If you're looking for success, odds are that you will need to take some risks:
The Greatest Reward is Generally Realized by Taking the Greatest Risk
Risk vs. reward is a concept that comes up often in real estate. Even in my office hours having brunch with a friend, I found myself explaining the concept of risk vs. reward. My friend Betty has a friend that needs to sell her home. Betty's friend, Marta, is cognitively impaired as a result of dementia, so Marta's daughter, Stephanie would be the seller through Power of Attorney. Here's where risk vs. reward comes into the picture.
Marta's house is a wreck. It needs A LOT of work and Stephanie is not close enough to do the work herself, and apparently not in a financial position to pay for it. After all, the care Marta is now requiring is costly and the funds from the home are needed for that. Betty has a family member, Roger, who flips houses. Betty wondered if hooking Roger up with Stephanie for a flip purchase was a good idea. Betty's concern, and rightly so, is that Stephanie will get her nose of out of joint that someone else is cashing in on her mom's home.
What Stephanie needs to understand is that, without the resources (money) to fix up the home, the price of the home, based on current condition, is drastically reduced. There is no flooring on top of the concrete slab and there were bathroom accidents that have left human urine soaked into the floors. Deferred maintenance, outdated kitchens and bathrooms, coupled with a rat infestation, are driving the price of this home down. So either Stephanie finds a way to take the risk (improving the home prior to sale for max sales price) or sells for what she knows she can get now and leaves the reward to the flipper, who the risk will be shuffled to in the purchase. She can't have it both ways. No one is going to overpay for the privilege of taking on risk.
In situations where resources and time are issues, often the risk is not even something a seller can bear. They have no choice but to bottom out the price to attract someone who can take on the risk for a future reward.
Another example of risk vs. reward that I see more commonly is that associated with cash offers vs. financing/appraisal contingent offers on listings. So many times, sellers will want two things that rarely go together in our Bristow-Gainesville-Haymarket real estate market: a cash buyer offering way above list price with no appraisal contingency.
Cash buyers are sure things. There is little risk. Cash buyers know this and their value in the market. As such, they generally offer lower than list price. A sure thing is rarely a great pay out. On the other hand, the higher offers generally do involve a buyer using financing and needing an appraisal. But to get that price, you have to jump through the appraisal hoop. Is it worth the risk? Depends on many factors, including the skill set your listing agent may or may not have in preparing a package for the appraiser. My skills are well honed in getting listings to appraise for high sales prices.
Risk vs. reward is ever present in real estate. Hopefully, you hire an experienced, professional real estate agent to help you navigate the risk vs. reward waters and figure out what combination of risk and reward works best for you. If you live in Bristow, Gainesville or Haymarket, that's my regular stomping ground. Give me a call and let's evaluate the lay of the land in your upcoming real estate transaction.
Chris Ann Cleland, Associate Broker-Licensed in VA
2017, 2016, 2015 PWAR Top Producer
Long & Foster Real Estate, Gainesville, VA
The opinions expressed in this post are those of Chris Ann Cleland, not those of Long & Foster Real Estate®.