Realty 'bottom feeder' aggravates owners, real estate agents


They're known as "bottom feeders" and they're out in force trying to buy homes from distressed sellers.

Not mere bargain hunters, bottom feeders are scavengers and grubbers. Feeling empowered by the strong buyers' market in many communities and inspired by favorable mortgage rates, bottom feeders fancy themselves as having shrewd business instincts.

But their ridiculously low opening offers -- sometimes as much as 30 to 50 percent below market value -- are rarely successful. That's because many sellers are so insulted they refuse to negotiate further, explains Norman D. Flynn, past president of the National Association of Realtors.

Realty agents are obligated to present all offers to a seller, no matter how low. But Mr. Flynn recalls a number of instances when extremely low offers drew a flash of anger from sellers, who typically take such offers as a personal affront.

"An angry seller will take a ballpoint pen and write 'REJECTED' across the contract in big capital letters, or he'll rip it up and throw it away," Mr. Flynn says.

When sellers receive extremely low-ball offers, the ball usually drops there.

"Since it's quite obvious that the purchaser is trying to take advantage of the seller, he insults the seller and therefore the seller doesn't come back with any counteroffer at all," says Brenda Flagg, sales manager at the Towson office of Coldwell Banker.

Bottom feeders are also known as bottom fishers. The terms refer, metaphorically, to creatures who feed on what falls to the bottom of the sea. In the stock market, a bottom fisher is an investor who specializes in picking up shares at the lowest-ever price -- especially shares of bankrupt or nearly bankrupt firms.

In real estate, bottom feeders are a source of annoyance to agents because they present themselves as legitimate buyers yet, in the last analysis, rarely wind up consummating a deal, according to Mr. Flynn. As a consequence, there's no commission earned for the agent, only aggravation and wasted time.

"Some of these bottom feeders are terrible. They're tighter than the bark on the white oak tree. They would out-fumble anyone at the restaurant when it comes time to paying for the lunch tab," Mr. Flynn jokes.

But the reality is that not all bottom feeding is motivated by stinginess. Some bottom feeders are simply inexperienced homebuyers who believe they're acting in their own best interest, making an exceptionally low initial offer on a home they genuinely intend to buy. They see no problem starting on the floor and gradually elevating their offers through the course of negotiations.

What they fail to realize is that the home seller may see things differently. Realty specialists point out that many people are so ego-bound to their property they often feel a sense of personal rejection or humiliation when a seller undervalues their home.

Also, keep in mind that many home sellers have a bottom line in the financial sense.

In the current real estate market, those who must sell -- by virtue of a job transfer, job loss or divorce -- will be strongly motivated to cut a fair deal to unload their property. But that doesn't mean they're willing or even able to give their homes away, Mr. Flynn points out.

Suppose, for instance, that a seller has a 20 percent equity stake in his sprawling suburban ranch house and the house has a market value of $200,000. Offer him 75 percent of the value of the place and he would literally have to write a check to his lender to pay off his mortgage when he walks away from the home. Few sellers are willing to do that.

Even if you're buying a home from a seller who purchased the property years ago and has paid a substantial amount down on the first mortgage, it's very possible the seller may have a second mortgage on the property. Home-equity loans, a new version of second mortgage, became very popular in the 1980s among homeowners who took them out for anything from credit-card debt consolidation to home renovation.

There's nothing wrong with bargain hunting. But remember that while enlightened bargain hunting may pay off, scavenging rarely does. Here are pointers on how to play the buyers' market to advantage when seeking to purchase a house.

* Gain a realistic picture of the real market value of the home.

This may or may not be close to the asking price of the home, points out Carolyn Janik, author of several books on real estate, who insists that the whole key to real estate is to understand market value.

The seller may be asking $100,000 for the brick town house, but if your research reveals that like properties in the same neighborhood have gone for $80,000 in recent months, your offer should be made relative to the $80,000 value, not the $100,000 price.

Your realty agent should be able to help you locate comparable sales from your community and it's wise to have at least three comparables to make a judgment on market value, says Ms. Janik, whose new book, "How to Sell Your Home in the '90s," covers bottom feeding from the seller's perspective.

Ms. Janik suggests that it's realistic for a seller to propose a first offer that's 15 percent below market value, given current market conditions in many communities.

* Try to determine how much debt is secured by the property, including both first and second mortgages, so you'll be a more informed bargainer.

This may not be as hard as it sounds. Your realty agent may be able to get the information for you (though keep in mind that most agents are legally bound to the seller, not the buyer). If not, you can find the information through public land records in the Maryland jurisdiction where the property is located. Call the local government operator for information.

* Never attempt to make a personal appeal to the seller based on your own lack of means or admiration for the property.

A young couple with good taste made such an appeal to the professor who owned a beautifully appointed Guilford town house. "We're young and can only offer $90,000, but we love your home and promise to take wonderful care of it," the husband told the professor. But the argument, coupled with the low-ball offer, left the woman cold. She was asking $130,000 for her home.

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