It’s a daunting task. Settled in around the bargaining table, you see nothing but pros, chips stacked to the ceiling. Looking down at your comparatively meager stack, you’re tired of getting bullied out of hands. Offer after offer you submit, only to fold under the check-raises from predators with pockets the depth of the Mariana Trench sewn into their five thousand dollar suits. You are being methodically ground out of the main event.
Welcome to the Scottsdale Real Estate Market / World Series of Poker that is 2010. The buy-in may be cheaper, but the odds haven’t been longer since 2005. Why’s that, you ask? The players. The allure of the investment windfall has brought all of the serious card sharks back into the mix. Good for the overall health of the market, but not so good for your chances of sauntering into the saloon of your dreams and winning its title on the river with a ten dollar bluff.
The penny ante games haven’t left the Valley, but the table keeps getting more crowded with first-timers, new arrivals, second home buyers and … gulp … professional investors. It’s that last class of gambler that is making things tough on the buyers out there who can scarcely put together a 3.5% down payment. Throwing around cash offers like a rousing round of 52 card pickup, the investor has an annoying habit of taking a negotiation and spinning it upwards. A great property listed at the bargain price $250,000 turns into $267,500 for the lucky bidder in a few frantic blinks of the eye.
When competing with these well-seeded makos, there are several critical mistakes that buyers need to avoid if they are to keep from busting out at the table early.
For starters, stop reading the papers. Despite the blanket generalizations you are inundated with on a daily basis, houses are selling. Especially in the price range you are shopping. In fact, that 250k range is hotter than John Goodman in a polyester hoody in the middle of July. Below is a highly scientific composite breakdown of the various market segments.
>$1,000,000: Harboring enough inventory to choke a disinterested goat for the next two 2 years, this price range is more lifeless than a Jim Jones after party. With few jumbo loan options and even fewer buyers in a hurry to drop this kind of dough in a schizophrenic economy, the greatest larcenies are to be had here at present.
$750,000 - 1,000,000: Mostly dead, ala the pirate Wesley in The Princess Bride. Only the occasional act of a miracle-making Real Estate agent results in a consummated sale. If you can afford to shop this range, "have fun storming the castle!"
$500,000 - 750,000: Patient has a nasty hangover, but not incapable of stumbling through the house for a bottle of Vitamin Water. Given a couple hours and a plate of pancakes, he will return to some semblance of himself. This price range is seeing movement for homes that were worth twice as much a few short years ago, but still in a bit of a fog.
$250,000 - $500,000: Now we’re talking. Especially in the Northern reaches of Scottsdale, homes in this range have their boogie shoes on. Fortunately for all but the homeliest of homes, there are plenty of willing partners out and about on the dance floor. Some are even adept at avoiding toes as they clomp about the market in gimungous platform shoes.
< $250,000: Sold before you have time to jump up and slap your mama.
When you hear the reports and/or anecdotes referring to the “standard” or “average” percentage you can expect to knock off a list price, you need to understand what a ridiculous notion that grotesque simplification proves to be. In the upper reaches of the price scale, you might very well knock 20-25% off a list price due to the lack of competition. In the frenzied segments that most cash-strapped buyers are trolling, however, writing offers at 80-90% of list price will acquaint you quite dearly with the following reaction:
“HA! HA! HA! HA! HA!”
Fending off a throng of potential rivals, you will have to push all in when, after sitting through hand after hand of garbage cards, you finally draw the ace that constitutes a genuine housing value. No point encouraging others to remain in the hand by going in low. As the short stack, your only leverage is to force the issue early and hope you can stop the bidding before it starts. Don’t give the sharks time to congregate and subsequently frenzy. By aggressively moving all of your chips to the center of the table right off the bat, you might just chase some away to pursue easier pickings. Let the deep-pocketed players linger for the turn and it’s all but guaranteed they will ultimately own you and the house you covet.
Price considerations aside, your next best shot to beat out the better financed buyer lies in the terms. Hubris can be a damning thing for the guy with all the bucks, and he often fails to seek the additional information that someone in a weaker position must exploit. Closing date, choice of title company, etc are concerns that Doyle Brunson over there just might expect to force through on the power of his awe-inspiring cash. If your price is relatively competitive, your financed offer still has a shot at beating him out if you can find the terms that are most advantageous to the seller and include them.
As to the homes you chase, knowing which table to sit down at is as important as the poker skills you bring to bear. Bank-owned properties are going to be the most difficult for the novice player to obtain. Financial institutions will sit on your offer for 3-7 business days while additional offers pile up, and they won't give a fig about any terms other than the ones demanded by their associated addenda. It's tempting to sit down at these REO tables, given the big payouts, but it's often a fool's errand for the guy just in town for the weekend with his buddies. You'll have more success if you stick with the slightly less lucrative owner-occupied resales that blunt competition from the pros.
It’s not easy out there, despite all that you’ve heard, so remember to act fast, act decisively and save the gamesmanship for the slots. Everyone wants a deal, but you can’t secure a value without first securing the property. At prices that have rolled back to levels not seen in six to seven years, there’s no need to get greedy. The well-positioned homes have the value already built into the price.
If you want it, and it comps out, don’t talk yourself into spitting in the wind with an offer predicated on faulty logic. The national economy and generic offer-to-list-price-percentage paradigms have nothing to do with this one house and those who would buy it out from under you. Long metaphor short, don’t write a $200,000 offer on a home listed at $250,000 that is worth $300,000. Only adds unneeded time and heartache to your quest.
See house. Evaluate house. Make best offer to purchase house. Buy Paul expensive, celebratory steak dinner.
Easy :)
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