The 93% solution
A co-worker stopped by to chat with me recently. He mentioned that he has been dipping his toe in the housing market, thinking about buying a home while the prices are dropping and the interest rates are low. He said that over the past several months he’s discovered something which has helped him be a more effective negotiator in his transactions: the point at which banks will capitulate in negotiating a short sale. In the last few months, he’s made some offers on properties that are in foreclosure, and while the deals eventually fell through because of other factors (dickering about closing costs or appliances, etc) He noticed a pattern begin to emerge in the ‘dance’ between bank and prospective buyer: any offer less than 93% is rejected outright, but any offer 93% and above-even if initially rejected-seems to be acceptable to the banks, or at least they will begin negotiations. Not only that, but if a buyer is willing to gamble that the house will still be available in 30 days, often times the bank will lower the list price of their own accord.
For example, my friend was looking at a house with a list price of $118K. It didnt have an oven, and the bank was not willing to provide one or bend on the price because of the lack of one. My friend decided to pass on the house, and looked at other homes in the meantime. Approximately 25 days later, he contacted his realtor and mentioned that he believed that it might be a good idea to revisit that home the following week, and when she asked why, he said he just felt it was time, and he had a feeling there would be a price drop. The next week, his realtor sent him an email saying “you were right!”. He again entered negotiations on this home, this time listing for $109K. He made an offer of approx $102K, (approx 94%!!) and asked for an oven. The bank said no. My friend said, ok, I’ll keep looking. My friend reasoned that there was a high likelihood of the bank lowering the price again in 30 days and it did! 30 days later the price was down to $95K. My friend made a new offer of 92K with the bank to give him back $3K to cover his closing costs. The bank said no. He said “ok I’ll keep looking.” He was later sent an email from his realtor that the bank wanted to know if his offer still stood? It did. A final stumbling block may rear its head in terms of the ‘addendum’ where the bank has a 17 day closing requirement. My friend is concerned that he wont be approved that quickly, so the deal may yet fall through. It appears there is some merit to the formula of 30days/93%, especially if you can afford to wait the banks out. Time will tell.
Its ALL Blarney!! 