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Are Cutthroat Home Buyers Causing Home Values To Decline More?

Question: Are Cutthroat Home Buyers Causing Home Values To Decline More?

Cut Throat Buyers Cutting Their Own Values While you're working with a buyer, when they write an offer, do you just let them write it where they want? Do you let your buyers write low offers just to get that desperate seller to give their home away? Are you writing multiple offers to see which sellers are desperate?

If you're the agent that plays the multiple low ball offer game with your buyers to get the best deal, did you know that deal just caused all the neighbors properties to decline in value?

Does your buyer care that he just set the first domino in motion of a large decline in neighborhood values where he/she just purchased their "investment" property? Does he/she realize when they try to flip and sell that home in six months, they to will lose money because of this domino affect?

Does buying a home at bargain prices really net you more money? When a buyer pays a bargain price on a home, the next seller in that neighborhood has to use that comparable when they sell their home.

The lower price the buyer gets, the lower price the seller has to sell for. And since they had to sell lower, the next home seller in that neighborhood will have to do the same thing. And the dominoes start to fall, and fall, and fall. How does this affect the value of the property you just bought?

Should we be educating our buyers on this domino affect? Do I even know what I'm talking about? What do you think? What about you home buyers? Are you cutting your own throat by pressuring a desperate home seller into selling below market value?

Lisa Udy

Platinum Real Estate Group

View My Other Blog @ Homes For Sale Logan UT

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Posted by Lisa Udy Logan Utah Realtor on 07/29/2010 05:15 PM

Comments (51)

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51 Comments on Are Cutthroat Home Buyers Causing Home Values To Decline More?

JUL

2010

I am not sure that each individual buyer is able to truly care about the domino effect. I think it's human nature to try to get the best for the least amount. I think as agents we can advise as to the comps, etc, but ultimately, the buyer has to decide how much they want to offer and the price they are comfortable purchasing.

The buyers (investors) flipping in 6 months don't care because it's just business for them and only temporary. Lowballs offers are a starting point for negotiating and the seller's agent can send comps with the counter offer.

The answers are no, no and no. I expect my buyers to write "reasonable" offers. No multiples....I'd like to keep my license, thank you. We don't call them lowball offers anymore by the way. It's tough to sell to a seller.

I think a valid question, I find that a lot of these offers seem to come from newer agents or as another comment suggested, Investors. When I first came to this business I think I was guilty of this myself a time or two, but after hitting my head against a wall, I learned quickly that it's hard to be respected and successful if you follow this plan. Education, coaching and training go a long way. And sometimes it comes best from the seller's agent :)

Lisa great points! Now when someone gets a super low price they just lowered the bar for the whole neighborhood.

I think its a valid question, and the answer is yes. But that is the great thing about a free market economy. The loss of home values will bottom out and it will turn around..... Supply and demand.

Lori Cofer

I suggested this for a feature BTW because I think its a valid and important discussion.

Lisa - Any homebuyer desperate to sell, with only one offer on the table will be prepared to deal with that buyer and sadly, the consequesnce will be the lowering of home values in the area. The only way this turns around is when a house comes on the market that is in such top condition that it becomes very desirable and goes quickly for full price (or over) as a result of multiple offers. That together with supply and demand will turn the tables - over time.

Lisa, you make good points and the logic does make sense, but at the end of the day, buyers don't care about anything but themselves. Also, a lot of move up buyers are taking losses when they sell their current home and are determined to make it up on their buy.

Hi Lisa ~ The flip side of this is one of the beauties of real estate. Real estate values for the most part (the immediate present in some parts of the country an obvious exception) are quite sticky compared to many other investments. That's because sellers are so resistant to lowering their prices. Hurrah for them! All those who don't slash their price, who take their property off the market rather than sell at rock bottom prices - they're helping the real estate market retain value.

Liz

Although I think Liz has a point - it is well know that foreclosures cause neighborhood prices generally to fall. This can be true for small subdivisions I think. Larger neighborhoods with homes that are more distinct from each other (not cookie-cutters) are less likely to be impacted by one lowball sale.

Interesting discussion - I don't know how much assessed values plays into all the pricing guesswork that goes on in a transaction. I've just noticed that aCMA's, appraising, and short sale solds seem to influence the decline in values, and resulting in what I think of as upside down taxes. It is just a really strange market and I don't see any consistency in pricing. I've been previewing homes, a lot of homes, and I walk away with an uneasy feeling that something is terribly wrong.

We can show buyers the comparable sales, but in a declining market it is our nature to not pay more than we have to. Just as Liz said - if people don't HAVE to sell, take their home off the market for now. The sad fact for sellers right now is their comps are REO's and short sales.

JUL

2010

Lisa, this strikes me as kind of on the strange side. Perhaps back in the day when we were all agents of the seller, and when we wrote up an offer with the buyer, our job was to get the buyer up as high as we could.

I understand the point of the post... that low offers aren't good for the neighborhood... but... so ? That is not the buyer's concern. When we work as a buyer's agent... our concern is getting the best price possible... for our buyer.

I believe the buyer has the right to put in an offer for the price he or she desires. It is up to the seller to refuse, accept or counter. I believe we have all put in some low offers and guess what some are accepted. A home is really worth what someone is willing to pay for it.

Economics 101 ... The beauty of a free market system is that the market will prevail. If a buyer's offer is too low, the seller doesn't have to accept. If there is a higher offer, the seller can accept that one. However, if a buyer and seller agree on a price, THAT is the value of the home.

Sorry, but this argument doesn't really fly.

-- Danny

As a buyer's agent, I'd have to say I do not concern my buyer with the domino effect. They are buying a home to live in, not an investment. If you're going to live in your home for some time, the market is subject to ups and downs. As an investor's agent on the buying side, I'd have to say NONE of them care about the domino effect either. They just want to put out the least amount of money that they have to, and it's my job to make that happen for them, if I can. I just try to point out the "flipping" part of it - but all of my investors (so far) aren't worried about an immediate turn. They are renting out and cashing in.

I"ve used this line to a buyer who wants my opinion on submitting a low offer...Do you really want to devalue your home right right away? The answer is usually no. This hasn't worked on the investors.

I worked with one investor that bought an REO at auction. He then turned around and listed the house for 100K more than what he paid for it, and 20k more than it was originally listed for as an REO property after it had been on the market for a few months. I wish him luck.

Lisa - I agree with Dan and Amy. I always say "sell low buy low" to the move up buyer. I never felt that I was adding to the domino affect.
But ultimately the buyer wants the lowest and will do anything to get it. I can only be the adviser.

Bully for you, however, for sticking your neck out with this argument. I would never be so brave to express such a strong opinion!

However, I heard this same argument in a rapidly rising market except then it was the 'greedy sellers' who were driving the market and 'forcing' the buyers to go up higher than they wanted to to. Now the tables are turned and we see the rapacious buyers taking advantage of the poor sellers. I'm not unsympathetic to either scenario, but the market is the market regardless of the product: and the price is set at wherever a willing buyer and a willing seller are prepared to meet. I'm sorry if the seller's willingness is dictated by ugly circumstances, but if current economic circumstances drive sellers into deals they might not normally accept in a that's simply a reflection of the times we live in right now.

You know my big pet peeve that I see when I am pulling comps is the dual ended short sale. I get that different sales produce different results in net (trustee sale flip or standard sale as highest to short sale being lowest.)

What I DONT like to see is when there is one EXTREMELY low comp and I go check it out and yup, LA and BA public ID is the same.

How do they get those things THROUGH? They are also the ones who make it tough on everyone else!

Hi Lisa -- Interesting. Sometimes it sets a lower bar, sometimes other sellers will say: That seller had to sell for xyz reason, I don't, and I'm holding firm, and sometimes they get it, and it appraises, even in spite of the lower comp. In neighborhoods with lots of diversity in pricing, it becomes less of an issue.

The first time home buyer, which was about 45% of the home sales before the tax credit ended, is getting advice from everybody (except their real estate agent) telling them to offer half to 75% and demand every concession ever invented. It's crazy stuff!

Economics 101 Sure, I can price my one pound bag of sugar at $100 dollars but that doesn't mean I can sell it at that price in this market. I guess that just makes me a 'desperate home seller' er... I mean desperate sugar seller and all you sugar buyers are selfish and 'don't care anything but themselves'. As somebody else already mentioned, 'If a buyer and seller agree on a price, THAT is the value of home'... or of the sugar :)

I blame the media for giving buyer's this sense of "the sky is falling" mentality and that all Seller's are all about to foreclose.

There are many Ore factors that lead to the domino affect than just "cut throat" buyers. The unemployment rate, the neighborhood's age, the percentage of sales that are distressed, appraisals coming in low because the appraiser doesn't know the local market, or BPO's coming in low. It's not fair to put this all on buyers. I wonder whether you would follow your own logic if you were buying a house right now in this market???

Paula is right, they also make it sound easy to buy or sell a short sale or REO too!

I hadn't considered it in exactly that way though it does make a lot of sense that they're driving their own price down later.

Buyers are unrealistic, but I agree that a lot of that has to do with the media. I tell buyers and their agents that I already did the negotiating for them. I had to recommend to the seller a list price, and that was based on comps... It has worked :)

Great set of points!

The current market mentality has become twisted. Instead of buyers making fair/reasonable offers based on facts (comps), they are discounting the price they offer to a ridiculous level.

There may not be a way to stop or slow down this type of thinking. Buyers are still in the drivers seat and they are driving prices down.

Each sale is personal and different and inherently individual based on the people involved in it, no? We live in a free market economy.

You can't say to someone, "That's a cutthroat price." It's a market sale. Buyers can offer what they want. I'm an agent and will offer what the buyer wants to pay. So what if it's lowball, that's business! A house is only worth what someone is willing to pay for it.

Guess what? Prices are still going down, at least in Florida, for sure.

Scott Miller, Realty Associates, Boca Raton, FL

Lisa:

Yes, you know what you are talking about, there is a domino effect when someone buys in at an extremely low price. However, the buyer has a right to try to get a bargain. The question is - does he really want to end up living in a "bargain neighborhood?"

Price is not determined by a "low ball" offer. If the offer is too low then the seller will reject it! Prices are determined by market demand. And when I am acting as a buyer's agent my legal responsibility is to get the best price possible for my buyer. If I don't think the offer has a chance of being accepted I will discourage my buyer from wasting everyone's time, but if they insist I need to either write the offer or point them towards another agent.

You said, "Do I even know what I'm talking about?

Yes you do. I've been thinking the same things....it all goes back to the agent sharing Solds with the Buyers and not being forthright enough to say No that is too low...not going to happen...do you want the house or not.

The domino effect is in definitely happening in certain area's or condo communities. You couldn't get an appraisal for that house if your life depended on it.

I understand your concern. However, you and I can't turn the economy around. We have to let our buyers find the best deal, while trying to keep them ethical. (notice I didn't say "honest")

Lisa, we have to go back to basics. The market dictates what the overall prices will be in an up or down market. When the tables turn and they will, the sellers will have the upper hand. Real estate is cyclical and has a way of stabilizing the market over time.

I look at the comps and determine market value of the property. Then I consider condition, days on market, listed price vs market value, and advise my client on an offer strategy that I think will get an offer accepted.

Market value is in fact determined by a willing buyer and a willing seller agreeing to terms.

If you are representing a buyer with a 'lowball' strategy, then there has to be a corresponding seller out there who is willing to do it too, so the burden is not only on the buyer. Like Michael #36 states, it's about (economic) basics.

A buyer's agent is out there to represent the buyer's interests (which in this case are to get that very low price). It's not IMHO to uphold the market (which, btw, makes me think of Atlas holding up the world in his back). If there is a market out there for that type of transaction, it is certainly not because of this buyer, but because of a much more complex set of circumstances. This buyer merely understands that and is trying to get the best benefit for himself in this particular situation (nothing wrong with that).

Also, if you buy low today, that does not mean you are cutting your own throat as well, unless you are thinking of selling that same property next week, which would be just way to dumb in this economy. In that case, you should not be allowed to even get your money out of your wallet at the grocery store.

I have to say I was a little surprised to read this post and heartened by some of the responses. The logic that I, as a buyer, should pay more for a house than it's worth simply to prop up home values in the neighborhood is ridiculous. Here's what the house is worth: what a seller and buyer both agree to in a transaction. This idea that either party should pay attention to some "domino effect" is absurd and the idea that agents should be encouraging buyers to pay attention to this is, well, disappointing. If I'm looking for an agent as a buyer I'm looking at this list and finding those agents who understands what it means to represent a buyer.

Nothing more than market forces at work here. And why put all of the domino effect on the buyer? The seller still needs to accept the offer, so 'desperate seller' could just as easily be substituted for 'cutthroat buyer'.

Lisa I think we at present we are at the mercy of a market that has yet to stabilize and therefore, most people have an "Anything goes" attitude. If ti works for you . . .

I've had several clients who insisted on making lowball offers.....it's up to the seller whether they will accept that offer or not. As someone stated earlier.....value is determined by what someone is willing to pay for it!

My favorites are the buyers who get involved in some weird "investment club" and they are told to buy 30% below. I ask: below what? The height of the market? No problem? Today's list prices? Big problem, can't help you there.

Hi Everyone,

Looks like I stirred the pot a little. :) Love it! Many of you are re-iterating a home is only worth what a buyer and seller are willing to agree upon. I agree to a point. However, my buyers and sellers are agreeing on a price, yet appraisers decide to change that price, and often. And when my sellers are forced to reduce their prices even more because an appraisal in their neighborhood doesn't match what a buyer and seller agree to pay, it hurts the entire neighborhood values. Maybe this is just the market being the market, but it's some good food for thought.

I have been a buyer's agent for 10 years now, and I do everything I can to get my buyers a deal. However, I won't submit offers that are completely unreasonable. I give my buyers comps and ensure they are well educated on the market. If they don't listen to my advice, I don't know why they hired me as a buyers agent in the first place, and we can part ways. I do talk to my buyers about declining home values and what happens if they buy in a neighborhood that is on a declining spiral. I feel it's important to educate them on this aspect of real estate. I hope all of you other buyers agents do the same. :)

Thanks for all the comments!

Hi Lisa, As agents we need to provide guidance to buyers ( and sellers ) when writing a contract. No buyer wants to leave money on the table and a low ball can make the deal so toxic that the seller no longer wants to work with the buyer.

I do not believe it is the buyers so much as the supply and demand of the market has not yet levelled out in many markets. I think the perception that things have settled out a bit is wrong, often I keep that opinion to myself as it tends to not be so popular, lol.

I think a CMA shows the current trend and values so it is even more important to do one up front for your Buyer Clients in this market. The current price can be a steal without any concessions or reductions depending on the agent.

Lisa, I wish we could be more choosy when representing buyers... we can encourage... but they hold the purse-strings! I want to get more offers written-- period!

I don't have much to add, except that hardcore lowballers change their tune about values the day after they close. Self interest is a funny thing.

JUL

2010

Not only does lowballing drive down home prices, it could come back to haunt the buyer. None of knows what's happening tomorrow, let along a year, two , or three down the line. That same low-balling buyer sets the new benchmark in the community and potentially drives prices down below what they are paying. Stuff happens - if they have to sell in a year or two, they have only themselves to thank for the pricing predicament they have put themselves in.

AUG

2010

Hi Lisa: Reminds me of the question - which came first the chicken or the egg - this could be a never ending cycle!

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Lisa Udy Logan Utah Realtor

Logan, UT

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Platinum Real Estate Group

Address: 2 N Main Suite #11, Providence , UT, 84332

Office Phone: (435) 213-9335

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I am a full time real estate specialist in Logan Utah. I have almost 9 years of experience in the real estate business. If you need help selling or buying a home feel free to contact me. If you have any questions about the Cache County real estate area I would love to help. If you would like to just chat about the current market send me an email, and I would be glad to share my expertise in our local market. For those of you who are bored and wanna gime me some flack, give me your best shot! Subscribe to Logan Utah Real Estate by Email

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