I get one of these almost every day.
Today’s has a picture of my house on it and an offer to pay
- No commissions
- We pay the closing costs
- No repairs
- Moving assistance if needed
- Fast, Fair Cash Offer
Interestingly enough, today’s missive came from a real estate office, although it was not identified as such.
Nonetheless, I see two things going on here.
First, there are people out there ready to separate you from your home. There is no way an investor is going to readily give you a fair cash offer. None. They may start with one, many investors do, but by the time their contractor is done writing up their bid, you’ll have expensive bids for repairs you never knew you needed being deducted from the purchase price. Why? Because they need to make money and they’re going to make it by squeezing you. Think you’re a great negotiator? Unless you are negotiating every day in your business, the answer is probably not. The experience is just not there for you and you’re going to get your pocket picked. End of story.
I am a decent negotiator. Even I think I leave something on the table from time to time. My current favorite negotiation story involves a home that needed some repairs that were not disclosed. My client wanted $9000 in credits. That was it. Ultimately, I never actually asked for the $9000, because the seller’s agent, a few minutes into our conversation offered me a $30,000 price reduction. I positioned the $9000 so well that she gave me $30,000 without me asking for anything. Most people are not good negotiators, was there another $5000 in there to be had? Possibly but my buyers were happy.
Knowing that you would think that I would negotiate the purchase of my new car, right? Nope. I’m not used to playing in that sandbox and while I think I could have done quite well, I used a concierge who got me everything I wanted and saved me $50 a month.
The second thing going on is that these guys are giving us insight on where they think the market is going. They are doing mass mailings into neighborhoods looking for houses to buy. If they thought we were in a bubble they’d be holding cash, but they’re looking to spend their cash. These investors are bullish on the real estate market right now.
Right now there are entire neighborhoods out there where every single house is in an equity position. Every one. That is not what a bursting housing bubble looks like. Remember, a bubble is caused by a fundamental flaw in the market, something akin to an aneurysm. With every home in an equity position, that’s a healthy neighborhood. That’s not to say that something happening in another market sector can’t create the flaw in the market, just that currently none exists.
Finally what does that mean to the Bay Area housing market? For the time being, it means our market will remain vibrant. If you’ve been on a freeway in the last six months, our full employment is evident by the traffic. There is plenty of talk of a housing crisis and there is a problem with affordable housing. Some cities are making it easier for builders to add more affordable housing, or even more housing. It’s a supply and demand problem solved by more supply. Some cities are loading the builders up with fees and nonsense. They are understandably choosing the build elsewhere and that does not help the situation. I believe if we allow them to build more units regardless of the price of those units, the supply will catch up with the demand and that will be what finally puts some downward pressure on prices of homes and rents. If they want to build $1.5 million homes, fine. Eventually there will be too many of them and the homes that should be selling for $750,000 but aren’t due to demand will go back to $750,000 where they belong.
Wild card: Interest rates. Today’s buyers are spoiled rotten by 11 years of artificially low interest rates. Traditionally a great interest rate was about 6%. These buyers have shown their disdain for interest rate upticks and in response to their disdain, rates softened a bit at the end of the year. The stock market has ceased its rapid ascent but as of this writing seems to be capitulating within an expected margin showing signs of stabilization.
Wild card: Tariffs. The market reacted predictively poorly to the tariffs. They are currently on hold. It is my hope that they are never revisited. I thought they were going to be a problem and they were. The minute they were stalled the markets are responded positively and in my mind predictively.
Wild card: Government shutdown. Day 32 and it trudges on. If this starts turning into something like the Air Traffic Controller strike, we’re going to have a problem. Some key players who are working but aren’t getting paid: Coast Guard, TSA, FBI, and Border Patrol. A lot of these folks own homes and may not have the savings to hold on. If this gets past a second month, all bets are off. I have clients who are USCG, TSA and FBI. I can’t imagine the stress they are going through right now. For everyone’s sake and the sake of our economy, I hope this ends soon
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