How Home Buyers Can Get That Big Discount

Online real estate broker Redfin is out with a study today that contains some interesting insights that can help home buyers looking to negotiate a lower asking price.

From Redfin:

We analyzed 9,053 single-family homes in Fairfax, Los Angeles and King (Seattle) counties from April 15, 2008 to June 15, 2008 to identify the traits of the homes where the sellers accepted the biggest discounts (i.e. the sales that were in the top ten percentile of discount off asking price—which turned out to 11.4 percent off list; the average for all home sales was 2.5%). [Fairfax County, Va., is near Washington, D.C.; King County, Wash., includes Seattle.]

Here's what we found. Homes where there was a big discount were:

• 83% more likely to be 90+ days on market
• 73% more likely to be described as fixer-uppers
• 52% more likely to have been seller-owned for more than 20 years
• 28% more likely to have already dropped in asking price
• 9% more likely to involve a bank

In addition, Redfin provided "guidance for when buyers can demand a large discount":

From Redfin:

1. Focus on Listings Unsold After 90+ Days: Heavily discounted homes are 83 percent more likely to have been on the market for 90+ days. Most sellers will hesitate to accept a low offer if the property has been on the market for only a few weeks.

2. Focus on Fixer-Uppers: Heavily discounted homes are 73 percent more likely to be marketed as fixer-uppers. People who sell homes before fixing them up are usually more concerned about an easy sale than the best price.

3. Back Off on Remodels: Heavily discounted homes are 20 percent less likely to feature a noteworthy remodel. Redfin expected the reverse—that sellers who invested in a remodel would have unrealistic expectations about their home's value built into their asking price, leading to discounting down the road.

4. Don't Be Put Off by a Price Reduction: Heavily discounted homes are 28 percent more likely to have already been price-reduced. Together with long days on market, price reductions are likely to increase a buyer's bargaining power.

5. Look for Homes Owned a Long Time: Heavily discounted homes are 52 percent more likely to have been seller-owned for 20 years or more. The longer a seller has owned a property, the more equity he has likely accumulated, and the more likely he is to make significant price concessions.

6. But Don't Be Put Off by Flips Either: Heavily discounted homes are nine percent more likely to have been seller-owned for less than five years. A seller in trouble on his mortgage may be motivated by his need to quickly reclaim capital.

7. Don't Expect Banks to Negotiate Much: Heavily discounted homes are nine percent more likely to be a short sale or bank-owned. Redfin expected to see far more bargaining in distressed properties, but the data suggest that selling banks already had priced homes low to avoid bargaining.

"Home buyers have begun crawling out of their bomb shelters, hungry for big discounts off the asking price," said Redfin CEO Glenn Kelman. "Often, their expectations are unrealistic, as many sellers have already aggressively priced their homes. But when conditions are right, we've found that a small but significant number of sellers concede $50,000 or more at the negotiating table. We've tried to take the mystery out of when a seller will give ground and when she'll stand firm."