Low Ball Bidding your builder Main Idaho Real Estate Insights

A great way to screw yourself!

Before you read on let me first say that that when the market was hot, builders and realtors made great money and now that it has changed it is hard to feel sorry for the them. Once, I even stood next to builder on a cell phone who told his realtor to raise the price $100k, just because. During the day, the builders and realtors made a lot of money. Do I want prices to come down, no question. What I don't want is more crappy homes though.

There are lots of stories of people offering ridiculously low ball offers on homes right now. I have even heard of bidders waiting for builders to bleed out. Again, builders had it good in the day and I am not concerned that they are making less but do you really want to buy a home from a builder going out of business? If you can't hold the builder accountable for their work, I hope you saved enough that you can hire someone to fix your problems. And do you think the guy that is fixing your low ball offer home is going to feel sorry for you?

There is enough information available and inventory to shop from that you should be able to figure out if the builder is greedy, which many have been, or fairly priced. If he overpaid for the lot that is not your problem but when he is gone and the one year warranty you need is not available, it is your problem.

In summary, don't pay discount pricing and expect Nordstrom's Service. One thing I notice a lot in this industry is that people expect the low bid to perform at the same level as the other bids. For example, you probably expect your cheapest light buld to last as long as a name brand. Don't buy ground round and expect filet mignon.

Posted by tlangford at 8/22/2007 10:35:00 AM
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Comments (4)
Re:Low Ball Bidding your builder
In the hight of the building rush, did you ever look at the crews these builders were hiring. If you were alive, you could get a job, illegal...no problem, alcoholic...no problem
Recent construction was crap even when prices were high.

I think asking for 'market rate' ...you can call it lowballing, but I believe it is the price that somebody accepts is a very smart move.

In ANY MARKET, you will find poor construction. Do you think your offer makes its way into the pockets of the workers or just the wealthy guys in the BMW? Bid low, make a good contract and watch them like a hawk.

Overpaying is no gaurantee of a good job, only of wasting money
Posted by on 8/22/2007 7:16 AM
Re:Low Ball Bidding your builder
Great comments Trey.

I agree that buyers should not wait for builders to, as you say "bleed out" before picking up their well made "spec" home for a steal. It doesn't do anyone any good. Often times, these properties will end up a the bank, the builder will have lost his/her good name, the community will get hit by having a property that sits and once it goes into foreclosure the home may not be maintained.

If you have your eye on a particular property, coming to an agreement on price with the builder is really best for so many reasons including having that builder warranty your home in the future.
Posted by on 8/22/2007 9:31 AM
Re:Low Ball Bidding your builder
I don't feel low ball offers are such a bad thing.

A seller will only accept a lowball offer if they know their price is way above market which sometimes they are. If the builder you mentioned had put a $100,000 in padding over the top on his home, he deserves the low ball offer! If the market is increasing and the rest of the homes jumped $100,000; then obviously the builder should feel confident in his pricing and reject the offer. If it is truely overpriced, the bank will eventually take it back, the builder looses everything (including their credit scores) and the bank will price it right to sell.

I admit that sometimes when I show homes to a buyer that I can not rationalize a price that someone is asking for their property. I generally call the listing agent to see how they priced the home and if they are willing to share their comps with me. Sometimes, I have missed features while at other times the listing agent tells me "Well that is just what the seller WANTS for the home". In that case, I do my comparables and present it with my offers which I present in person to the seller with their agent present.

I just closed a home two days ago in which it was priced at $239,900. We had an offer come in at $230,000 and the builder was shocked when I recommended that we reject the offer. If we would have accepted it, it would have hurt our appraisal when we sold the adjacent model as well. So we rejected the offer and have now sold both units for $234,900! My point is if you are confident in your price (as a buyer or seller) stick to it. Don't get greedy if you have the facts and staying power. Holding out for $5,000 more and paying $10,000 in carrying costs however would obviously be stupid!

Many people think you can "steal" these from the bank; however it was foreclosed on by a bank that is publicly traded, they still need to minimize their losses or they will be held accountable to their stockholders. For example, how happy would you be as a stockholder if you knew your investment was leaving money on the table over-discounting their "inventory" screwing up your investment as a result?

I am a firm believer in economics. A savy shopper will shop around and will soon become the "expert" of what a home like they want should sell for. I admit if the home isn't marketted correctly, the buyer may not recognize that the home has minimum code ammentities vs upgrades.

Those of us that plan to be in the business for a while are all getting a lot more creative to accomodate buyers and sellers these days. For example, I was at my office till 9pm last night writing up an offer in which we are offering a trade of one house for another to reduce the sellers carrying costs and to elimate a "contingent" offer!

Remember, when the bank is generally providing most of the money to buy a home these days, so they will not typically lend you more than the house is "worth" based on a licensed appraisal so you generally won't over pay for a house. If you don't trust the initial appraisal, order an independent second opinion!
Posted by on 8/24/2007 10:45 AM
Re:Low Ball Bidding your builder
If you are a consumers looking for a deal, you might want to read my latest blog on Builder Profit and consider that the average Builder net profit on a new home is somewhere between 4.4% and 7.9%. You might also keep in mind that the Builder more than likely has a construction loan on the home and that construction loan is more than likely for the lesser of 75 percent of the cost or 80 percent of the appraised value. If youre offering less than 75 or 80 percent of the Sales Price, it means that, if the Builder were to accept your offer, not only would he not make a profit, he would have to bring a check to closing to cover the difference between your offer and the balance due on the construction loan plus any commissions due to the Realtors involved in the sale, plus closing costs. Conceivably, the Builder might be better off to default on the construction loan and let the construction lender deal with having to sell the home.
Posted by on 9/30/2007 6:15 PM

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