Real Estate Offer Algorithm?

April 28, 2006 11:51 AM

What offer should I make for a new downtown Palm Beach, Florida condo asking $295,000?

What is the norm? Should I offer as low as $250,000 to start? Any advice would be greatly appreciated.

The condo is on the corner of a very hip building, 8th (top) floor with a lot of windows and two balconies. The kitchen has all stainless appliances and modernly hip cabinetry. The maintenance is about $300/month. Free valet, parking space, et cetera.

posted by travis vocino to home & garden (18 comments total)

Depends on the market, but offering 15%+ below asking if it's a desirable building will get you laughs in any reasonably solid real estate environment. In Toronto, for example, these days, people are starting 10% above asking. Your offer should really depend on a) how much you think the property is worth, b) how much you want to/can afford to pay, and c) what your estimating of the demand is. If you lowball and 6 other people offer numbers above yours, you are not getting the property. The relative importance of that is something only you can answer. In other words, is the (unknown, but slim) chance of saving X money worth the (relatively high) risk of missing out on the deal.

Generally speaking, lowball offers are made on relatively undesirable properties in down markets, or for properties in disrepair or distress that can be fixed or flipped. It's more of an investment strategy where you lowball on multiple properties and if a couple hit, you've done well. It's usually a bad idea if you're focused on one property that you'd actually like to make a home.
posted by loquax at 12:01 PM on April 28, 2006

Can't offer you advice on exactly what to bid, but I'd like to point out that the inventory of housing for sale in the Miami area is rapidly increasing:

http://www.benengebreth.org/housingtracker/location/Florida/Miami/

(up ~94% in the past 6 months).

and condos for sale, in particular, are legion. If the seller doesn't recognize this in negotiations then move on to one of the other gazillion condos for sale.
posted by de void at 12:03 PM on April 28, 2006

And as for what you should offer, a real estate agent should be able to provide you with comps, general market information and their subjective assessment. There may also be publicly available information in your area, such as tax assessment data, appraisals, and sale history. Check your county's website for any info they may have that can help you determine what the place is worth.

(And I should say further to my first answer, I have no idea what the market is like in Palm Beach, a low offer may well be justified considering this particular property if $295,000 is way too high).
posted by loquax at 12:06 PM on April 28, 2006

I don't know if this posting is a joke since your real estate agent should be guiding you as to a fair offer by usage of comps and other info but let me give you some good advice based on my life experience thus far......
1. trust no one
2. trust yourself and u have to tell everyone who claims to be of service to you how to their job and u must check up on their work so that means u have to do a LOT of your own research.
3. in FLA, I think it's acceptable to do the title work yourself-- esp for a condo-- so that should save you $
4. Again, just do a lot of comp work on your own-- real estate esp in FLA is always very competitive despite market falls- (lots of people there making their final exit if u know what I mean)
posted by GoodJob! at 12:08 PM on April 28, 2006

My rule of thumb, and many have disagreed, is that you owe it to yourself to at least test the water at 10% below the offer price. If they laugh, fine, who cares? If they get angry and refuse to deal, buy something else. 90% of ask is not a bad-faith offer. If you've got a stronger stomach, go for 15%.

A friend of mine recently made an offer close to 20% below ask. The sellers did not counterbid. A few weeks later, they called him up and said they would take the offer if he was still game.

This sort of thing happens, you just have to not be afraid of walking away.
posted by Mid at 12:15 PM on April 28, 2006

The real question is will you be devastated if you don't get the property? If yes, forget about saving money--you're going to pay a premium because you're in love. If no, try to get a discount. You can communicate to the seller (through the broker) that you're bidding only as much as you can afford, and that you don't intend to insult them or anything. If they're not interested, fine, but they shouldn't get angry or refuse to counter. What's the worst that can happen? And how hard is it to come by a new condo in Florida these days? Not hard, from what I read.
posted by Mid at 12:19 PM on April 28, 2006

It totally depends on the market. As someone pointed out above, in Toronto at the moment properties are often listed substantially below their market value in order to attract multiple competing bids, which then bid the property a long way beyond the asking price.

A friend of mine made an offer on a property this week at 10% above asking (and probably 25% above what he thought the market value was) and was outbid.

So you have to figure out what's going on where you are.
posted by unSane at 12:25 PM on April 28, 2006

Unless this place is a fixer-upper or you think they're asking way too high, any offer lower than $270,000 will probably get you laughed out of a deal...

If you are just trying to figure out how to get the best possible price - ask a few RE agents for their opinions.

If you TRULY believe the asking price is high, but you want it so long as you can get it for a fair price, get the property appraised (this will cost you a couple hundred bucks, but if you're serious about the place, it is worth it)... This can bite you in the ass hard if you're wrong, though.
posted by twiggy at 12:29 PM on April 28, 2006

Thanks for the replies. The market in South Florida is rather saturated right now as most people know. There are tons of condos available, most of which are already resales that haven't even closed from the pre-construction buy.

That's the case with this one as well. These people bought it pre-construction and are now flipping it before they close on it in a few weeks.

The lowest asking price I've seen in the building is $285,000 and the one I want is much better (it's on the corner, has tons of windows, et cetera).

The other issue I have is that this purchase is somewhat contingent on the sale of the place I'm in now. Although I could probably swing owning both for a while, it wouldn't be ideal. So in some respects, I'd like to drag out the sale of this condo for a while in order to give me some time.

I'm not sure if starting at a lower offer will help that any though, as some of you have suggested they'll just write me off.
posted by travis vocino at 12:37 PM on April 28, 2006

There's no hard and fast rule like you should always offer 10% above asking. Ignore the asking price and make an offer in-line with comps. A buyer's agent would help you with this.
posted by malp at 12:53 PM on April 28, 2006

I don't know if it works this way in Florida but when we bought our house in VA last year our realtor put an escalation clause in our contract. It works just like ebay - you make a bid but also tell your realtor the top dollar you're willing to pay - s/he uses that to top any counteroffers their realtor has on the table, in $5k increments. You might get it and you won't pay more than you have to.
posted by selfmedicating at 1:18 PM on April 28, 2006

Your agent should be helping out with comps. Depending on your market, hot properties may go for anywhere from 1-2% below ask to 10% or more over.
posted by acoutu at 1:43 PM on April 28, 2006

The other issue I have is that this purchase is somewhat contingent on the sale of the place I'm in now. Although I could probably swing owning both for a while, it wouldn't be ideal.

Can you rent the current property for enough to cover your costs on it? In a market with increasing inventory, it seems dangerous to omit the contingency clause on selling your old place. Worst case, you get stuck with both with no buyer for it or have to take a loss on it.

Also, if the new place has sold once already, can you look up what the current owners paid for it and make an offer just over the likely cost of both deals? If they are trying to get out of the market before a potential collapse, they might just take it.
posted by procrastination at 2:06 PM on April 28, 2006

For reference, I'm actually trying to avoid having an agent.
posted by travis vocino at 2:43 PM on April 28, 2006

For reference, I'm actually trying to avoid having an agent.

Why? In most cases, the buyer's agent splits the seller's commission, so it doesn't cost you anything. In some cases, the seller will give you a discount if you don't have an agent, but seriously, you should have an expert representing you in this kind of a purchase.
posted by aberrant at 2:54 PM on April 28, 2006

I think you're in a much stronger position if you sell your place first and then know exactly what kind of money you're dealing with and that on X date that money will be available. The significance of this is that if you do get into a situation where you might be competing with someone else, having the money, not just expecting to have it, is a point in your favour. The fewer contingencies the better when you're buying.

Also I agree that you want a buyer's agent. If you don't to sell with an agent, that's fine, sell the place and then find an agent. You can engage in the process of selecting an agent without giving away a whole bunch of information (such as that you're selling your place FSBO).
posted by mikel at 3:17 PM on April 28, 2006

Huh. I don't know the answer, but I did happen this morning to read something about condos in Miami which you may find interesting. I think it's safe to say that most of them are going to take a while to sell, and there are therefore going to be a larger than usual number of sellers desperate for any offer. That doesn't mean the one you're interested in is necessarily among them, but the situation with condos in Miami is rather unusual at the moment, more extreme than almost anywhere else. For the next few years it seems inevitable that there are going to be more people trying to sell than willing to buy.

"I guess I must ask how 60,000 condos in Miami with a 2,500 a year absorption rate isn’t a supply and demand problem. Let’s take the 60,000 reported by McCabe Research and cut it in half, and then double the absorption rate. So we have 30,000 condos and 5,000 sales. Do the numbers."
posted by sfenders at 3:56 PM on April 28, 2006

Do you mean Palm Beach, or West Palm Beach, or maybe even Palm Beach Gardens? If you mean Palm Beach (on the island proper), the market is very different from Miami.
posted by astruc at 8:13 PM on April 28, 2006