"Buyer's Market?" Still, No Such Thing As a "Good Deal"

By
Real Estate Broker/Owner with Northern Virginia Homes - FRANKLY REAL ESTATE Inc

I know some Realtors think it is their job to make their client feel all warm and fuzzy by making the buyer think that they got a "Good Deal". Kind of like how almost everyone who buys a car walks out thinking that they got a good deal!

I don't believe in this.  I am not hired to be a comforter. I'm hired to get the most suitable property at the best price possible, and to do so aggressively, if that is what the client requests.

While the client might have landed a "better deal" than other active or sold listings, it is only a "good deal" years later when they sell it and the cash is in their bank account. Even those appraisals that are done while you are under contract, they can come in $10k or $20k higher, that means nothing to me. Appraisers sometimes like to make their loan officers, who hired them, happy by padding the numbers to make the buying client feel warm and fuzzy.

Good deal vs a better deal. Here is an example, I had a client, a close friend of mine, that desperately wanted to "grow up" (in his words) and get in on the action.  This was during the bidding war days. I rarely give my opinion (instead giving data and evaluating it with the client) but I told him he was crazy. Yet, he gave me marching orders to "get that condo at whatever cost." He was scared that if he missed out on this condo, the next condo would be $25,000 higher.

We lost the bidding war. Thank God. This $350,000 750 sq foot condo received 8 offers and went up to $400,000!! What a fool that "winner" was!  Yet, I bet the winning Realtor assured their client that they got a "good deal" as they ran to the bank to spend the commission.

So what next? Well I had information that maybe only 10 people in the bidding process were privy to (the contract price is only published after the close 30 days later). This building was about to reset $50,000 higher so we had to move fast, since he "needed" a place ASAP. 

I immediately sent out inquiries to the entire building. I was able to find him a unit that was 1100 sq ft or about 35% larger... that we negotiated for $395,000.  The seller thought he got a great deal, but he didn't know that the unit he was using as a comp, was just bid up $50,000, and it surely wasn't my job to tell him that. I work for the buyer, not the seller (in this case).

 Side note: I know FSBO's (For Sale By Owners) love "saving" on those damn Realtor commissions, but how much did this guy "save" by selling it for $50,000 under market price?

So while this might sound like a "Good Deal" it was merely a "Better Deal." I DID say it was a BETTER deal than the 750 sqft unit, but again, nothing is a good deal until you cash out. 

Sure enough, the market immediately took a nose dive.  He blames the entire nations price drop on the fact that he made his purchase and that bad things follow him. All I can say to that is thank goodness he didn't buy the other unit that was significantly smaller. Hopefully the market will come back and if he gets into the positive territory again AND he sells it, then and only then will it be a "Good Deal"

 

More recently I had a client (that found me 100% through my blog) that I helped put a house under contract. We did the home inspection and found $1,500 of items that we hadn't seen during our two visits. (I don't believe in going after imperfect items that we already know about at the time of contract, I'll deal with those on the initial contract such as a broken step or broken window). The listing agent (did a great job fighting for her client) kept saying that her client dropped their price so much to accept our offer and that they felt they were selling at the bottom of the market and my clients got a "GREAT DEAL."

To that, I proposed the follow (my clients LOVED IT):

Dear listing agent,

If your clients are so certain that this is the bottom of the market, lets forget the $1,500 for now and instead put $3,000 in escrow. If within 12 months, one house sells lower than our purchase price, we get the $3,000, if three sell for more, you get the $3,000 since that might signal the bottom of the market. 

Frank

The listing agent hadn't ever heard of such an Indecent Proposal! They accepted the $1500 adjustment. 

So no matter what the market is, at the top, at the bottom, near the middle, it is always important to get the best deal possible at that time, even if you are certain "prices can only go up from here." 

And I am NOT talking about % below list. Oftentimes people get caught up in the "I saved 30% shopping today at Sax Fifth Avenue outlet mall." So don't get caught up with % off list and instead look at the value. Value Value Value will be an upcoming blog.

I'd rather have a client buy a $500,000 place for $510,000 which is "worth" $550,000 (based on comps) than buy a $100,000 overpriced house listed at $650,000 for "$50,000 off" list.  Focus on VALUE, not on % off list. Some agents will price things to move (see my CRA system featured in RealtyTimes.com) in a week, while others will overprice to get the listing, knowing that it won't sell but they will get paid sooner or later after price drops (the CRA can tell you this!!).

 So even if you buy for 1/2 price, that only makes it "probably" a good deal. What if another unit next door sells for 3/4th off? The longer you hold your house (5-15 years) the better the chance of getting a "Good Deal."  But ultimately you never know, and it is only a "Good Deal" if you can you CASH IN! 

 

Please tell me if you see any typos, I don't like looking dumb. Also hit "subscribe" to get future blogs.

Written by Frank Borges LL0SA- Virginia Broker/ Owner FranklyRealty.com

Blog.FranklyRealty.com Featured in BusinessWeek, CNBC, WSJ etc.

                      

 

Keywords: Arlington County Virginia condos, Fairfax falls church and Alexandria Old Town Housing bubble market

 

 

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Rainmaker
337,464
Thesa Chambers
Fred Real Estate Group - Bend, OR
Principal Broker - Licensed in Oregon
Very well put - the value is in the buyer's idea of value for him - I appreciate your ethics as I am sure your clients do also... I hit the subscribe button - look forward to reading more from you!
Apr 12, 2007 03:58 AM #1
Rainmaker
224,121
Laurie Mindnich
Centennial, CO

I think that what I got out of this is that we are in a crap-shoot right now.  There are no answers that we can provide with respect to predictability, other than the timeless PLAN ON LIVING THERE FOR 7 YEARS.  Offer the facts as they are today (it will be different as soon as tomorrow), and let them jump or not.  Find them the lowest so that their initial LOSS is lower, making their future GAIN greater.  Interesting post, something to think about- and what a challenging presentation that would be!

Apr 12, 2007 04:12 AM #2
Rainer
64,790
Kelli Fronabarger
Bend River Realty Inc. - Bend, OR
Realtor - Bend Oregon

Hi Frank-

You've done a great job here, very well-written and nicely articulated : ) Value is an interesting concept. I did not find one typo, either. Well Done !

Apr 12, 2007 04:14 AM #3
Rainer
36,982
Richard Parr
ADT Security Services - Slidell, LA
Home Security Specialist - Greater New Orleans, Louisiana

The word DEAL in the sales profession is just so disgusting anyway. 

The only time the word should be used is at a poker table where the context it is perfectly fine.

Apr 12, 2007 04:18 AM #4
Rainmaker
138,124
FRANK LL0SA Esq.- Northern Virginia Broker .:. FranklyRealty.com
Northern Virginia Homes - FRANKLY REAL ESTATE Inc - Arlington, VA

Hey Laurie,

You mentioned "what I got out of this is that we are in a crap-shoot right now." While I agree that now we are in turbulent times, this information applied to ALL times. When we are at the top, or at what we think is the bottom
.Either way, you only know for sure after you sell it. Things can ALWAYS go down and if the client isn't prepared for this, they should NOT BUY. Yes do NOT buy a house if you are not able to deal with a possible further price drop.

Apr 12, 2007 04:28 AM #5
Rainer
8,434
Johnnie Taylor
CFB - Lexington Park, MD

Whatever happened to being satisfied with your house anyways?

If you bought with what was the "Best Deal" at the time, then you did all you could do. Maybe prices will go down. Maybe they will go up. No one can control that. Your Realtor doesn't have that magical crystal ball. Nor does your lender.

It seems that everyone wants the iron-clad guarantee that the investment they are making is sure to make them money or equity instantly. No such thing. Prices could drop tomorrow. Or, the loan you got may have been good for today, but, rates could drop tomorrow and you would be thinking, "What if I waited one more day?" This is life.

But, I think clients and customers should appreciate a straightforth approach. Far too often people take the emotional route to purchasing. If those emotions aren't backed by some logic, credible information, and real professional advice then there will be a new emotion coming soon.....Pain.

As a mortgage lender, I can't count how many times I have dealt with clients whose RE Agents or previous lenders have gotten them all pumped up about one great deal or another.

Get the best arrangement you can at the time. Make sure you enjoy your house. The rest will be decided by time as to whether it was a GREAT DEAL.

Thanks Frank for laying it out straight. I think I may add you to my list of Realtor blogs to watch!

Apr 12, 2007 05:24 AM #6
Ambassador
1,508,482
Renée Donohue~Home Photography
Savvy Home Pix - Allegan, MI
Western Michigan Real Estate Photographer
Frank:  I think I am very in love with you sometimes :)
Apr 12, 2007 03:56 PM #7
Rainmaker
128,073
Tchaka Owen
Galleria International Realty - Hollywood, FL

What are you talking about, Frank?  I'm in FL where list price rules.  So what if the $600k list house is only worth $450k?  I'll get you a great deal for $100k below list.  I'm a rockstar!!

Hahaha, I do like the Saks reference - how apropo!

- Tchaka 

 

Apr 12, 2007 05:34 PM #8
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Rainmaker
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FRANK LL0SA Esq.- Northern Virginia Broker .:. FranklyRealty.com

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