In today’s market who doesn’t want a great deal, but when a great deal is staring someone in the face, often fear sets in; The buyer offers too little and someone else gets the deal.
Take for instance a young couple who I recently helped by an REO (bank owned foreclosure) home. The bank drastically dropped the price for a quick-sale which created a ton of interest in the property. While showing the home to my clients two other groups arrived out front to view it. I suggested to my clients that if they really wanted the home they should offer $1000 more than the asking price. They did and the bank accepted their offer.
During the FHA inspection process however a leak was found in the water heater and it would have to be replaced before my clients’ loan would be approved. In an REO situation, properties sell “as-is” and my buyers couldn’t come to grips with the fact that if they wanted the property they were going to have to replace the water heater on their dime, even before they owned the property. They balked and the husband told me they were ready to walk.
I reminded them of all the other properties we’d looked at in this price range and asked if they really wanted to go back there. He still balked. I told him, no problem, we’d resume our property search next week however I hinted that I or my investor might like to purchase the home and I was serious too. I’d take the deal if he wouldn’t. This was a $200K home and in their possession they were holding an accepted offer from the bank for $131K.
The next morning he called me and told me the home was ready for inspection. That night when he realized someone else was going to save $70K on his home, he ran down to Lowes, bought the water heater, got into the property somehow and replaced the water heater himself. The home passed inspection and they purchased the home. The fear of losing the good deal became the overriding factor in his mind.
Sometimes though the story goes the other way. An investor client of mine purchased a home at auction for an amazingly low price.
He wanted to sell his property quickly and was willing to accept $80 per square foot for a home in Shenandoah West – a subdivision where comparable homes were selling for over $100 per square foot.
Common practice for buyers in this market is to offer 5-8% less than asking price and they often ask for the seller to cover the closing costs as well. Sellers know this and price their properties accordingly.
Our home wasn’t perfect but it was still very nice. Moreover a buyer wouldn’t have to go through all of the mumbo-jumbo of a short sale foreclosure that often takes months to work through and best of all our home was priced below foreclosure prices. Even nasty foreclosure properties were selling for more than $80 per square foot.
In order to spur a lot of interest I advised my seller to price the home at the price he was willing to accept. It was such a good deal, I would simply tell prospective purchasers that if they wanted the home, a standard offer at 5% less than asking price wouldn’t fly.
We got the effect we wanted. We were getting between five and eight showings per day and offers started to roll in. Internet metrics indicated hundreds of online viewings. Strangely, even after I told Realtors that a common-practice offer wouldn’t fly, the first three offers were just that – 5% below list price with the seller paying for closing costs.
Finally a Realtor came along who was looking for a home for herself. She recognized the great price and made an offer that was very close to full price. We withdrew all of our other counter offers and accepted her offer. By and large the other Realtors were astonished we hadn’t accepted their offer and were quite distraught that they lost out.
I find it interesting that the buyer who recognized the good buy and how to actually get the property was a Realtor who was negotiating on her own behalf. I also wonder, did the other Realtors just not believe me when I told them it was going to take a full-price offer? Did they not have the gumption to tell their buyers that if they wanted the home, they needed a full-price offer? What did they tell their disappointed buyers?
What’s the moral of the story? Simply this – when you see a good deal, go for it. Get it before someone else does. Don’t let fear rule in your mind. Overcome it and use common sense. Then don’t look back. If you’re saving $70K, what difference does another $5K matter. Don’t step over a dollar to pickup a dime.
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