Get Your Low Ball Real Estate Offer Accepted

Doug Willis — Tue, 26 May 2009 17:51:59 +0000

On one of my recent posts I explained why your low ball offer will be rejected. This time, we’ll flip the coin and look at how to increase your chances of having your offer accepted. If your intent is to buy a property with an FHA Loan, a 3.5% deposit and a 60 day escrow, let’s just say you have about as much of a chance of having your offer accepted as the likelihood of the no doc loan returning within our lifetime.

Add incentives to your offer

In an attempt at brevity some things were left out of last week’s article. Things to look for, if in fact you are intent on making an offer below asking price. That created a good opportunity to issue the sequel LOWBALL OFFER II. So with a little more in depth analysis, here are a few tips if you consider yourself a bottom feeder, and how to achieve your goal of buying a house below market value.

Kick em Below the Belt, Then Shake Their Hand

Mom, if you reading skip the next couple of paragraphs.

I remember when I was in the 7th and 8th grade. On a couple of occasions I was sent to the vice principals office for a couple of acts of disobedience where I received a couple of pops on my rear end. The device used looked like a giant stick you would use to stir paint. It was about 2 feet long and a half inch thick. The stinging from the blow was severe and if done today, the provider would find himself severely disciplined if not terminated and brought up on charges. That was a different time.

After the punishment was administered, the vice principal would shake my hand, as if to say we’re friends now and everything is forgiven. So how does this possibly apply to your situation and buying real estate?

The lesson here is after you make an offer well below the asking price and market value, you need to shake the seller’s hand and offer something in return. Immediately your low offer will convey that you are indeed the bad guy. Therefore how do you reverse that perception and show the seller that you intend to work with them.

Everything is Negotiable, Except Price &Terms

We used to joke that everything was negotiable with the exception of price and terms. What else is there other than price or terms? If you are predicating your entire offer on price, then you need to be flexible with terms. Here are some suggestions for increasing the odds your offer will be accepted:

Cash – the old adage that cash is king has never been more true. Cash shows intent and that you are serious. It also shows that if your offer is not accepted, you have ability to move on. Cash has finality to it that a loan application never will.
Escrow – does the seller need to close in 15 days to avoid foreclosure or 60 days in order to find a new place to live?
Release some Deposit Money- this one can be ill advised, so you will have to use your own judgment or seek counsel, but releasing some of the deposit may allow the seller the intermediate funds they need and the motivation to leave.
Remain in the House – again an iffy situation, but allowing a seller to remain in the property 30 – 45 days after escrow closes could seal the deal.

It can be hard to believe, but people do have motivations other than money. The key is finding out what their hot buttons are and how to effectively incorporate them into your offer and allow you to shake hands with the seller.

Pasadena Real Estate Blog Features “Price It Low & Watch It Go”

Doug Willis — Fri, 05 Sep 2008 01:08:24 +0000

Update: This home closed a few days ago at the end of August. As you recall the property featured two units on a lot and was listed for $399,000. The final selling price was $500,000. As we continue to see more and more bank owned properties, lenders are opting to “fire sale” their inventory. Listing a property at a very low price creates a lot of interest, allowing the bank to choose from several different offers, finding a buyer in a very strong financial position and one who is also eager and can close in a short time.

As stated before, bank owned properties can offer an excellent value. If you want to pursue these limited offerings you have to be ready with a complete offer package, so you can eliminate any hesitation a bank may have about doing business with you.

My advice is to establish a relationship with a bank and a local Pasadena real estate agent who understands what is needed to get your offer approved. Provide your lender with all of the necessary information required so that they may close your transaction in as little as two weeks.

Original Post

I am starting to see some tremendous opportunities in real estate. Many of the properties beginning to come on the market offering instant equity belong in the category of bank owned. This one is no exception. Some banks are taking a very aggressive approach to reducing their inventory and offering substantial reductions in price. There is an old saying in real estate “You don’t make money when you sell, you make money when you buy”. That adage just might apply here!

This property just listed for sale at $399,900 features two houses on one lot. The front house is a 3 bed & 1 bath and the back house offers a 1 bed / 1 bath with kitchen. Total square footage is 1864 and the lot size is 8429 sq ft., according to assessor’s records.

Cash Flow

Looking at some hypothetical numbers, the two units should rent for $2700/month ($2000 & $700). With a 20% down payment, you would finance $319,920. At 6.5% interest you monthly principal and interest payment should be $2022. Add annual taxes and insurance of $6000 ($5k & $1K respectively) and you add another $500 to you monthly payment for an approximate amount of $2522. This does not include a vacancy allowance, miscellaneous repairs or other improvements.

I have not seen a property with an estimated positive cash flow in quite some time. The reason is that we experienced unprecedented appreciation from 2000 to the beginning of 2006. Values rose from 10 to 15%, and maybe even 20% in some years. Rents on the other hand increased much more slowly form 3 to 5%. As a result income property (and probably residential property too) got way out of hand. Unless you had a down payment of 50%, you probably were not going to find a property with a positive cash flow. Now things are beginning to change. With values declining, foreclosures rising and banks liquidating, opportunities are beginning to surface.