Make Your Best (Counter) Offer! © 2012 by Wayne D. Lewis, Sr.

See my other blogs @ www.richfitusa.com

It maybe the average buyer’s opinion that if you make an offer to buy a property, there should be no other response other than the fact that the offer is accepted.  In other words, the seller should take the offer that the buyer has made and should be happy.  Not so fast!  All offers are not created equal.  Certain components of an initial offer may set off a counteroffer.  How you respond to a counteroffer will determine whether or not you move forward on a sale.  While you may try to make an offer that the seller would accept, unless you know the seller personally, or the sale of the property has other certain components that are not obvious, you need to be prepared for a counteroffer from the seller.  Here are five things that will most likely set off a counteroffer from a seller:

1. An extremely low offer
2. Extremely low Deposit
3. Excessive requested Seller-to-Buyer closing costs
4. Time restrictions within the contract
5. Special Terms and Conditions

            Let’s take a brief look at these components and how you maybe able to either prepare for a counteroffer, or how you can avoid one with a first initial offer.

1. An extremely low offer- while it is understood as to why a seller would counter an initially low offer, few sellers expect a full price offer.  But, sellers have a clue about how much they are willing to accept.  What is behind what most sellers will accept has to do with settling an existing mortgage or, how much money they will need to either pay off other debts, or if they will use any proceeds to buy their next home.  There maybe other factors.  If any of these factors exist, a buyer can expect a counteroffer. 

How to avoid a counteroffer on price?  If possible, try to make an offer within 6 to 10% of the asking price.  This would only make sense if the asking price for the property is within the price range of other comparable properties.  Consult with your Realtor to determine comparable properties and how much they have sold.

http://homebuying.about.com/od/offersnegotiations/qt/CounterOffers.htm

2. An extremely low Deposit-How much of a deposit is satisfactory?  Usually10% of the offering price is the minimum that is asked for.  For example, a $100,000 offering price would suggest a $10,000.00 deposit.  However, in the absence of that amount, an actual $1,000.00 cash deposit (certified funds) with a $9,000.00 demand note could be substituted.  What this primarily means to the seller is that if a buyer defaults on the contract, the seller can demand the whole amount of the deposit, pending litigation or arbitration. 

How to avoid a counteroffer on a deposit? If possible, offer at least a 10% deposit.  Sellers are more comfortable if they believe that a buyer has a potential investment in the deal.  Sellers need to feel that buyers are serious about the purchase of their properties and deposits are one way of sending a clear message that you, as a buyer, are serious in your contractual offer.

http://www.ehow.com/how_2384428_handle-real-estate-counteroffers.html

3. Excessively requested Seller-to-Buyer closing costs-How much is too much?  First of all, the guidelines for seller-to-buyer closing costs are generally dictated by your loan or lender. Depending on the type of loan, a seller can pay up to 6% of a purchaser’s closing costs.  For example, on a $100,000.00 home, a seller maybe allowed to pay as much as $6,000 or $3,000, at 3% of the purchaser’s closing costs.  Your lender will advise you accordingly.  What becomes an excessive closing cost to a seller is relative.  Depending on the seller, and what they need to walk away with from the closing table, closing costs at 1% could be excessive.  How to avoid Excessive Seller-to-Buyer closing costs? Since it is all relative, it is recommended that a buyer asks for as much as possible, not to exceed 6%, or consult with your lender, where the max amount allowed may only be 3%.   Unless there are mandated seller-to-buyer closing costs, as with a VA loan, a seller could elect not to pay any closing costs.  For the buyer, that could mean an additional amount of money out of pocket.  To determine how much possible out of pocket that require, ask your lender for a preliminary estimate of closing costs.  You should check with your lender as it relates to all costs related to making a loan before making an offer so as to avoid any embarrassment prior to closing on your purchase.

http://www.selfgrowth.com/articles/A_Real_Estate_Counter_Offer_How_to_Work_it_and_How_Not_to_Blow_It.html

4. Time Restrictions within the Contract- If you look at most contracts (Louisiana only), you will find several references to deadlines.  For example, you have a deadline regarding financing, or providing proof of financing; there is a deadline to respond to the offer; there is a deadline to complete inspections and so on.  Any one of these time constraints are subject to negotiations.  Even if pre-printed in the contract, a seller may counter.   A seller may counter when you choose to close on the offer.  They may not want to close in 30 days, they may want to close in 60 days, or vice versa.  The seller may not want you to take 10 days for an inspection, they may want you to take 5 or 7 days, with a 72 hr response period still relevant, per the contract.  

How to avoid Time Restrictions within the Contract? You may not want to avoid those time restrictions if they are countered from your initial offer.  But if you accept any time changes, be sure that your lender and the title company can accommodate you, as a buyer.  Again, consult with your lender, if making a loan, regarding time factors for moving forward on an offer.   

http://www.reiclub.com/articles/negotiate-counteroffers

5. Special Terms and Conditions-What are Special Terms and Conditions? Examples of Special Terms and Conditions:
1. Seller to allow Purchaser 1 month’s stay in subject property prior to close at a rental amount not to exceed $600 with no deposit;
2. Seller to leave all window coverings in living room, dinning room and Master bedroom;
3. Seller to paint Master bedroom in a color to be chosen by Purchaser

            Special Terms and Conditions are just that: Special.  A Seller may choose to accept all, a portion of, modify a portion of, or refuse to accept the entire set of conditions.  If there is no response from the Seller to the Special Terms and Conditions when submitting a counteroffer, the Terms and Conditions are considered accepted.  Otherwise, look for a counter response under any condition that requires a seller do more than just sell their home.

How to make Special Terms and Conditions that minimize Counteroffers.  Special and Terms and Conditions should be well thought out by the Buyer.  If the buyer asks for something extraordinary of the Seller, it could result in the Seller turning the whole contract down.  So a Buyer should only consider asking for the Seller to paint a hall bathroom rather than a whole house.  If the whole house needs painting, a Purchaser should consider offering a price that realistically reflects the need for painting and arrange for a painting of the entire house once the house is purchased.  If the seller doesn’t like a tree that is against a house, ask for it to be cut away from the house rather than the whole tree being cut down. 

            By making a well thought out offer regarding Terms and Conditions, a Purchaser could possibly avoid a counteroffer from a Seller that result in a smooth transition in the purchase and sale of their next home, all other issues notwithstanding. 

            All of the above components pre-suppose that there is an initial offer.  All other aspects of the sale subsequent to an acceptance are not in play, and are subject to conditions and circumstances not addressed in this discussion.

            REMINDER: Even if the seller counters any part of the buyer’s initial offer, it does not mean that the buyer has to accept the counter. A change in an initial offer is a new offer.  What is basically happening is the seller is now offering their property for sale to the buyer, despite the initial offer.  Through a Counteroffer, what a seller is saying is: “I will sell you my house under these circumstances.”  The buyer is not obligated to accept those change of terms, and can, if the buyer so chooses, either resubmit the original offer, accept the change that the seller countered with, or make a change that addresses not only what the seller wants, but now, makes a change from the buyer’s original offer.

            What may constitute a best counteroffer is determined by a genuine agreement between Seller and Buyer.  That the offer and acceptance is the sum of a negotiation, made in good faith between two willing participants.  The counteroffer is an integral part of the sale and purchase of a home.  Whether it occurs during the initial offer, or during the process from inspection, to appraisal, to title work, a counteroffer will be subsequently made, and it is important that for both the Seller and the Buyer be able to make their best counteroffer at the beginning of the process so that there will be less to negotiate throughout the process, with the assistance of their real estate professional.

  

Opinions throughout this blog are only of this blogger and is not affiliated with nor are the opinions of Gardner Realtors, its associates or affiliates.  You are advised to consult with your Realtor for more up-to-date information.

DID NEW ORLEANS EAST RECOVER FROM KATRINA? © 2012 by Wayne D. Lewis, Sr. (Part 1 of 2)

 See my other blogs @ www.richfitusa.com

In a previous blog (http://makeyourbestoffer.blogspot.com/2012/10/do-disaster-impacted-homes-recover_4.html), I discussed several areas within the New Orleans area that had been impacted by Hurricane Katrina. Those areas were Gentilly (Area 76), Mid-City (Area 68) and Lakeview (Area 69). 

 

In this latest blog, I thought I would look further into Katrina’s possible impact and how it may have affected another area in New Orleans:  New Orleans East.  New Orleans East is one of the largest land masses in the City of New Orleans, and is characterized by many components.  For the sake of this review, I have focused on New Orleans East as delineated by the areas assigned by the New Orleans Metropolitan Association of Realtors.[1]  Those Areas are (73, 74, 75, 77, 78, 79, & 85).  See Map below. 

 

As we stipulated in our earlier blog, Hurricane Katrina and its aftermath may have caused direct or indirect damage as a result of what happened between August 28 and August 31, 2005.  From wind damage to flooding, there is no absolute determination that will be made here as to which caused damage, directly or indirectly to the homes of this area.  In a number of cases, many homes were in no greater damage than the day before the storm.  Many homes did not flood, or receive any significant wind damage. 

Even as buyers may have noticed that many homes were not damaged, it still may have not mattered to potential homebuyers whether the home flooded as much as how much was flood insurance affected by the waters that breached, overtopped, or destroyed the levees.  The inevitable conclusion is still the same in the real estate industry when it comes to selling homes:  What are the properties selling for in terms of $ per square foot, AFTER the storm? 

We are not discounting any work done in terms of renovations, or how well homes survived the storm, but when it came to appraisals, which is another story, homes that were on the market immediately after Hurricane Katrina had to be compared to homes much farther away than just in their immediate subdivision, or even the New Orleans East area.  Banks were slow to make loans on properties devastated by the floods, or the areas that were near to where homes were flooded.

The question here is, how have homes in New Orleans East recovered from the aftermath of Hurricane Katrina?  Below are several tables.  On the surface, the tables reflect 3 time periods:  the first half of the years 2005 (preceding Katrina), 2008 and 2012.  From the these tablea we will see how many homes sold in the areas associated with New Orleans East (Areas 73, 74, 75, 77, 78, 79, and 85).  We will see the $per sq. ft. sold in these areas, the average sq. ft. of the homes sold, and how many Days on the Market (DOM) the average set of homes stayed on the market.

What you will not see however, but I will reveal at this time is that the homes used for this study were single detached homes, in Excellent or Very Good condition, 3 bedrooms and 2 baths.   For the purpose of this unofficial research here is how Excellent and Very Good  are defined from the New Orleans Metropolitan Association of Realtors,

·        Excellent condition -No functional inadequacies of any consequence and all major components in like-new condition. The overall effective age has been substantially reduced upon complete revitalization of the structure regardless of the actual chronological age.

Very Good -condition is considered as No obvious maintenance required but neither is everything new. Appearance and utility are above the standard, and the overall effective age will be lower than the typical property.[2]

 

 Other factors may have played a role in the sales of these properties, but they are not referenced here, nor were they considered in the final analysis.

 The areas that I have selected are:

· Gentilly Woods (area 73)

· New Orleans East (Areas 74, 75, 77, 78, 79 & 85) See map

Immediate Criteria:  1^st half of year increments-

·         Jan 1, 2005-June 30, 2005;

·         Jan 1, 2008-June 30, 2008 and

·         Jan 1, 2012-June 30, 2012;

·         # of properties sold;

·         average sq ft of living area of properties;

·         $ per sq ft of properties sold and,

·         how many Days on Market (DOM) before being sold

 

 Below are 3 tables separated by their years for New Orleans East.  Here is what we know, based on these tables:

 

Total # Of Properties Sold:  For 2005 (See table 1), 199 properties were sold for the first half of the year ending June 30, 2005 with an average of 28  properties per area referenced in New Orleans East (73, 74, 75,76,77,78,79 or 85).   For 2008 (See table 2), 115 properties for the first half of the year ending 2008 were sold, with an average of 16 properties per area referenced in New Orleans East (73, 74, 75,76,77,78,79 or 85).  For 2012 (See table 3), 82 properties were sold for the first half of the year ending June 30, 2012, with an average of 12 properties per area referenced in New Orleans East (73, 74, 75,76,77,78,79 or 85).

 

What we may observe from this snapshot of information, is that from 2005, 2008 and 2012 revealed a gradual decrease in sales of 3 bedroom 2 bath homes in the New Orleans East area.  Of the total of 396 homes of the three years referenced, the first half of 2005 sales accounted for only 50% of those sales.  2008 only accounted for 29% of those sales, with the remainder of 2012 only accounting for 21%. Most notably, the two years’ sales activity referenced here, 197, post Katrina, accounted for 50% total number of properties sold.

 

Table 1.  January-June 2005

Y2005
Area	#of Prpts	$PerSqFt	Aver Sq Ft	DOM
73	13	$        93.87	1127	61
74	51	$        79.05	1716	50
75	7	$        77.87	1196	75
77	26	$        81.43	1777	62
78	44	$        78.57	1527	72
79	36	$        85.54	2423	56
85	22	$        79.73	1628	102
Totals	199	$       576.06	11394	478
Avg	28	$        82.29	1628	68

Total Days On the Market (DOM):   For 2005 (See table 1), properties sat on the market for a total of 478 days for the first half of the year ending June 30, 2005 with an average of 68 days  per area referenced in New Orleans East (73, 74, 75,76,77,78,79 or 85).  For 2008 (See table 2), properties sat on the market for a total of 483 days for the first half of the year ending June 30, 2008 with an average of 69 days  per area referenced in New Orleans East (73, 74, 75,76,77,78,79 or 85).  For 2012 (See table 3), properties sat on the market for a total of 816 days for the first half of the year ending June 30, 2012 with an average of 164 days  per area referenced in New Orleans East (73, 74, 75,76,77,78,79 or 85).

The Total Days on the Market (DOM) reflected here for the first half of the years 2005, 2008 and 2012 comes to 1779, revealed an interesting increase in the days on the market in the New Orleans East area.  Of the total DOM of the three years referenced, the first half of 2005 accounted for only 27% of the days properties sat on the market.  2008  accounted for 27% of those days that properties sat on the market, with the remainder of 2012 only accounting for 46% of those properties remaining for a longer period on the market at average of 164 days compared to 2005 at 68 days.   

 

Total Average Square Footage:  For 2005 (See table 1), the total average square footage for the first half of the year ending June 30, 2005 was 11394 sq ft, with an average of 1628 sq ft. per area referenced in New Orleans East (73, 74, 75,76,77,78,79 or 85).  For 2008 (See table 2), the total average square footage for the first half of the year ending June 30, 2008 was 12006 sq ft, with an average of 1715 sq ft. per area referenced in New Orleans East (73, 74, 75,76,77,78,79 or 85).   For 2012 (See table 3), the total average square footage for the first half of the year ending June 30, 2012 was 10069 sq ft, with an average of 2014 sq ft. per area referenced in New Orleans East (73, 74, 75,76,77,78,79 or 85). 

 

Table 2.  January- June 2008

Y2008
Area	#of Prpts	$PerSqFt	Aver Sq Ft	DOM
73	11	$        94.15	1314	51
74	34	$        85.55	1710	63
75	4	$        84.98	1615	81
77	19	$        88.86	1883	83
78	21	$        85.88	1675	65
79	18	$        85.46	1977	72
85	8	$        85.67	1832	68
Totals	115	$       610.55	12006	483
Avg	16	$        87.22	1715	69

Total Average of Square Footage reflected here for the first half of the years 2005, 2008 and 2012 came to a total of 5,357 square feet.  There was a positive increase in the average square footage reflected in the sales in the New Orleans East area.  Of the total Average Square Footage of properties sold of the three years referenced, the first half of 2005 indicated that homes averaged 1628 a square foot, or 30% of the overall total.  2008’s average square footage accounted for 32% of those properties on the market sold,  an increase by 2 points. And finally, by 2012, the average square footage was 2,014 for the first 6 months of 2012, 37% of the total, an increase of 386 square feet over 2005, pre-Katrina.  

 

Table 3. Jan-June  2012

Y2012
Area	#of Prpts	$PerSqFt	Aver Sq Ft	DOM
73	0	$             -	0	0
74	22	$        71.67	1753	173
75	0	$             -	0	0
77	13	$        67.86	2126	143
78	12	$        72.78	1788	109
79	26	$        76.60	2626	213
85	9	$        80.47	1776	180
Totals	82	$       369.38	10069	818
Average	12	$        73.88	2014	164

$ per Square Foot: For 2005 (See table 1), the total average $ per square ft for the first half of the year ending June 30, 2005 was $576.06 sq ft, with an average of $82.29 per sq ft. per area referenced in New Orleans East (73, 74, 75,76,77,78,79 or 85).  For 2008 (See table 2), the total average $ per square ft for the first half of the year ending June 30, 2008 was $ 610.55 per sq ft, with an average of $87.22 per sq ft. per area referenced in New Orleans East (73, 74, 75,76,77,78,79 or 85).  For 2012 (See table 3), the total average $ per square ft for the first half of the year ending June 30, 2012 was $369.38 sq ft, with an average of $73.88 per sq ft. per area referenced in New Orleans East (73, 74, 75,76,77,78,79 or 85). 

($) Per Square Foot reflected here for the first half of the years 2005, 2008 and 2012 came to a total of $243.39 $per sq. ft.  There was a peak in 2008, only to see a decline by 2012 in the average $ per square ft. reflected in the sales in the New Orleans East area.  Of the total $ per sq ft on properties sold in the three years referenced, the first half of 2005 indicated that homes averaged totally $82.29 a square foot, or 34% of the overall total.  2008’s average $ per sq ft.  87.22 accounted for 36% of those properties on the market sold,  an increase of $4.93 or 2 points. And finally, by 2012, the average $ per sq. ft was 73.88, a reduction of $8.41 pre-Katrina, and accounting for 30%  of the total of the three years referenced for New Orleans East.

 

Metro New Orleans MLS Map:

 

NOMAR Map

 

Conclusively, the New Orleans East area has had its share of struggles over the past 7 years since Hurricane Katrina.  While this study used Hurricane Katrina as a measuring stick in terms of time reference, and the fact that many of the properties in the affected areas were likely impacted by the storm, it should not be concluded that the storm actually damaged the properties included in this study.  But it is safe to say, that the homes that are used in this study were likely to have been impacted by virtue of flooding, wind damage, or any other hurricane related activity that was in proximity to these subject locations. 

 

This has been an opinion of factors related to Hurricane Katrina and real estate sales in the New Orleans area. Your results may vary.  Opinions are only of this blogger and is not affiliated with or the opinions of Gardner Realtors.  You are advised to consult with your Realtor or Appraiser for more up-to-date information.

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[1] New Orleans Metropolitan Association of Realtors-www.nomar.org

 

[2] http://nom.mlxchange.com/ -New Orleans Metropolitan Association of Realtors (www.nomar.ogr.)