Buying and Selling: October 2014 Archives

That's way up there on the list of complaints buyer's agents get. Probably number one, definitely no lower than number three, and it's only going to get worse when the markets recover. There's really only one honest response:

"Well, duh."

I'm talking about the one where the owner fixed it up and made it beautiful. Those properties are the equivalent of a hot chick in a singles bar. Their owner has gone to the trouble of making them visually attractive to the vast majority of potential buyers. People are visually oriented - as you should know if you've ever watched the crowd interact with said hot chick. She may be an abusive gold-digging stone cold female dog with enough external baggage to fill an freight train all by herself, but that's not visually obvious; people see the attractive surface and they want it. In case you're female, I'm informed by some people I know that this effect is even stronger with respect to "hot dudes". So feel free to mentally switch the sex when I talk about "hot chicks", it's just as applicable.

You are always competing with other buyers. If someone else is attracted to the property to the point of making an offer, the owner is going to choose the offer that's most attractive to them. Most of the time, this will be the one for highest number of dollars. There are ways to be the offer chosen without being the high bidder, but they do not work every time or even close to every time.

The "hot chick" property is not one where you get a bargain. If everyone finds it attractive, expect everyone to be making offers. The owner and their agent are going to do their dead level best to get prospective buyers to stumble over each other fighting to put in the offer for the highest price. The only way to win that game is not to play. If you must put an offer in on such a property, make it an attractive offer, but one that you would be happy to have accepted. Refuse to bid against everyone else - offer what the property is worth to you. Look for things other than cash that the seller may be interested in. I know I'm always looking for something about the seller's situation that tells me something else is important to them. A more certain transaction, a willingness to work with special seller requirements, whatever. There isn't always such a hook, but where it is present I want to offer it to them.

The property where you get a bargain - I mean the type of bargain where you're thinking "Score!" ten years later - is to look beneath the surface. Instead of looking for the property where everything is already perfect, look for the property where the underlying basics are there but the owner hasn't put the finishing touches on it that make it obviously attractive to everyone. The solid construction with good layout in a neighborhood where most properties are more visually attractive. You make a few improvements over time, and you have a huge profit in just a few years if you decide to sell, or are the envy of your friends who ask "How did you manage to afford such a wonderful property in this expensive neighborhood?" The answer is that you were looking for the right things, where the person looking for the property that everybody wants is mortgaged up to their eyeballs and not as happy with the results because it's got some problems he ignored because it was "just so beautiful!". He managed to pick up that hot chick with all her baggage, where you went after the quieter lady with her head on straight and a healthy sense of humor. It's amazing how often such a lady turns out to be a lot more beautiful than the "hot chick" once you understand what you're seeing. This works in real estate, too.

All of the best negotiating techniques work much better when you're the only offer than they do when there are a dozen. It's very hard to get someone to accept an offer for $20,000 or $50,000 less than another offer on the table. It doesn't work every time, or close to every time. Upon those occasions when I successfully did it, I can tell you it was by selling something else the seller was interested in.

You've got a lot more bargaining power when you're the only offer on the table. The property is on the market because the owner has decided they want to sell, that their best interest lies in selling. If the alternative is another offer that's for just as much money (or more) you're not in a strong bargaining position. If the alternative is maybe not selling, they're going to be a lot more willing to compromise with you.

The way to successful buying in real estate is to find a property you think would be good, and making an offer you would be happy to have accepted. Some sellers are not disposed to be rational. Some, like the owners of the metaphorical "hot chick" property, have a reasonable and rational expectation of better offers than other owners. If they won't take an offer you're happy to have accepted, the intelligent thing to do find another property. Getting emotionally attached and thinking you've got to have a particular property because "it's so beautiful" is a recipe for disaster - just like marrying the "hot chick" in order to secure a one night stand, and for essentially the same reason.

Caveat Emptor