SpencerBarron.com

I spent some timing being a good little consumer down at Barnes and Noble catching up on all the magazines I can’t afford to have delivered to my door. 

My eye was drawn to the Best Ideas of 2007 Article in Money Magazine.  The section with advice for buyers could not have been more inaccurate.  While I’m not in the habit of writing long winded letters to editors.  I couldn’t help myself.  Below is my email to the editor…I deleted the name of the Broker in question in the interest of not ‘throwing him under the bus’ directly. Follow the link to see who it was and we’ll see if there is a correction in an upcoming magazine.  For now, we’ll call him Uncle Frank.  We all know that you have an Uncle Frank that has a tendency to exaggerate. 

Written at 1 in the morning, this is probably not my best work and wrought with error but you’ll get the point.

To whom it may concern,

        

I wanted to let you know that I really appreciated this months Money Magazine article for best ideas of 2007.  For the most part I found it very accurate especially the advice for Sellers.  The advice for buyers section struck me as rather off base from my experience as a Realtor and so I decided to do a little research.

        

There is no way UNCLE FRANK is getting 15% below the list price for his clients.

    As a Denver Realtor, I have access to the local MLS statistics that I check regularly with religious fervor.  Knowing what is going on in the market is extremely important.  Among the things I check on a regular basis for each area is the separation between what a house is finally offered at on the MLS and what the ‘net to seller’ offer is.  As a general rule for most areas of Denver, the net offer price is within 1-5% of the listing price.  So needless to say,  the claim that he was getting his clients 15% has to raise an eye brow. 

       

    Metrolist that runs the primary MLS for Denver requires that statistics be recorded for property sales.  Usually the agent the is representing the buyer is recorded along with this.  As a rule, Realtors should not openly criticize other Realtors.  So, for the record, I imagine the 15% was a typo.

        

UNCLE FRANK is showing 7 purchases between 235K and 340K over the last 365 days.  The average Sold price to List Price is only 98.18%.  The net price to list price is 97.13%.  So his clients on average were getting about 1% in concessions (some got none) and the offer was usually within 2% of the final list price. The only thing approaching 10% was the net sold price to the original list price.  That was showing as 91% of the list price.  Now, these statistics seem to be in line with what is going on in Denver.  I don’t know where the 15% is coming from but it certainly can’t be verified and seems to be more self serving to UNCLE FRANK and his ‘buyers only’ company than anything else.   Starting negotiations this much lower than a list price as a rule is just being lazy.  You should open your negotiations based off what the house is worth not some rule of thumb.

        

    If you think about it, it doesn’t even make sense that a seller would accept even 10% less than the asking price unless they were desperate and weren’t getting any showings.  If they’re getting showings then they know it looked good on paper.  If it looked good on paper then something in the house needs to be tweaked so it can beat the competition.  If this isn’t possible, they need to drop the price in order to sell it in a reasonable time.  That being said,  a low offer on a house that is priced correctly is often used to leverage another higher offer from a different party and is rarely accepted.  

        

Sellers will sell for what they feel it’s worth, not necessarily what it’s worth.  Sometimes it takes a while for these 2 factors to come in line.  Thus the lengthening time on market to sell.  Sellers usually turn down an offer much lower than there list price in order to price it slightly lower and give the market an opportunity to act.

        

    Lender’s don’t want to loan the highest amount of money possible on a house as suggested in the article.  They want the most secure investment for the money.  That’s why they go thru all the trouble of verifying credit, employment, and of course the appraisal.    In addition, I thought the advice to have your own appraiser review the first appraisal is a little off base. All homes have a price range in which they might sell which varies with how long someone is willing to wait.  The appraiser will likely just appraise a little lower than the first appraisal simply to appear as an expert to the buyer who would be likely to use his services again.  It isn’t necessarily getting the buyer a better deal.  It’s just complicating things.  If your not sure of a homes value for yourself, you need to do your own homework.  Request the latest list of sold comps from your Realtor (who can be sued when he screws up) and drive by them. 

    Everyone has there own motivations and a buyer is no different.  Buyers are usually angry if the appraisal comes in lower than their offer.  In the end, the appraiser should be completely independent of the buyer, seller, and Realtors.  The lenders can decide if they think the appraisal is fair or not and can and do ask for a second appraisal if they don’t think its valid.  Since it’s their money, it seems appropriate.  Appraisers who consistently appraise high are ‘blacklisted’ by lenders. As for how much more one person would pay than another, it comes down to personal taste.  So an appraisal is really just a report to the lender and buyer of whether or not the price that is being paid is ”within reason”.  This being said buyers should do their own homework since the resources are available to them.

        

Homes sell for what they’re worth most of the time.  The Realtor of the buyer should be advising the buyer of what the neighborhood sales and availability data before any contract is signed. 

        

   Buying from a Builder right now is not a good idea unless it is the final phase of a subdivision.  Unless you have absolutely don’t care about the short term value and love the house.   Builders do often have the ability to offer great discounts but figure these into the cost of the homes.  The bigger builders have often owned the property for a long time and can build homes cheaply.  They have plenty of room to play with prices and cut costs to undersell your home on their next build if they need too.  If your buying from a builder, beware.  Builders can price their next new phase 5% lower than what you purchased yours for and no amount of concessions or seller paid points will help you five years from now when you go to sell.  The only reason you want to buy from a builder right now is if you want a new home in a new subdivision.

        

   My advice to buyers would have gone like this.

1. Know how your local Realtor’s are paid.  Finding the right Realtor to represent you on the buy side is worth every penny.  Since few agents offer flat fee, make sure they can back their claims.  Don’t short change yourself here unless the savings is significant.

2. Do your own homework - Know your local market. (check out Zillow to start or your local county records)

3. Look for newer homes in good communities where the builder is no longer active.

        

Sincerely,

        

Spencer Barron

 

 

 

 

 

 

 

 

 

 

 

 

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