How and When to Bid Low on a Property

 

With prices stagnant or falling and inventory up in many markets, home sellers are no longer automatically turning up their noses at offers that come in far below their asking price.

 

Buyers who make offers asking for deep discounts still risk offending sellers to the point where they quash any deal.  Some real estate professionals suggest that before making an aggressive offer, some homework is in order.  Buyers might want to effectively explain why the price of a home should be lower.

 

Here are some guidelines on how — and when — to make an aggressive bid:

 

1. Learn how motivated the seller is to make a deal.

 

• Certain sellers are going to be more willing than others to negotiate a low offer — and there are several reasons which might indicate more leeway on price.
   
• If the sellers have already purchased another home and that sale has closed, they're usually more likely to be willing to make a deal.
   
• If the property has been on the market for a long time, sellers will be interested in entertaining any offers.
   
• Overall local market conditions also play a role.  Is the market sluggish, or is it still a hot or competitive market?

 

2. Make your case with hard facts.

 

According to Jon Boyd, an Ann Arbor, Michigan broker and president of the National Association of Exclusive Buyer Agents, "When you're making the offer, if you justify that offer with outside data, then it's much less likely to be perceived as being an insult or [the buyer] not as serious."  When putting together an aggressive offer for a client, Mr. Boyd doesn't just hand the seller a purchase agreement with the price the buyer is willing to pay — he creates a cover letter explaining exactly where that number came from. 

 

In addition to citing comparable sales in making the offer, it also could be important to include details regarding the amount of inventory in the immediate surrounding area, he says.

 

3. Prepare for the possibility of rejection or negotiation.

 

Dick Gaylord, president elect of the National Association of Realtors and a broker in Long Beach, California says he warns buyers making very low offers that the seller might refuse to negotiate.

 

Danielle Kennedy, a real-estate sales coach and author based in Pacific Palisades, Calif., advises sellers not to think of a low offer as an insult but as "a sign of interest."  It "begins the dialogue regarding the purchase of your house," she says.

 

Have you made an offer on a property that you (as the buyer) thought may have insulted the seller due to the low offer?  Have you (as a seller) received a "low-ball offer" from a potential buyer?  We'd love to hear your comments either way.

 

 

Why Some Sellers May Get a Break From the IRS

 

Most people who sell their home after having owned it for at least two years don't have to pay federal taxes on their gain.  A sale in less than two years after the purchase, however, often triggers some sort of tax hit.  But even owners who need to sell in less than two years may qualify for special relief if they had to sell because of "unforeseen circumstances," according to a 1997 law.

 

The general rule is that you can exclude a gain of as much as $500,000 if filing a joint return with your spouse, or as much as $250,000 if single or filing separately, under certain circumstances.  To be eligible for this full exclusion, you typically must have owned your home, and lived in it as your primary residence, for at least two of the five years prior to the sale.  This rule applies only to a main residence, not a vacation home.

 

Even if you can't meet the two-year tests, you still may be eligible for a reduced exclusion if you had to sell because of "a change in place of employment," health reasons or "unforeseen circumstances."  An IRS publication offers a general definition of unforeseen circumstances as "the occurrence of an event that you could not reasonably have anticipated before buying and occupying your main home."

 

Talk to your tax accountant or advisor to see whether you might qualify under the "unforeseen circumstances" ruling, or see the IRS Publication 523 for more information.

 

Think you might qualify for such an exception?  Post your comment here and we'll try to get an answer for you.

 

 

Home Buyers Getting More Conservative?

 

Borrowers tend to fall into two camps:  Conservative buyers who are willing to pay more now for not having the risk of payments going up later, and the rest who focus almost solely on the monthly payments, asking "what is the smallest payment that will get me into a house?"

 

Both groups are shying away from short-term adjustable loans.

 

For conservative borrowers, the chance that the payment could increase beyond their comfort level is a very real and unwelcome possibility.  They prefer the certainty of a fixed-rate 15- or 30-year mortgage.

 

For buyers intent on getting the smallest possible monthly payment, adjustable rates are no longer automatically the ideal.  Payments can go up and the ability to refinance in a few years is not a sure thing anymore.

 

Which camp do you find yourself in right now?  We'd love to hear your commment below.

 

 

How Not to Lose Your Home to Foreclosure

 

The most obvious way not to lose your home to foreclosure is by always making your payment on time.  That's a given, but sometimes, things happen.  As a growing number of borrowers fall behind on their mortgage payments.  If you fall into this ever-growing category of homeowners, the smartest move you can make is to contact your lender.

 

These days, there's more incentive for companies to work with borrowers to avoid foreclosure: Regulators and lawmakers, prompted by troubles in the mortgage market, are encouraging companies to assist troubled borrowers.

 

Major lenders in the subprime mortgage market have agreed to a set of principles calling for servicers to try to modify loans before the interest-rate reset if borrowers will be unable to afford the new payments, among other actions.

 

Lenders also have a financial incentive to keep you in your home: They can lose tens of thousands of dollars for each loan that goes into foreclosure.

 

Contacting your lender before your situation seriously deteriorates will improve the chances that you keep your home. Consider this: Half of borrowers whose homes go into foreclosure never talk to their servicer.  How crazy is that?

 

Call your loan servicer:  By doing so, you can try to arrange workout options that will keep you in your home. A lender may be able to modify the loan to make it more affordable in the long term.

 

The very LAST THING you should do is just not contact anyone and continue to get further and further behind on your mortgage payments.

 

We welcome your comments or reaction to this advice.  If you have any experience in this category, or advice for any other readers at this site, please leave your comment below.

 

 

Homeowner Insurance: Read the Fine Print

 

A growing number of homeowners are facing sharply higher costs as more insurers change how they calculate deductibles, especially for damage caused by windstorms and other natural events.

 

The newer method of figuring deductibles is based on a percentage of the insured value of your home — typically between 1% and 5%, and even higher in earthquake zones.  With home prices soaring in many areas over recent years, this often works out to be far more costly to the homeowner than the traditional flat-dollar method of figuring deductibles, by which you pay the first $1,000 or so of home repairs.  As a result, homeowners increasingly are on the hook for thousands of dollars in repairs before the insurer pays any part of a claim.

 

As natural disasters threaten to drive up property losses in many parts of the country, insurers increasingly are passing along more of the financial risk to policyholders.  Many insurers that initially required wind and hurricane deductibles of 1% in coastal areas have recently raised them to as much as 5%, while also introducing the deductibles farther inland.

 

So far, only a tiny fraction of policies use percentage deductibles on standard perils such as fire and theft. But insurance regulators and experts say they expect percentage deductibles will continue to spread through the industry and affect many more homeowners on their standard policies, as insurers seek to limit the cost of claims. Already, some insurers have started offering percentage deductibles as an option for homeowners who want to reduce the size of their premiums.

 

Often times when insurers add the new deductibles, they explain them at renewal on the "declarations page" of the policy and sometimes in a separate notice, but many homeowners don't bother to read this.

 

So be advised:  READ THE FINE PRINT and the Declarations Page of your home owner insurance policy.