Lowballing

There was some discussion of lowballing here and on Fish’s blog recently, and from my point of view there is still a lot of misunderstanding of the lowballing process.  Some people recommend  lowballing, but I’m not quite sure of their agendas. Its not clear to me, in other words, whether they want a successful purchase at a great price, or whether they want to be able to play the part of a shrewd buyer who never pays too much (due to the fact that they never actually buy). 

The first thing to determine is what lowballing is.  Is it offering way under list price, or way under market value?  That, of course, raises the concept of the difference between list price and market value.  I can’t see much of a direct relationship.   Although on a daily basis we see properties sell, on average, for within 2% of list price, we regularly see properties sell 15% and 20% below list price, and for almost that much over list price.  Even that thinking assumes that sales price is the same as market value, and that’s only true if you put an actual dollar figure on the intangibles.

Coco recently described a classic scenario of describing an offer as a lowball when its based on list price.  She offered considerably less than list price, subject to inspection.  The inspection was less than satisfactory, and Coco decided to drop the offer.  If she hadn’t written a subject offer, but still written well under list, she may not have been able to back out.  Would we still call that a lowball offer?  Would it have been a good tactic? After all, she would have concievably ended up paying more for the property than what it was worth.  She would have paid the sellers much less than what they were asking, but more than market value.   Clearly, taking pride in succesful lowball offer that is based on list price, rather than market value, is simply an exercise in self-delusion (and don’t take that the wrong way – Coco liked the price for what she thought she was getting, but was wise to include a subject so that she could confirm that market value was actually close to what she thought it was.  Her actions avoided a potentially costly mistake.  Thanks, Coco, for providing that valuable real world experience.).

What about lowballing based on market value? That’s a different story. We start with a property for sale, and that includes a list price.  A buyer”s agent, however, should do their own CMA on the property to confirm how close (or far apart) list price and market value are.  If list price is $100,000, but market value, (based on one of the three standard appraisal approaches)  is $80,000, offering 25% less than list price really isn’t lowballing.

 On the other hand, if list price is $100,000, and market value is $80,000, is it wise, or worthwhile, to offer $60,000?  That’s a horse of an entirely different colour, but one thing is for certain: offering 25% less than market value is an honest to goodness lowball offer.

As a Realtor I have to ask a few questions.  First, who would accept that kind of lowball offer?   There are two types of sellers who would do so.  Sellers want some kind of combination of best price, least amount of time and a minimum of inconvenience.  Some sellers may know what market value is, but may also be willing to sacrifice on price in order to get a faster sale with less inconvenience.  Finding these sellers can be lucrative to buyers, and concluding a sale with them is nothing to be ashamed of.  Some sellers, meanwhile simply don’t know the value of their property.  Personally, I don’t feel comfortable representing a buyer who wants to pay someone less than their property is worth, even if the seller is willing to accept the low price, if it all depends on the seller being ignorant of market value.  Life is too short and karma too certain. I don’t need business that badly.

Second, who would make a lowball offer?  Its a fact that most people don’t want to make lowball offers. That doesn’t make lowballs  wrong or bad.  Some people want to save money, and don’t mind running the risk of offending sellers.  That’s perfectly fine.  After all, if you don’t lowball someone who can’t seem to sell then you can’t give them the chance to accept your fast, convenient sale.  Your lowball may be exactly what they’re looking for.  If it is, then I’m happy to help.  Both sides emerge winners.

That said, anyone writing a lowball offer should understand a few things.  They should be clear on whether they’re looking for sellers who want fast, convenient sales, or if they’re looking for people to take advantage of.  If the lowballer is looking for someone to take advantage of (in the negative sense of the phrase), a Realtor is probably foolish to get involved.  After all, if the lowballer wants to take advantage of the seller, he probably won’t hesitate taking advantage of the Realtor.  On the other hand, if the lowballer is looking for sellers who want fast, convenient sales, both the lowballer and the Realtor should be on the same page, and should realize that they will have to look long and hard (and the stronger the market, the harder and longer they’ll have to look).  There’s nothing wrong with that.  The lowballer should also try to make their offer as strong in all non-price related ways as possible.  Give the seller their dates. Let them rent back.  Give them subject free offers (do your due diligence ahead of time).  Put up the biggest deposit you can.   

 Should the lowballer commit to using only one Realtor?  My only comment is that actually getting a property considerably under market value is tough in any market, and very tough in this one.  A Realtor who is willing to beat the bushes and write lowballs without getting rock solid loyalty in exchange is probably not going to contribute a lot of skill to the exercise.  Beginner’s luck, maybe, but probably not much skill. 

Are the chances of success high with lowballing? Don’t fool yourself.  If you define lowballing as 25%+ off market value, the chances of success are low.  That said, the pay offs are high.  In many markets you’ll find that a lowball offer can result in a positive cash flow property with no equity investment.  Imagine,for a moment, that this market goes due south. The heirs of an investor want a quick liquidation, and accept 75% of depressed market values on a rented property.  You use your LOC mortgage on your principal residence to pay them within 10 days of acceptance, and find yourself with a revenue property that covers the LOC payment/maintenance and taxes. Was it worth looking? Did both sides get what they wanted?  Great deal for all concerned, including the Realtors.

There is an assumption that a Realtor won’t write lowballs because it will insult listing Realtors.  Perhaps that’s true, but its an invalid reason.  I won’t write lowballs for someone who isn’t serious (as in, put a deposit in my trust account now, before we even find a property), someone who isn’t loyal,  someone who isn’t realistic (this won’t likely provide succesful results overnight), or someone looking to take advantage of someone else.  As for the listing Realtor, let’s face it: the numbers suggest that most Realtors won’t be in the business in a few years, but buyers and sellers will always be around.  I’m better off worrying about the buyers and sellers, clearly.

Somewhat off topic, Coco’s deal raised another interesting item.  Realtors are ethically bound to disclose known latent defects  to any party making an offer on a property, regardless of what agency relationships exist.  A latent defect is one that is not immediately obvious to a reasonable person.  A roof with a hole and a stained ceiling is a patent defect – anyone can see it.  A furnace with a broken heat exchanger is a latent defect.  The Realtor doesn’t have todisclose the roof leak, but if he knows about the heat exchanger (or, for example, an underground oil tank) he has to disclose it.  Failure to do so can lead to damages against both the seller and the Realtor.

What happens when a buyer gets an inspection, doesn’t like it and so doesn’t remove subjects due to bona fide latent defects? Does the listing Realtor get to see the inspection report? Does the seller? That is far from clear, (not all buyer’s agents tell listing agents why their buyers aren’t proceeding, and not all listing agents ask) but if the answer is no, can either the seller or the listing Realtor be said to know about the latent defects?  In Coco’s case it seems that both the sellers and the listing Realtor do know about the latent defects.  If so, they now have to disclose them.   Connect the dots.  Is the house over-priced? Was the offer a real low ball?  Could it be beneficial to epressly share the results of a home inspection with a seller? Is it ethical? Can it be counter-productive?

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43 Comments

Filed under Investment Approach

43 responses to “Lowballing

  1. disbelief

    I think that there is a time and a place for any offer. This is not the time or the place. I believe that it will be as history repeats itself. In a market as crazy as this is IMO, Is not the time for lowball offers. But when sellers are desperate and they will be relatively soon and then lowball away…. Glad you enjoyed yourself Rob and welcome back…

  2. The unthinkable"Renter"

    Ya, welcome back Rob.

    “Thanks for playing, we have some partying gifts for ya!”

    Oh and thanks for the exceptionally long thread.

  3. Rogie Vachon Yo!

    Very interesting – thanks.

    I will be boosting my deposit, loyalty and patience for the coming year or two…

  4. Whybuywhenucanrent

    Rob wrote: >>Some people recommend lowballing, but I’m not quite sure of their agendas.<<

    One agenda is to get a property at a low cost.

    The more you pay up front, the higher your down payment and subsequent monthly payments.

    “Fair market value” is ultimately determined by what someone is willing to pay for a house.

    If nobody is willing to pay the posted price, I imagine a seller would be delighted to have a “lowball” offer, giving them the choice of selling it for less than the posted price, or continuing to let it sit on the market.

    A “lowball” price would also be standard where the house is unusual and generally undesirable, so there were few “comparables” to gauge “fair market value”. For instance, if a house is dilapidated and needs major renovation, the “fair market value” is entirely dependent on whether there’s a buyer out there interested in fixing the problems, and what value they give their time and energy to do it. This creates a scale of expected possible prices, based on what kind of renovators are in the market. In such a case, the seller would probably set the price at the high end of the scale, but know that they might need to accept an offer at the low end if the more motivated renovators are not buying that season.

    Given cases like this, it seems foolish for Buyers’ Agents to discourage their clients from making offers or Sellers’ Agents for considering them.

    Whybuywhenucanrent?

  5. Anonymous

    I wanted to put in an offer on a place 6% below asking. Basically not pay the GST. The agent I was working with was not comfortable with writing up the offer, saying it was too low. I offered it to the builder directly and they accepted.

    I feel bad for the my agent but 6% savings on house these days equates to 30-40K.

    I read the “working with a realtor” pages and it indicated that your realtor should write down any offer you think is reasonable.

  6. coco

    Since your talking about me, here are some facts:

    *Both selling realtor and owner did not know about the problems, hard to see. (no one was covering up anything there)

    *Selling realtor was told about the inspection report results, not given a copy.

    *Selling realtor told owner about problems while they were on vacation and they called someone in to evaluate the problem and give a quote to fix.

    *Selling realtor to met with owner who just returned from vacation today to go over quotes.
    __________________________________

    “Could it be beneficial to expressly share the results of a home inspection with a seller? Is it ethical? Can it be counter-productive?”

    Rob, I’m kind of surprised you would even mention questions like this. What would be unethical is to back out of a deal when you know the house has leak problems and not have the courtesy to tell the owner. Can you imagine if no one said anything and the owner had failed offer, after failed offer, after failed offer, because no one told them about their leak problems.

  7. jesse

    Rob, the same logic applies to someone offering more than list in a bidding war. I fail to see how someone offering above list because of blind bidding wars is any different from a buyer lowballing, regardless of intentions. For example, if someone buys a property he cannot afford, does a Realtor have an obligation not to accept the offer? (I answered this in a previous post: No: I don’t think the Realtor has obligation to second-guess the financial capabilities of buyers)

    If Realtors are involved, it abstracts the emotions and motives of the buyer and seller. If the seller is desperate to sell, because of divorce, death, or because they leveraged too much and lost their jobs, that’s none of my business as a buyer. In fact I might, as a service to a properly operating libertarian society, go out of my way to screw over a flipper that got too greedy. But in most situations I’ll never really know the true motivations or desperation level of a seller. All I know is that 30% off a $1M property is a lot of beer.

    We have rules for Realtors that do not represent sellers properly. There was a case several years ago of a Realtor buying a property way under market from an senior and selling it months later at market rate. The Realtor was sued, justly so. I cannot assume the Realtor representing a property is incompetent or unethical; I actually assume s/he is competent and is fairly representing the seller. If my offer is fair in the eyes of the seller, great. They can sue the Realtor later if they want.

    In Sacramento, as an extreme example, some list prices are 40% below their peaks a year ago. If I lowballed one of these places a year ago 40% below list, and the seller knew what he knows now, he would have taken the money. But to be fair I would lowball another 40% below current list anyways.

  8. jesse

    “Could it be beneficial to expressly share the results of a home inspection with a seller? Is it ethical? Can it be counter-productive?”

    Coco is right. Taking it further, if the seller wants a higher price, he can wait for a buyer’s home inspector who overlooks the leaks or hope for a deal without inspection subjects. Who is he to assume the home inspector is incompetent or the buyer doesn’t know any better? Maybe he’s tearing down the place or redoing he roof so he doesn’t care? Who knows. The seller must therefore deem other inspectors’ reports as incorrect or he must disclose the report to subsequent buyers. Ethical?

  9. mk-kids

    I watched a show on HGTV last night, I think it was caled first timers. The young couple had an excellent home inspector, the house they bought was the third they had inspected & it was clear to me the RE Agent was not a fan of the inspector. What killed me in this show though was their appointment with the mortgage broker & real estate agent to get financing. They financed 100% & the mortgage broker actually told them this was a smart purchase for them because the area they were buying in was hot & their property would only appreciate in value and the RE Agent nodded his head in agreement!! I was stunned & told my husband that they should get that in writing.
    I wonder where that couple is now… I think the property was in California.

  10. blueskies

    scenario:

    apartment for sale asking $525K, allegedly with $40K in upgrades, similar comp sold for $480 with no upgrades.

    impression I got was seller wanted EVERY penny back in the upgrades and a few bucks more….. is this a candidate for a “lowball” offer?

  11. abc

    I wouldn’t increase a bid for upgrades I don’t want. Unwanted “upgrades” can in fact lower the price. I recall someone who bought a property with a pool that the owner put in. The owner thought the pool would be a good selling point and increase the selling value. But as it turned out, the buyer argued for and got quite a discounted price from list since she would have to remove the pool (no-one in the family swam).

  12. jesse

    abc: good example. There are lots of cases in history of frivolous upgrades having zero or even negative market value. Keep that in mind when the owner wants you to pay for the hot tub.

    To a lesser degree this is true with granite countertops and the like. Though the “countertop” has value to everyone, the “granite” part of it can be costly to repair.

  13. Anonymous

    A RE agent who won’t accept an offer for whatever reason without notifying the seller is NOT doing their duty. They are trying to minimize their trouble to maximum to gain and should have their commission reduced.

    If I was a seller I want to be notified of all written offers. RE agent should not try to make decision on behave of sellers, filter and weave out certain offers, unless I instructed them to do so. Don’t base on my previous rejection of an offer at $xxx two days ago as my rejection of offers at less than $xxx.

    If a selling agent is willing to receive an above asking offer then a buying agent should be equally willing to write a lowballing offer.

  14. Rob, your opinion on this scenario, please. And of course , all comments are welcome:

    A senior friend just bought a property. Inspector did not record/find a leak in a bathroom, which was running under the carpet into the corridor. Nor did inspector document that the deck floor was rotten, so that a new deck has to be built.

    WHO pays for these repairs? I estimate a $2000 bill for new deck, plumbing, etc.

  15. coco

    Sourgrapes,

    Was the home inspector CAPHI or BCIPI? Most people think it doesn’t matter but it does.

  16. robchipman

    WBWYCR:

    “If nobody is willing to pay the posted price, I imagine a seller would be delighted to have a “lowball” offer, giving them the choice of selling it for less than the posted price, or continuing to let it sit on the market”.

    That’s a common assumption, but not an accurate one. More accurate would be to say “…I imagine some sellers would be delighted…”; see the combination of 3 motivations common to all sellers.

    “For instance, if a house is dilapidated and needs major renovation, the “fair market value” is entirely dependent on whether there’s a buyer out there interested in fixing the problems,…”

    I’d disagree. I think that fair market value can be determined, prior to a sale, and that means that you can determine it in the absence of an actual buyer. Factor in cost of repair, expected payback, risk, etc., and you can come up with fair market value. Imagine, for example, that you ask me, as your buyer’s agent, what you should pay for the dilapidated house. I think you’d expect a logical answer. Whether we get a willing buyer and seller for that particular house would still have to be determined.

    Still, I’m not sure I disagree strongly with your position. I think you’re still basing the lowball tag on the list price, and I’m saying you can and should base it on FMV (which doesn’t preclude real lowballing).

    Anonymous:

    Too bad for the Realtor indeed. The Working with a Realtor brochure reflects the law: an agent must follow his principal’s legal instructions. Instructions to write a lowball offer are legal. The Realtor has the option to comply or stop being the agent. In your case the Realtor misjudged the seller and values.

    Coco:

    “*Both selling realtor and owner did not know about the problems, hard to see. (no one was covering up anything there)”

    Understood. Your inclusion of a subject to inspection clause was still wise.

    “*Selling realtor was told about the inspection report results, not given a copy. ”

    Very interesting position for the listing agent to be in. Should he comment negatively on the property, thus potentially costing his principal a substantial amount of money, based on hearsay? What if the buyer’s agent was making excuses because the buyer got cold feet? The L.A. would be foolish to damage his seller’s interests on that basis.

    Should the L.A. ignore the problem? What if the problems were real, and the buyer’s agent/buyer were not making excuses? If the L.A. later sells without disclosing (or without verifying the problems) has he created a bigger problem for his seller and himself? (The concept of “he knew or should have known” comes into play here).

    In your particular case, Coco, it seems pretty clear that the listing agent is trying pretty hard to do the right thing.

    “Rob, I’m kind of surprised you would even mention questions like this. What would be unethical is to back out of a deal when you know the house has leak problems and not have the courtesy to tell the owner. ”

    There’s a lot of unethical behaviour going around. I happen to agree with your position on this. What’s more, if I were the listing agent I’d want to see the actual report. After all, what’s the alternative? Ignore the problem? That would likely end in tears. If the seller didn’t want the information I always have the option to de-hire him.

    Can sharing the info be beneficial? It looks to me as if it might be beneficial to both parties in your case. What if the guy demonstrates to you that the problem is limited, that it can be fixed, that there is good value, and that he’s willling to make a deal with you? You might proceed, and both sides may emerge happy. That wouldn’t have happened without your inspection and sharing the info.

    However, what if the inspector is wrong? I once had an inspector find an underground oil tank, and we were forced to remove it. Only one problem: after extensive excavation and cost we found the tank didn’t actually exist.

    Jesse:

    “Rob, the same logic applies to someone offering more than list in a bidding war.”

    I agree. Anytime you’re anticipating multiple offers and paying over list, you better ahve a real good understanding of values, potential outcomes, and your own motivastions. Its really up tot he Realtor to help you explore those things so that the whole process isn’t just based on emotion.

    “For example, if someone buys a property he cannot afford, does a Realtor have an obligation not to accept the offer? (I answered this in a previous post: No: I don’t think the Realtor has obligation to second-guess the financial capabilities of buyers)”

    I tend to disagree. Depends which Realtor and how much he knows. Its clearly unethical of me to bind my buyer into an enforceable contract that I know he can’t fulfill (how do I know? That’s my challenge, but the challenge is real). As a listing agent do I care? Well, if I advise my seller to take a non-subject offer from a buyer who verbally advises me that he needs a mortgage, what happens if there is a long subject removal period, low deposit, and the market crashes? If the buyer can’t get the mortgage, have I screwed my seller? Seems I should care about that as well.

    “If the seller is desperate to sell, because of divorce, death, or because they leveraged too much and lost their jobs, that’s none of my business as a buyer. ”

    I’d say its your business, but I’d agree that it doesn’t have to influence you either way as a buyer. As a Realtor I’m not concerned too much about how they got into their position, but I am, of course, very concerned that they accurately understand their position and, consequently, understand my advice (whether given as a listing agent or a buyer’s agent presenting an offer). Ethical or not, I don’t want to take advantage of ignorance that can be cured by a little information. At the same time I’m not naive. Not all principals will disclose everything honestly to me (whether I’m their agent or not). All I can do is disclose enough to make sure I’m playing fair.

    “In fact I might, as a service to a properly operating libertarian society, go out of my way to screw over a flipper that got too greedy. ”

    Contrary to Gecko’s maxim, greed is a terrible thing 🙂

    “We have rules for Realtors that do not represent sellers properly. There was a case several years ago of a Realtor buying a property way under market from an senior and selling it months later at market rate. The Realtor was sued, justly so. ”

    I think you have highlighted exactly what I want to avoid. And, I don’t want to help clients do what that Realtor did. How can you solve that? Tell the senior what his property is really worth. I recently did a limited dual agency for an old client and a friend. Although the client trusted me implicitly I still arrranged for two independent appraisals of the property to be done so that she and I would both have objective opinions of value (which makes it tough to argue that I was playing favourites). If the guy in your story (which I remember) had done something similar, he would have been home free.

    Blueskies:

    “apartment for sale asking $525K, allegedly with $40K in upgrades, similar comp sold for $480 with no upgrades”

    $480 +$40= $520. $520 -25% = $390.

    Is it a candidate for a lowball? Sure. Why not? Except if you base the lowball price on the list price. If you do you’re fooling yourself.

    Base it on value. What if the $40k in upgrades are worth $60k? What if they;’re amateur and worth $20k? What if they actually diminish the value (see ABC’s comment)? And, where has the market gone since the sale of the comp, and how dies the comp differ? In other words, anything is a lowball candidate. The key is how realistic you’re being about the process.

    Anonymous:

    “A RE agent who won’t accept an offer for whatever reason without notifying the seller is NOT doing their duty.”

    You are correct. This is an important point. All written offers must be presented unless the seller has given written instructions to the contrary (think that one through – there are valid situations where this may occur, of course, but its not unheard of for Realtors to shirk their responsibilities).

    It is equally important for sellers to recognize that they must be prepared to look at all offers. It is common for a seller to say “Don’t even call me with an offer of less than $XXX”. I recoommend that sellers not do this, and in fact look at all offers and treat them all seriously.

  17. jesse

    “Its clearly unethical of me to bind my buyer into an enforceable contract that I know he can’t fulfill”

    That’s not what I was getting at. I agree you have a fiduciary responsibility to ensure all contracts presented are tenable. My point is such: do you have an obligation to care for the buyer after the sale has closed? For example if the buyer got into a toxic subprime mortgage and you are pretty sure he will default within a year, should you prevent such a sale from happening in the first place? In essence you are taking advantage of someone making what is likely a bad financial decision.

  18. J Ben

    Hello Rob, Long time reader, first time posting. Usually I read your posts with some agreement, some disagreement, and often some understanding that you are couching your terms/comments in a manner that minimizes your exposure to making “difinitive” statements. This post however is so laced with hypocrisy that I had to reply. I find it very disingenuous of you to state that it is “unethical” to take advantage of someone who is trying to sell a house, yet at the same time a Realtor will list the price high to see if there is market acceptance of the higher price. This in effect is a “highball” on the price… which may accepted from the market due to “ignorance” on the part of the buyer. Does that make it unethical for the seller to jack their price up because they believe that they can get it? The answer to that is “no”. This is a free economy where there is forever going to be losers and winners. And most of the time that difference between winning and losing is based upon a persons expertise/knowledge/skill (and admittedly sometimes a little luck). Any offer lower than the price that is asked is reasonable… any offer at the price asked is reasonable… and any offer over the asking price is reasonable. By that same token… the seller can ask less than the place is worth, ask what it is worth… or ask more than it is worth. The interplay between all of the different factors is what will eventually determine the price that the commodity exchanges hands at… ethics has nothing to do with it. What you are talking about here is not ethics… I do not see you lowering the asking price on any of these houses so that widows and orphans can afford to purchase them… what you are talking about here is the value of your time in placing offers that have a lower chance of success. And that Rob, is simply greed on your part. And there is nothing wrong with that… as long as you don’t stand on a soapbox and label someone else as unethical for doing exactly what you are doing.

  19. jesse

    “That’s a horse of an entirely different colour, but one thing is for certain: offering 25% less than market value is an honest to goodness lowball offer.”

    Unless previous sale prices are not what market value is today. Sales data always lag the market by 1-2 months and we know how quickly things can change. It will be an interesting day indeed when distressed sales make the market.

  20. Dyugle

    Funny clip on youtube called The Realtor.
    Enjoy

  21. jesse

    “I still arrranged for two independent appraisals of the property to be done so that she and I would both have objective opinions of value (which makes it tough to argue that I was playing favourites). If the guy in your story (which I remember) had done something similar, he would have been home free.”

    Interestingly, in the case of this Realtor, he was nabbed because he was a Realtor: the proceedings proved that he must have known fair market value and the seller would have put him in a position of trust.

    If he weren’t a Realtor, it is less clear he would have been successfully sued because there would not necessarily be a breach of trust.

    Note (and this is an important point) this could theoretically work in reverse as well. The Realtor could have sold property for far above market value, while claiming it was “fairly” priced, and could have been sued.

  22. -A-

    “Usually I read your posts with some agreement, some disagreement, and often some understanding that you are couching your terms/comments in a manner that minimizes your exposure to making “difinitive” statements. “

    Rob, you know what they say… If one man calls you an ass, just ignore him, but if a few men call you an ass, you should start looking for a saddle.

    If I understand the author correctly, he is saying, pretty much what I always have said, and that you are a hypocritical, fast talking, snake oil, cagey peddler.

  23. Anonymous

    RE are no different than used car salesman. They are not out there looking out for their clients, they are out there looking out for the next easy pay shrouded under a good will, do good cover.

    If they can project good ethics while making a good buck they promote their good upright citizen image, integrity and morale ethics. But the bottom line that what drives and motivate all RE is the sales commission.

    RE agents need to stop using word like ethical, conscience and upright as they rank low in these categories. Stop pretending to be someone who you’re not.

  24. -A-

    “RE agents need to stop using word like ethical, conscience and upright as they rank low in these categories. Stop pretending to be someone who you’re not.”

    I don’t think all RE agents rank low in ethics, conscience and upright, but in my view we would have to recalibrate the scales to get any reading on Rob.

  25. coco

    “However, what if the inspector is wrong?’

    An inspector is a “jack of all trades” and a master of none. A professional should always be called in to verify any findings.

    Personally, I would only use a BCIPI inspector. I don’t care for CAPHI standards of practice because of particular exclusions and their educational standard (you can take a home inspection course by correspondence through an out of province inspection company, then pay $250.00 to take the exam. You perform “five” home inspections that meet the CAPHI council requirements and viola your a home inspector)

  26. robchipman

    Jesse:

    “My point is such: do you have an obligation to care for the buyer after the sale has closed? For example if the buyer got into a toxic subprime mortgage and you are pretty sure he will default within a year, should you prevent such a sale from happening in the first place? ”

    If he’s my buyer, then yes, I think its pretty incumbent on me to not let him get into that position. That assumes that I can read the future, but let’s agree for the moment that your use of “pretty sure” reflects what’s going to happen. I wouldn’t write the deal.

    J Ben:

    “I find it very disingenuous of you to state that it is “unethical” to take advantage of someone who is trying to sell a house, yet at the same time a Realtor will list the price high to see if there is market acceptance of the higher price. ”

    I say its unethical to take advantage of someone who is ignorant of market conditions and facts. That’s not the same as “taking advantage of someone who wants to sell a house”. A buyer can take advantage of an opportunity a seller offers without taking advantage of the seller. That seems pretty clear to me.

    If an informed seller wants a quick convenient sale, and a buyer wants to take advantage of that to get a low price, I don’t think there is anything wrong with that. Both sides are going into the deal with open eyes.

    However, you do have a kernel of a point. Reverse the roles and have a buyer pay way more for a property than its worth, based on the buyer’s ignorance. That’s obviously a problem. But I’m not sure that’s exactly what happens when a listing agent lists a property at a high price to see if there is market acceptance of that price.

    Here’s an example: the listing agent does a CMA on the property, and finds comps have been selling for $100 during the preceding month, but he also finds that 2 months ago they were at $90, and three months ago at $80. The LA isn’t sure where the market is going (let’s say, hypothetically, that the dollar is up, %i stagnant, credit crunch fallout unknown), but he’s seen a 10% per month increase each month. Should he list at $100? Or try $110 and see if there is market acceptance? If there is market acceptance is it based on ignorance? The answer is clearly “no”. Market acceptance is based on a multitude of actors who possess enough information to make informed decisions.

    In other words, market acceptance isn’t the same as taking advantage of an uninformed person. (Now, if you’re arguing that anyone paying over list or paying a high price is by definition ignorant, you clearly don’t have a point – smart, informed people have done exactly that time and again and come out smelling like roses).

    “By that same token… the seller can ask less than the place is worth, ask what it is worth… or ask more than it is worth. The interplay between all of the different factors is what will eventually determine the price that the commodity exchanges hands at… ethics has nothing to do with it. ”

    A seller can do exactly what you describe, and ethics doesn’t enter into it. Ethics does enter into it when an agent becomes involved. And let’s be clear: I’m not arguing that its unethical for an agent to write a lowball or list a property for a high price. I’m pointing out that its unethical for an agent to do those things with an uniformed principal, and that it comes home to roost when the principal suffers a financial loss. What sellers and buyers do on their own is their business.

    “And most of the time that difference between winning and losing is based upon a persons expertise/knowledge/skill (and admittedly sometimes a little luck). ”

    I don’t look at it as a win/lose proposition. I try to look at it as a win/win. The seller wins by selling on terms that are beneficial to him, and the buyer wins by buying on terms that are beneficial to him. One guy gets the money, one guy gets the house. Who wins? And how can any of the parties lose without someone taking advantage (in the negative sense) of the other party. I’m not naive. I know it happens. But I don’t want to do it.

    (To be clear: if the specu-investor/flipper is over-extended and my buyer lowballs him, I think its fair for me to say “Seller, you win because you get a fast sale, albeit at a lower price, and you get rid of mounting risk, debt, and looming foreclosure. My buyer gets a great price, but assumes a lot of risk. We didn’t create your misfortune and aren’t responsible to solve your problem. But, you know the score, we know the score, you want out, we want in”. That’s taking advantage of a market opportunity, but I don’t think that’s the same as taking advantage of an uniformed seller).

    “…what you are talking about here is the value of your time in placing offers that have a lower chance of success. And that Rob, is simply greed on your part.”

    Yes and no. I determine whether I want to place offers on my evaluation of my client, not the chance of easy success. In the current market we aren’t writing may lowballs, but a multiple offer situation will illustrate. Property looks like good value, and is listed at $200,000 (not its real price, but the ratios are the same). After renos the client can sell for probably $260,000 (all things being equal). We determined we could go only as high as $202,000. We knew there would be multiple offers (there were 5+). Chances of success writing at $202,000 are nil. However, the client knows this (we’ve advised him), he’s a repeat client, and he wanted to take a shot. We;re happy to do so because a) we have a firm, logical cieling price that we won’t exceed, b) the buyer is well informed about the market and c) he’s a good client. Am I still greedy? Sure. Long term we’ll do more business with this client, so I am being greedy. Am I also being ethical? I think so. We’re giving the buyer the required info, we’re not letting him operate out ignorance, and we’re following his legal instructions.

    Would I do that for any buyer? No.

    Would I tell the buyer that he’s got a really good chance of success? No.

    Same drill for lowballs. (Lowballs have a very low chance of success in the current market, but the chance of success will increase when the market changes).

    So, am I a soapbox hypocrite? I don’t think so. I don’t want to rip off anyone on the basis of them being uninformed (and I think the amount of info I share here indicates that I generally tell people more than they need to know in order to take action). I don’t want my profits to be predicated on someone else’s losses, either. If I can get a client a great price on a buy while saving the seller from a bigger loss in foreclosure, the buyer and I are saving the seller some pain, and not taking advantage of him or multiplying his loss.

    Jesse:

    “Unless previous sale prices are not what market value is today. Sales data always lag the market by 1-2 months and we know how quickly things can change. ”

    Just as we predict where the rising market is based on lagging indicators, so will we predict what falling market value is based on lagging indicators. The test will be to see if we end up with succesful transactions. As mentioned, we just “lost” in a multiple offer situation today. I use quotes because we couldn’t justify going higher. Maybe we dodged a bullet. Still market value, at offer writing time, is an exercise in predicting the immediate future.

    “Note (and this is an important point) this could theoretically work in reverse as well. The Realtor could have sold property for far above market value, while claiming it was “fairly” priced, and could have been sued”.

    “could” being the operative word. Agency issues are extremely important, and are required to square the circle between J Ben’s concerns about trying a high list price and engaging in unethical behaviour. Read the brochure. Educate yourself about agency. Use an agent (if you suffer a loss due to agent incompetence, at least there’s E&O insurance).

  27. jesse

    “If he’s my buyer, then yes, I think its pretty incumbent on me to not let him get into that position. … I wouldn’t write the deal. ”

    So if you’re the selling agent, not working directly for the hapless buyer, would you write the deal? You have a duty to get the best price for the seller.

  28. Rogie Vachon Yo!

    Jesse said:

    “In Sacramento, as an extreme example, some list prices are 40% below their peaks a year ago. If I lowballed one of these places a year ago 40% below list, and the seller knew what he knows now, he would have taken the money. But to be fair I would lowball another 40% below current list anyways”

    I don’t think is so extreme – both Calgary and Toronto have experienced price reversals like this in the last three decades, and in much shorter time frames – six months, and nine months. Vancouver has also averaged 18% drops in the last three corretions.

    It happened worse in LA around ’91, and it’s happening again there now. A relative kept passing a place in Victoria for months… They wanted $400K. After nine months on the market, he wanted to offer $310K and his realtor felt “uncomfortable”.

    Sorry, but there is no such thing as lowball after nine months.

    Realtor fired, offer accepted ten minutes later.

    Once the $#%# hits the fan to the south, and/or globally, and we realize what will happen here in the months therefater, every price I see on the westside gets discounted 25%, and real crap gets 35% off. I will be happy upfront, and the “lowball-ee” will be ecstatic a year later.

  29. LesserApe

    One really odd recurring theme on this blog is the idea that Rob shouldn’t make money. For some reason, people seem incensed that he has the gall to charge for his services and deliver his services in a way that is profitable.

    Most people work for a living, and most will arrange their affairs to make money. If Rob’s greedy for doing these things, then pretty well everyone is greedy, which makes calling anyone greedy kind of pointless.

  30. $fromA$ia

    Coco,

    Your comments on home inspectors ar glib.

    Home inspectors are general practitioners.

    With Cahpi they are associates until they reach, if I can remember …250 home inspections then they become members.

    I am studying the course offered by Carson Dunlop. I got to tell you theres allot of material and videos but you get a certificate when com[leted. With this certificate you can get your own private bonding for your own business or you can use it to affiliate with CAHPI or ASST.

    As a ticketed tradesmen (SMW) in restuarant food equipment. I deal with plumbing, gas, electrical, welding, installation, trouble shooting building and fire codes and so on.

    I didn’t want to go with ASST because you have to apprentice under business owners/inspectors. The owners are not going to want you to leave them to start your own company because its competition.I prefer keeping my independance and responsibility.

    If I do join, I will go with CAHPI. CAHPI will give me my indendance up front.

    Now the spin on lousy home inspectors. Rob has heard this before from me.

    In a hot market it’s easier for the inspector to get away with a poor inspection because theres multiple buyer competition.” If you won’t buy the house, someone else will, you better take it as is!!

    Poor inspections have been happening rampantly in Vancouver in recent years with this housing boom, In a poor market home inspectors have to really do their work of course because if they come up with something, the buyer can use it for bargaining.

    I hope this clarifies things for you about home inspections and organizations. You can’t categorize inspectors. Reputation is key as well when you hire an inspector follow him/her around the home while they do thier inspection. You can ask questions, this helps keep them on thier toes as well as gives you a feel of their competance. You can’t throw your money around, use your witts.

  31. CC

    I partly disagree with Rob in that I think “lowballing” is often based on list price. For many sellers, list prices signals what they think they can get (i.e. market value). A “lowball” offer is one that is significantly lower than this list price (i.e. the seller’s expectation). Many agents don’t want to lowball because they see it as both futile and embarrassing, a signal that their clients aren’t really making a serious offer.

    Market value – which ultlimately can only be determined after a sale – is incidental to the above dynamic. Whether the market value is above, at or below the list price does not change the fact that the offer is a “lowball” relative to the seller’s stated expectations.

  32. coco

    “With Cahpi they are associates until they reach, if I can remember …250 home inspections then they become members.”

    No, it is only 5, the 250 your talking about is becoming registered.

    “I didn’t want to go with ASST because you have to apprentice under business owners/inspectors.I didn’t want to go with ASST because you have to apprentice under business owners/inspectors. The owners are not going to want you to leave them to start your own company because its competition”

    This is simply not true.

    Most people take the CAPHI course because it is easier, you can do it by correspondence instead of attending BCIT.

    You have a background in the trades which helps, but that does not mean everyone who takes the CAPHI home inspection correspondence course has qualifications like you.

  33. coco

    As I stated before “my” personal preference is BCIPI. What kind of home inspector you hire is up to you. Here are the educational requirements for each group.

    CAPHI educational requirements:

    http://tinyurl.com/3yy89j

    (CAPHI members can call themselves “registered” after they perform 250 home inspections.)

    ———————————————————–

    BCIPI educational requirements:

    http://tinyurl.com/3dbue2

    (BCIPI members are the only group that can call themselves “certified.”)

  34. robchipman

    Jesse:

    “So if you’re the selling agent, not working directly for the hapless buyer, would you write the deal? You have a duty to get the best price for the seller”.

    There are two issues there. Best price for the seller isn’t necessarily highest dollar amount (I think we’ve covered that and are in agreement), but you’re right: the seller’s agent has the duty to promote the seller’s interests, not the buyers. There is potentially a challenge for the selling agent wherein promoting the seller’s interests runs counter to the buyer’s interests. What do you do?

    The second issue is agency. If I’m the selling agent, and the buyer doesn’t have an agent, I either represent him (subject to limited dual agency restrictions, and in which case I wouldn’t write the deal), or I tell him to get representation from someone else. If a buyers leads me to believe that he can complete, but that he’ll later be in the glue as a result of (as you described it) a toxic sub-prime mortgage, and he refuses my advice, then he’s on his own. I won’t represent him and I won’t extend agency services to him.

    The agency brochure says that an agent can draft an offer for a buyer without being the buyer’s agent or creating an agency relationship. I disagree. I feel that if a) I wrote an offer for a buyer, and b)wrote on the offer itself that the buyer had no agency, that if the the buyer subsequently suffered a loss and retained a lawyer, the lawyer would argue, with some chance of success, that I provided defective professional service to the buyer. The lawyer may or may not make his point. I prefer to avoid the situation.

    Rogie Vachon Yo:

    That’s still basing the tag “lowball”on list price. Its like getting 30% off paint and thinking its a wicked deal, or a 50% tradesman’s discount from a commercial plumbing supplier, and then discovering that the price you pay is equivelant to what everyone else pays at Home Depot with no discount. List price is irrelevant when it comes to lowballs.

    &fromA$ia:

    “Reputation is key as well when you hire an inspector follow him/her around the home while they do thier inspection. You can ask questions, this helps keep them on thier toes as well as gives you a feel of their competance. You can’t throw your money around, use your witts.”

    Excellent advice. I recommend following it.

    CC:

    “Many agents don’t want to lowball because they see it as both futile and embarrassing, a signal that their clients aren’t really making a serious offer. ”

    That’s a problem that resides with both the buyer and the agent. A lowball is serious if its related to market value or the seller’s needs. If both Realtor and bueyr understand that there is nothing to feel bad about. If the Realtor doesn’t understand it, get a new Realtor or explain it to them (maybe the Realtor is a friend and you feel obliged to use them). But, as a buyer, make sure you understand it as well.

    “Market value – which ultlimately can only be determined after a sale – is incidental to the above dynamic.”

    Yes and no. You can make a great argument that market value can’t be determined until after the fact, (and for a broader concept of market value I think you’d be 100% right) but in practice, for individual transactions, we really have to try to determine market value before hand. I think we both understand the difference, so we don’t have to split hairs on that.

    We can do lowballs to death. I say its based on market value, but we have to be clear that in presentation I’ll argue that the lowball isn’t really a lowball (in the negative sense) because it is a) close to MV or b) accomplishing what the seller wants.

    I think what’s important is to realize that whether you callit a lowball or not isn’t important. However, what you pay relative to market value is important, whereas what youpay relative to list price isn’t (get 25% off a listing that is over-priced and on the market 120 days, and have you really saved anything? Without knowing market value you can’t answer).

  35. coco

    Rob,

    I think you got me confused with someone else.

  36. coco

    Comments were made by “CC” not Coco

  37. robchipman

    Coco:

    Right you are. Sorry. I’ve editted the comment to reflect the difference. Thanks!

  38. Spencer

    Placing a deposit up front into a Realtor’s trust account to reveal how serious a buyer really is or a lowball offer may not be written? I find this kind of amusing and it just proves to me that really there is no benefit of using a Realtor when buying property.

    My scenario, I am very familiar with the Lower Mainland, I know what I am looking for in a property, I have a lawyer standing by to review any property purchaisng related documents…..what do I need a Realtor for if I am confident in appraising market values and in negotiations? Not using a Realtor provides me with leverage in price negotiations, leverage which has really worked to my advantage in the past. The same goes for selling my property. I can advertise through comfree, hold my own open houses and negotiate.

    The only time I could see using a Realtor is when I move to a new unfamiliar city, am just too busy to worry about saving thousands of dollars.

    People seem to be either lazy or too scared or possibly blind(lazy again).

  39. The unthinkable "Renter"

    Coco thanks for engaging. Carson Dunlop offers a certificate. Isn’t their certificate a certification?

  40. coco

    Unthinkable Renter,

    CAPHI offers a Certificate Of Completion when you complete the CAPHI correspondence course, but they can not use the word “certified” home inspector.

    Only BCIPI can use “certified” inspector.

  41. coco

    One should check the Better Business Bureau for complaints against a home inspector you plan to hire. Check how many home inspections your inspector has performed and their educational background/training. One should also check the online BC provincial court records to see if the inspector has been sued and why. The best referal for a good home inspector is from friends/family/coworkers, ask around. A realtor is not allowed to recommend a home inspector (against their code of ethics, plus considered a conflict of interest)

  42. robchipman

    Spencer:

    There are lots of reasons why you should use a Realtor. If you can do a Realtor’s job compently yourself, go ahead. The market indicates that its a complex business worth the transaction fee.

    As a capable negotiator you must recognize the value of a paid up front, sizeable deposit. If you can’t see the advantage of that I think you may be missing something.

    Coco:

    Not only should Realtors not recommend inspectors – the same goes for conveyancers, mortgage brokers, etc. Its a fine line to walk.

  43. The unthinkable "Renter"

    ASST recognises Carson Dunlope as well as CAHPI.

    BTW coco…… Also when considering a home inspector consider the cost a $250 home inspection will give you what you pay for and a $1200 home inspection will probably be not.

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