Seller declined my offer

[no_such_reality]

I don’t want to submit an offer. I’m concerned it might get accepted.

The market is on too unstable of footing for my taste at the moment. My concern is the housing market is like all the people with the Wii’s that are up for sale on Ebay today (Dec 22nd). At 4PM, what’s the guy that didn’t sell it at $450 because it didn’t meet his reserve got? A Wii, maybe two… what are the Wii’s worth on ebay the day after Christmas?

Unfortunately, many SoCal house sellers haven’t figure out that its the day before Christmas eve and there isn’t a postman on shining jeep to deliver them from their Wii.

[anxvariety]

This is a common misconceptions that lower prices and higher rates leading to equal monthly payments are essentially the same thing. They are not. I wrote a lengthy post about this topic on my blog.

I see what you’re saying but I think there are many other factors.. I personally think that the best deals may be panic sells early in this cycle… where people just want to protect the equity they already have… I’m trying to buy a house off a bank though, so that may be unlikely..

I’m looking for a place to live.. If I wait another 12 months, thats another $20,000 in rent.. Shouldn’t that be included in your calculations? If you’re comparing 2 scenarios involving time, I think rent should be included.. because both people or scenarios require some place to live or stay while the prices come down and interest rates go up.. IMO, it’s more significant than the opportunity cost you mentioned.

[barnaby33]

LookOutBelow, those are my sentiments. It doesn’t matter what screaming deal you get today. You just reset the comps and the market is still falling. I suppose there is a rock bottom price you could get for a unit below which no one will get another, but at this point I find it highly unlikely.

At 100 times rent I would say you are pretty much safe no matter what you get, but we are a long way from even being in that neighborhood. I can’t see any seller taking that kind of offer, yet.

Josh

[barnaby33]

We shouldn’t be the “next” wave of patient buyers. We should be the last(as a group), before it starts back up the roller coaster again.

Why should any of the regulars on this board, who obviously have a passion for this pay more than they have to. Prices are falling at this point fast enough that its like a free month or two of rent(EVERY MONTH) for anything you don’t buy!

Josh

[sdcellar]

If I wait another 12 months, thats another $20,000 in rent..

If the price of the property drops $20k in 12 months (which seems very possible), your rent will have been free.

[anxvariety]

In my opinion, price will not get to 100x rent in San Diego county.. the only possible exception I can see are those cheap apartment conversions.

There is an underlying paradigm shift in that San Diego on average has more skilled two income families and 10 to a house wage workers than areas where that 100x rent my actually be possible… you add in a few shakes of desirability and that 100x rent guideline is a pipe dream.

Put me on record here as saying ‘no way’ to a median or any sort of average at 100-120x rent in San Diego… I’m not saying that I’m going to be right, I just wholeheartedly disagree with that as a realistic buy signal..

At 100x that means you could pay off a house in 10-15 years just off rental income? Not going to happen..

It’s like saying that 7 is the only P/E you should buy stocks at… yet Google was at negative P/E and anyone that bough it 2 years ago has already earned 300%…. I don’t even own Google, and the list of P/E debunkers goes on and on and on..

[PerryChase]

I’m looking for a place to live.. If I wait another 12 months, thats another $20,000 in rent.. Shouldn’t that be included in your calculations? If you’re comparing 2 scenarios involving time, I think rent should be included..

I don’t get this logic. If you buy, you’re paying interest instead of rent. I’m simplifying here, but if interest is more than rent, you loose. Either way you have to pay to have a roof over your head.

I agree that it’s way too early to even think about making offers, much less submit offers.

[barnaby33]

Anx, on average I agree with you. Its just to coax me out as a buyer right now, thats what I would have to see. All I am waiting for really is that the median price has moved below the long term trend line of appreciation. That will happen and I will stake my claim to it. San Diego has always been less affordable and probably always will be so, than most other places.

That being said, everytime we have a major housing drop, the median falls below that long term appreciation trend. Thats the actual buy signal for me. Jumping the gun so to speak just requires the deal to be bullet proof, which is why I say it seems far to early to bite.

At the very least 2007 is going to be a VERY good year to us bubble sitters, unless some exogenous event occurs. Why commit early when its pretty damned obvious 07 will say a big rise in foreclosures, number of units on the market and corresponding drop in prices.

Merry festivus for the rest of us!

Josh

[anxvariety]

I don’t get this logic. If you buy, you’re paying interest instead of rent. I’m simplifying here, but if interest is more than rent, you loose. Either way you have to pay to have a roof over your head. I agree that it’s way too early to even think about making offers, much less submit offers.

Hi PerryChase,
In your scenario(that link you posted to your site above) you compare ‘buying now at a certain rate’ with ‘buying later for a lower price at a higher rate’.. You’re saying the buying later is better because you can save more money towards the down payment right? All I was saying, is that the ‘buy later’ person still has to live somewhere, and in fairness that factor should be considered in your calculation, especially since you are the using opportunity cost on the downpayment for that wait time as one of your supporting points.. by waiting a year the buy later person will have to pay 12k+ in rent.. that’s 12k less that you have for that hypothetical down payment.. do I make any sense?

Sure the buy first person is paying interest, but that was already accounted and from what I read bore the majority of support for your original argument.. all I was saying is that they have a place to live, and are paying some principal.. while the other person is paying rent while waiting, I didn’t see rent in yours.. so where is that person in your hypothetical living?

Look forward to your response and appreciate everyones feedback.

PS. PerryChase, I see part of what you’re saying – if the net diff of interest vs rent is negative then thats lost money.. but at the offer price and downpayment I’m looking at, the mortgage and rent are almost the same, which would mean rent is more than the interest… How do people feel about a mortgage that is the same as rent in area? Consider?

[kev374]

I want to start making offers on places I like but my assessment of reality and what the sellers want is still so so far apart that I guess I will just have to wait at least 12 months more.

What I do basically is take the 1998 price (or the first sale price if newer than 98), apply a GENEROUS 8% YOY appreciation. I then round up the figure to the nearest 10k. I consider this much MORE than fair because houses historically don’t have 8% long term appreciation in SoCal and some of these houses have monster HOA dues for which I should deduct from the sale price further but I am being VERY GENEROUS and not doing that.

Even so, I usually arrive at 30-50% of the list price which just shows you how amazingly out of wack this market really is. We will be back to earth, just have to excercise more patience that’s all.

[sdrealtor]

FYI Kev,
I just took the cost of my new house several years ago and added 8% YOY appreciation for each year and it came out to approx what the current market is.

SDR

[23109VC]

Kev-

i have thought the same way you do….look at what the house was selling for in 1998 or so..then apply a more NORMAL rate of appreciation, and do that for 1998-2006 to arrive at a figure that would represent what the house *should* be worth had the market not run up so out of control.

here is my question – what do you do for houses built in say…2005? houses built and SOLD in the heat of the market increase…so these houses have a basis that is already out of whack..

will these new homes also drop in price…i mean..what happens to an entire community of homes that were sold for roughly $500,000 a piece….when prices start dropping… i can see how the 6-8 year oldh omes..that were bought for $200k…never refinanced…it would be easy for sellers to drop prices if they had to sell..they wouldn’t lose beyond their basis..they’d only lose potentialprofit… but the people who bought recently… and how have houses dropping in value..will lose money…it will cost them to sell..

like the house I am renting. the buyer bought it a year ago for $440k. they did the backyard (nicely) probably cost them 10-15k….window treatments… the hous was a Lennar “EI” home..so it had all the bells/whistles standard.. granite, flooring was included in the price on this house…etc etc..

the person tried to flip it at $550. then dropped the price to $525. the realtor said theo nly offer they got was $475k and the seller rejected it. the house then sat, didn’t sell, then turned to a rental and I took it. $1400/month. a steal. beautiful brand new house. 🙂 cheaper than some apartments in this area! (Temecula)

the owner now has offered to sell it to me for $440k. essentially waht they paid..they just want to walk away. the problem is a comp down the street just sold for 430k…and if *I* bought…being that no agents are involved..and that prices normally include agent fees….like that $430k..that sold with agents..sot he seller only realy realized $400 or so… so I’d expect the price to me would be even lower than 440k… but here is a owner who paid 440k…and can’t bear to lose money..

what happens when an entire neighborhood has this problem… will whole neighborhoods drop in value so that peole are stuck with their homes or faced with foreclosure? it would be great if this neighborhood would drop in price to a realistic level…but can that happen on a grand scale to neighborhoods that are so new and where EVErYONE bought high?

i’m not sure what will happen on my house. the rent is so cheap it’s hard to even consider buying. to buy it i’d have to suddenly pay MORE money…just to say “i own it”..but nothing would really change…same house..jsut a differnt name on the property records…

when these houses were NEW it didn’t make sense to buy them. at 440k NEW this house was overpriced. it cost more to buy it and carry the house than to rent it. so the only way it would make sense to buy it is if the prices go BELOW what they sold for.

i have seen some new development wher the builder has dropped price…you can see some peole who bought in earlier phases who have for sale signs on the house..i pull the flier and they want MORE than the builder is selling the new one for..and the builder has no closing costs, all kinds of incentives. free upgrdes that the original buyer dind’t get…so what happens to THAT guy…who is trying to sell his house for $550k..and the builder is selling a better one at $500k..the guy selling is scrweed…assuming he really couldn’t afford that house in the first place..and has an ARM….he’s just goin to have to walk away… most people buying these big $$ houses in temecula area do NOT have cash reserves or other $$ investment where they could write off a loss and at least survive…most of them would take a $40k loss and go bankrupt…

[barnaby33]

Um its not complicated, prices drop. What you paid is irrelevant. I remember this primo (or so the schmoes thought) development near Poway high that went through that in the last bust. Man the people who bought it from the developer took a hosing for years when they had to sell, regardless of the origonal cost basis.

Tis but one of the myriad reasons to buy as close the bottom as possible.

Josh

[bubba99]

What happens to the new “2005” development when the prices drop below purchase prices? can be complicated. IMHO It depends on who and how the majority of the houses were purchased.

The homes purchased with large down payments and conventional financing should not be impacted unless the owner is forced to move by other factors. The price drop just erodes equity taken from a previous home. The mortgage is still below current lower price.

Homes purchase with conventional financing by families that do not want to move, nor harm their credit ratings will likewise stay off the market, and the owners will just wait for the market to catch up – at least for the first few years. Even if the amount owed exceeds the current value of the home.

The frenetic buyer who just had to get in on Real Estate and used “creative financing” to make the purchase will run like a rabbit. As soon as the market drops significantly below what he owes, or the financing ballons this buyer will flee the neighborhood. Although this home owner will drive prices down quickly, he will not impact the other two types of home owners they will stay put.

The real impact on a specific area will depend on the mix of these, and other types of buyers.

[lulu]

Here’s a good story for you –
Found a house in Poway back in October, (mls 066089425) 1798 sq. ft, 5,000 lot, backed up to a busy street, but built in ’96 and was a nice house. Asking price had a range of 579-609. Our first offer was 580k. House had been on the market about 2 weeks when we made this offer. Seller’s decided perhaps they priced their home too low and countered our offer at 630k. Needless to say, we laughed and withdrew.
As an update, supposedly their house is still listed, but they have a deal in the works where they’ve accepted one offer at a price they’re happy with, but the seller’s agent doesn’t think its even going to make escrow b/c there’s a contingiency that the potential buyer’s must sell their home first and they’re also asking too much for their home so it’s likely not to sell.

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