Once upon a
time a King sent out notice that his daughter, the beautiful,
“Princess Profit”, was looking for a knight to wed.
Well, after the
announcement, Princess Profit waited for her “knight in shining
armor” to come and sweep her off her feet. She waited and she
waited. And then she waited some more.
There were so
few knights in the kingdom that she found herself even willing to
settle for a “knight in tarnished
armor”.
Just when she
was ready to give up, low and behold two “knights in training”
showed up to ask for her hand in marriage. They weren’t exactly what
she was hoping for, but she decided to look ‘em
over.
The first
knight, “Ted”, showed up at the castle wearing only a Speedo Swim
suit which showed his flabby, white body. His messed up hair, and
apparent lack of regular hygiene were also negatives in Princess
Profits eyes.
With a look of
distain, and a flip of her hand, the princess rejected Ted and sent
him on his way.
The other
knight, “Lars”, didn’t have a shiny suite of armor either, but he
was dressed in an nice suit and tie. He was handsome, well kept, and
enticing to our fair maiden, the
Princess.
Even though
Lars wasn’t the knight in shining armor that the princess was
looking for, she felt he was worth considering. After thinking about
it overnight, she decided to marry Lars. Of course they lived
happily ever after. The
End.
_____________________________________
All home
sellers are waiting for their “knight in shining armor”
homebuyer to show up at their door. This is the kind of buyer
that offers full price for the seller’s home, pays cash and wants a
quick close.
Home sellers
are willing to settle for a
“knight in tarnished armor” homebuyer. This homebuyer needs to
get a loan to buy their home; they negotiate for a lower purchase
price, and sometimes take more than 30 days to close the loan and
buy the house.
But what about
the really low offers, the “low-ball” offers that some
homebuyers occasionally make?
Most sellers
won’t consider a “low-ball” offer, but some will, especially if they
need to sell soon and if the offer is “well dressed and created to
be enticing” to the seller.
With the real
estate market slowing down there are many investors and
2nd home buyers making low offers to sellers that have
their homes for sale.
Typically these
low offers have been “Ted like”; unappealing, soft and distasteful
to the home sellers; in other words, a poorly created low offer. The
kind of offer that the seller rejects with a flip of their
hand.
There are
several elements to a poorly created, low price offer that gets
rejected automatically. If you can pretend you’re the seller for a
moment, you will see what I mean with the first
example:
_____________________________________
A “Ted” like,
low offer:
·
Soft, flabby
financing: little or no down payment and the buyer
hasn’t been pre-qualified with a local mortgage
lender.
·
Tiny, little
earnest money deposit.
Unattractive contingencies that put all
the risk of the transaction on the seller
shoulders.
If you think
about the low offer you are making to the home seller, and the
rewards you will receive if the seller accepts your offer, you can
understand how important it is to “dress-up the offer” with
financial items the seller will find appealing.
For example,
here is an appealing offer that “Lars” might make on a $250,000
home:
___________________________________
- The home
seller is asking $250,000 for their home, but the home has sat
unsold for several months.
- Lars offers
$200,000, but is willing to come up to $225,000.
- Earnest
money: Lars offers $10,000 (or more), with
the earnest money being “hard earnest money”.
Hard earnest money means the earnest money is released to the
seller shortly after the offer is accepted, usually after the due
diligence deadline passes. Of course the earnest money becomes
non-refundable at that point. Can you see how this would appeal to
a motivated seller? Keep in mind that Lars is going after a
$25,000+ profit that he didn’t have to do much work for.
- Lars will be
making a 20%, or more,
down payment. A good solid, “muscle-bound” down-payment and
loan. Not at all flabby. Lars can use this to convince the sellers
that he is a very strong, qualified buyer.
- “Lars” offer includes a letter of
pre-approval from a local lender. Better yet, he might get a
certificate of full-approval by taking care of all loan
documentation before making an offer.
- “Lars” love
for the “Princess” would be unconditional. He would present a
clean offer with the only contingencies being the due diligence
time period of about two weeks to evaluate the property. He would
also set the closing deadline at 30 days or less after acceptance
of his offer.
____________________________
This type of
offer will occasionally be accepted in a soft real estate market. An
investor, like Lars, could make tons of money all year long by
making strong, low-ball offers like this and then buying the homes
in which his offers are accepted.
If you really
want to buy a home for below market value, consider making a strong
muscle-bound, enticing offer. This might work more often than you
might think.
---------------
Written by Don
Glasgow, 2006, 1060 S.
Main St. #200, St. George, UT 84770 (435)
619-3664
All copy rights
reserved by the author.
