is typically defined as offering less than 90 percent of a house’s asking price — fell away the minute they struck a deal on their two-bedroom raised ranch in Pawling, N.Y., in Dutchess County.
“We kind of took a gamble,” said Mr. Sbarra, a bank manager in Mount Kisco, N.Y. “But it worked out for us.”

Throughout the region, buyers of all stripes are feeling similarly empowered to bid low and keep their hopes high. The practice still fails more often than not, in that buyers are unlikely to get themselves a steal. But many sellers are swallowing hard and negotiating, because lowballing has become so common that, for better or worse, it’s part of the new norm in buying or selling a house.
The Sbarras gambled by offering $287,000 for their house, which was listed at a reasonable $329,000. In doing so, they risked angering the owner and ruining their prospects for negotiation.

“I think it’s worth $320, $325, and I gave them my opinion,” said Peter Bell, an owner of Balch Buyer’s Realty in Mamaroneck, N.Y., an agency that represents only buyers. “But they said, ‘We don’t want to go too high.’ So I said, ‘O.K., let me make the offer as strong as I can, and we’ll hope for the best.’ ”

Much to Mr. Bell’s delight, the owner responded with a counteroffer of $315,000, and the parties went back and forth until settling on a price of $300,000, the amount the Sbarras had set as their cutoff. The couple moved in last month.

“We would have been disappointed if it hadn’t worked out,” Mr. Sbarra said. “But it was a situation where we felt buyers had the upper hand.”

The Sbarra could pull this off since this is Mt. Kisco. From my experience with Westchester, this is not the primary location where families want to locate. Not that there is anything wrong with Mt. Kisco but there are far more affluent areas in Westchester. This worked in favor of the seller since they probably made a profit from the sale since they probably bought their home for cheap in the first place, albeit smaller than they would like, but I would be surprised if they did not make their nut.

Now here’s where it gets tricky particularly for the affluent class.

“I have one seller who doesn’t want to talk to me because I brought him an offer $200,000 below the asking price” of $1.4 million, said Attilio Adamo, the owner and broker at Prudential Adamo Realty, in Ridgefield, N.J. “Some sellers get insulted and hold a grudge."

Their ire is understandable, said Lois A. Vitt, a financial sociologist and the director of the Institute for Socio-Financial Studies in Middleburg, Va. “Some sellers personify their home, believing the value is all about them, not just about the sticks and bricks,” she said. “They might have lived and loved the home, and a lowball offer can be seen as a very personal insult.”

That is particularly true in high-powered, high-value communities like Scarsdale and Greenwich, Conn., where location and status help prop up prices. Buyers making lowball offers in Greenwich are not getting what they want because sellers refuse to take such offers seriously, said Max Wiesen, a sales associate with Coldwell Banker.
Clients of his recently made a cash offer of $4.6 million for a property listed in the mid-$5-million range. Although it was low, the offer was reasonable, Mr. Wiesen said, given that the house had some issues and no other house on the street had sold at the price these sellers were after. The owners’ response was a counteroffer barely distinguishable from their asking price.

“These people in Greenwich are not in the position other people in America are in,” Mr. Wiesen said. “These are wealthy people who can sit on their houses, and they do.”

This is where Mr. Wiesen is wrong. A lot of these affluent people make their money in finance; and things are not rosy in that arena right now. Right now cash is king. Banks have tightened up their lending standards so people with lots of liquidity are going to ones in the driver's seat. If they can’t the mortgage that they want, they sure as hell as are not going to commit more than they need to. That reality has not caught up with these affluent areas. But when it does it is going to be rather painful.

Though deals can be found if a buyer has enough nerve and stamina to put up with repeated refusals, agents advise that lowballing is a bad idea when the buyer really, really wants the house. “You take your chances when you do it,” said Frank Ledermann, an associate broker in the Scarsdale office of Houlihan Lawrence. “It’s America — you can bid whatever you want. But you may not get what you want.”

No one is going to get what they want. Particularly for the sellers. The sellers that do not dump their properties now are going to enter a world of hurt. It will be especially painful since their egos are so heavily attached to their properties. In fact I can see the coining of a new term, Seller's rage, where seller's start to jump their brokers. You think I am kidding? We are already having riots over housing vouchers. What makes you think a rich person won't take a 9 Iron to a buyer with a low ball offer?

A lot of these sellers moved to these locations for the schools and now that the kids have graduated, they are entering their golden years, looking to move elsewhere. They do not have the commodity of waiting for the next cycle.

As I have stated in a previous entry

The suburbs are a great deal, but I think are about to get much better for buyers. I predict in the next couple of months there were will a ton of coverage on these affluent areas crashing and burning just like the rest of the country. Although this is a process that has been occurring for quite sometime, I believe that with the current state of the economy and how badly the finance industry is doing I think it will get really atrocious for places like Scarsdale and Greenwich. More on that in the next coming months.