How low an offer should I take for my house?

July 17, 2008 4:56 PM

How low an offer should I take for my house?

2 family house.

Bad: Has some knob&tube wiring, crappy, beat-up garage, kitchens haven't been renovated. Close to noisy road. 1 really awful neighbor that the city will take to court for basically being a dump. Built @ 100 years ago; I'm the 3rd owner.

Good: Has gorgeous period woodwork, pretty good location. Close to the ocean, shopping, bus lines, recreation, university. Replacement windows, insulation, recent roof.

Put it on the market at 325. Under contract at 305, buyer bailed out. Gave realtors 1 month extension of contract, reduced price 10% to 293.

There are are @ 50 2-family houses on the market, many more 3 & 4 family houses, and few buyers. Rents will cover my 1st & 2nd mortgages on the house. I have a new house, sick of being a landlord, would like to have cash to buy more land, and generally have better cash flow. Have negotiated an offer to 285.

My real question? How bad do you think the market will get? How bad do you think the economy will get? My town is healthy, real estate market is soft but hasn't really tanked. I tend to be quite pessimistic about the current state of affairs.

Thanks for your advice.

posted by Mom to work & money (26 comments total)

I think it would be worth while to say which town you're in...my personal experience from just having sold a house is that it really depends on your specific local.
posted by razdrez at 5:10 PM on July 17

Country? City? Area?

The description is fine and all but the old saw in real estate is that the price is determined by three factors: location, location & location.
posted by GuyZero at 5:11 PM on July 17

Portland, Maine
posted by Mom at 5:15 PM on July 17

Real estate here is mushy, but published stats say prices are steady.
posted by Mom at 5:16 PM on July 17

Price stats are sometimes steady because people who don't want to accept a lower price for their house just wait ... and wait ... and wait.

Around here, I expect things to get a lot worse before they get any better. But I'm thinking of my local market, where inventories continue to rise, prices haven't dropped much, and it's still dramatically cheaper to rent than to buy.

Your local Realtor, if you trust him/her, may be able to give you the best insight into the price/time tradeoff for your area. And then you just need to decide how bad it is to be a landlord.
posted by CruiseSavvy at 5:28 PM on July 17

So you're saying you re-offered it for sale at 293, and have an offer at 285?

Take the offer.
posted by ROU_Xenophobe at 5:34 PM on July 17 [1 favorite]

I would take the offer as well. It is 97% of what you are asking for. I don't know about your area, but I have read in northern Virginia and Maryland outside DC, the average settling price is 5% under asking.

Also, it could get much worse. Here is a link to a tool that shows the Case-Schiller prices here. Probably more bubbly than your area, but there is a long way to go down.
posted by procrastination at 6:01 PM on July 17

buyer bailed on contract? talk to your lawyer and see if you can sue for the difference between what you eventually get and the contract price.

I agree with CruiseSavvy that price stats are meaningless in this market as the only price that matters is the price that sells. If you can wait months and still rent the property then it might pay to wait and hold out for a better price, although there still seems to be some ways to go down in most markets, but probably not too far.
posted by caddis at 6:12 PM on July 17

How bad do you think the market will get?

First off, lower housing prices are good, not bad.

Housing prices 2003-2006 were driven up by goofy lending practices, significantly lower income taxes, and generationally-low interest rates that temporarily increased buyers' purchasing power, plus people willing to pay more to speculate that prices would continue going up & up.

All that is gone now; loans are actually more difficult to qualify for now than before the boom, interest rates are edging up, everybody expects prices to continue to drift down, and rising energy costs have put a pressure on everyone's monthly income.

The quick & and easy answer is zillow your house and find the 2001 price. That is a reasonably safe estimate of where housing prices are going back to in most areas.

How bad do you think the economy will get?

Pretty bad, actually. 1991-style recession is the optimistic case, but the country is a LOT more in debt now than then so I really don't want to think about it.
posted by yort at 6:21 PM on July 17

Read this.

The take-home message? Don't get attached to the original price you set the house at; instead, listen to the market. The market is telling you that, right now, your house is worth $285K. Its very difficult to predict where it will go from here, and you are unlikely to get reliable advice here or anywhere else on the internet, because no one really knows what is going to happen in the future. Don't bet on the market going one way or another; take the best offer you can get in the current market. Sell.
posted by googly at 6:36 PM on July 17

Real estate here is mushy, but published stats say prices are steady.

That sounds like the situation Seattle was in right when I sold. I had put my place out for what I thought was an "attractive" price, but three offers later, I still had to drop the price some more. However, I was the first house to sell in the neighborhood in three months, I already wasted my time over a pulled offer, and...I really wanted to leave. The main thing was my motive. If you're as "sick of being a landlord" as I was sick of being in Seattle, $8k in the long run is really nothing.

It sounds like you've already countered up on the original offer to 285k. People are going to want to feel like they've gotten a discount on anything in this economy, especially when they keep hearing that it a "buyers market", so I feel you're always going to be under 293. Again, $8k in the long run?

Enjoy your future freedom and your new bank statement :)
posted by razdrez at 6:40 PM on July 17

How low an offer should I take for my house?

How "motivated" are you? Have you signed a contract on another house? Do you have to move for work/family/other reasons? Or are you in a position to wait for the best possible offer? The authors of Freakonomics famously pointed out that real estate agents keep their own houses on the market longer to get a better price, while pressing their clients to sell so they could get the commission. Not that any of this applies in your case, but this is one of those questions that has a different answer for each situation.
posted by TedW at 7:58 PM on July 17

I'd say take the offer as well. It seems like the talking heads are saying the market isn't going to swing back up any time in the near future, and that we haven't seen the bottom yet. And since it really hasn't been in the media heavily until now- and the banks are starting to close- people are going to be more nervous about longterm financial commitments.

If you hold out, I suspect the market will get worse and you may not even get that high of an offer again. It might improve, but that's a risky bet.
posted by Kellydamnit at 8:47 PM on July 17

A key question is what will you do with the money if you sell. Do you have in mind something you want to spend it on or an alternative investment? You say that rents cover the mortgage but what about other expenses like taxes, insurance and maintenance? If you have positive cash flow then you do not need to feel pressured to sell right away unless you have immediate needs for the cash. You need to consider if you have a better alternative for your investment. If the landlord responsibilities are bothering you, consider hiring a property manager.
posted by JackFlash at 9:23 PM on July 17

nthing the 8k in the long view crowd. Sell.
posted by craven_morhead at 10:30 PM on July 17

How bad do you think the market will get? How bad do you think the economy will get?

I think another 30% will come off your house's worth by, say, 3Q 2011. This is near the most pessimistic end of the spectrum of opinions at the moment. Of course it's hard to be certain about things like this, and I am not certain.
posted by ikkyu2 at 10:46 PM on July 17

That's a fairly close offer, and while it may be painful, be glad you have any offer. In my area (as a real estate agent) we are looking at about 10-13% lower prices than last year in town, and 15-18% lower in surrounding towns. While this doesn't specifically apply to your area (which could vary wildly), we are expecting a general downward trend with a glut of houses in our area that could be severe by spring of 2009. If you really want to sell your home, and not sit tight through a down market that could potentially last years instead of months, then this is the offer to take.
posted by shinynewnick at 11:10 PM on July 17

As someone who lives in Portland, ME, I can tell you that property like yours are a dime a dozen up. Take a drive up or down 95 and stop in Saco, or Old Orchard, or Wells and you'll see an endless procession of FOR SALE signs.

How bad do you think the market will get? How bad do you think the economy will get?

Much, much worse. You will be thanking your lucky stars you got $285k in two years.
posted by Civil_Disobedient at 4:17 AM on July 18

I can totally picture where you are. Off Ocean Ave? I think 285 is a good offer for a 2 family with the issues you describe. However, like many things, the real estate market here is highly localized. For example, small houses in South Portland priced in the low 200s or below are selling very quickly. I suspect one of the problems with properties like the one you describe is that a lot of people over the past 6 or so years put tons of work into renovation of similar properties planning to condo them, and the condo market is super insanely glutted, so they changed their minds and decided to sell as multi-family. Just a theory though.
posted by miss tea at 4:23 AM on July 18

Keep in mind that $285 is the initial offer. After the inspection you might be asked to concede considerably more for that 100 year old house. New roof, replace the deck, electrical upgrade, whatever. Voice of experience...

In September 2006 we put a house on the market for $425K, and had an offer in a week for full price. Two months later, the deal fell through, the market was going downhill fast, and we were behind the 8 ball having already purchased another house.

Ended up taking an offer for $335 four very long months later. Then we were asked to concede $15 K additional for some plumbing, radon remediation, decking, windows, etc. Brutal, just brutal. We met in the middle on the concessions, did some work ourselves, etc. But we unloaded the house, and I have no regrets. Now they would not get $275 for the house. Other houses nearby- which went up for sale before ours did- are still on the market 2 years later because those owners were more stubborn than we were.

People told me I was crazy to sell so low, but boy am I glad I did.
posted by Patapsco Mike at 6:59 AM on July 18

Houses in Maine tend to move more slowly than other markets depending on their price, and that's in a good market. The problem right now is uncertainty. Sure, prices have held up here, but more likely than not those houses aren't selling. Since Maine traditionally lags behind other areas by as much as a year, I'd suspect things will be worse here next year than they are now. How bad will things get? Unless you're willing to stay in the same place for another five years, I'd say the best time to sell is now.

Our house has been on the market for a while, and the realtor we were listed with last year said she could sell all the $200k houses she could get her hands on. Prices over that (unless you're talking REALLY high end) aren't moving as well. That said, the realtor didn't encourage us to drop our price then, though we decided to market it at a lower price and try to sell ourselves this year.
posted by SteveInMaine at 7:05 AM on July 18

I'd take the offer. I've been tracking houses and prices for a over a year in the area and I don't think you'll do any better any time soon. You say you're renting the property so in theory you could hold out for a long while but it sounds like you'll value your freedom from being a landlord (and just not worrying about the house/market in general) more. (I am not a realtor)
posted by mikepop at 7:18 AM on July 18

Re: the questions - I bought another house. I am not under financial pressure to sell. When I say "prices have not fallen," the only stats I could find say that actual prices paid in the Greater Portland (from Freeport - Biddeford) area appear to be flat, and have not decreased or increased in the last 12 months. If you know Portland, it's quite close to Back Cove, betw. Forest & Baxter, very near USM. It's a nicer 2 family than most of what's on the market, but very little is selling. I want use any equity to buy land adjoining the new house.

This is all very helpful. I'm a single parent, and it's not easy to make big financial decisions solo. Once again, the Hive Mind does not disappoint. I'll likely take the deal, with the warning that I'm unlikely to re-negotiate for minor things that need to be fixed.
posted by Mom at 7:36 AM on July 18

and have not decreased or increased in the last 12 months.

I am sorry that I didn't keep a spreadsheet or anything of houses I was looking at, but prices have definitely fallen within the last 12 months in this area. Either it is a general trend, or just a big coincidence that only the houses I was watching lowered in price.

If you want some anecdotal evidence, feel free to memail me and I'll give you some numbers, but I purchased at a lot less than the house first listed for a year ago. My realtor says she has seen more foreclosures/short sells in the past couple of years than she has seen in her previous twenty years of working in this area. So, I personally wouldn't bet on it getting better soon.
posted by mikepop at 8:36 AM on July 18

Remember that the market for multi-unit buildings will be different than for single-families or condos. This blog has some interesting commentary.
posted by miss tea at 10:04 AM on July 18

Forest & Baxter, very near USM. It's a nicer 2 family than most of what's on the market, but very little is selling.

Take a drive down any of the side streets off Forest between Forest and Stevens for a dose of realty reality. Dime a dozen, and it's only going to get worse (or better, depending on your position). The area between Baxter & Forest is nice (as long as you're not talking about the condo complex) but it's saturated. There just aren't that many people in Portland, and there's cheaper property 10 minutes outside the city, so a lot of people end up asking themselves if it's worth it when you can get actual land along with the house. Families would rather have the backyard and avoid Portland's rising crime rate. And young couples? They're thinking long-term right now. Why buy when you can rent for peanuts? Why get yourself into a heap of debt when the market's only going to go down?

You know it's bad when even the rental market is tanking. I just helped a friend move last weekend into his new one-bed in a historical building on State street across from Mercy Hospital. He's paying $750/mo.

The only reason the prices aren't a hundred grand lower is because Maine is a state full of old people that already own their homes. But the economy in the state is really suffering. There's practically no real industry left. Paper mills, lobstering, tourism... you name it, every single industry in this state (and there aren't that many to begin with) is getting hit, hard.

In two or three years the economy is going to be in the proverbial toilet. Municipalities will have to raise property taxes and cut services to cover the shortfall, which means any area that's teetering on the brink is going over the edge.

Your place is going to need at least $50,000 of work to get it up to code. Just to modernize the electrical system you're going to have to tear into just about every wall. That's a shitload of money. And in the meantime? You have no ground for your outlets. Which means three-prong adapters everywhere and an increased risk of electrocution. And good luck getting home owner's insurance to cover the place. Most are averse to issuing a policy for antique electrical systems. If you can really get $285 for the place, you should take it and count your lucky stars.
posted by Civil_Disobedient at 6:39 AM on July 22