Note: This is my regular column on the ABCs of buying, selling, or investing in real estate. Each week I select a letter from our alphabet, make up a story around that letter and give out some advice. The story is fake, but the advice is real.
Paul was a very quiet, shy computer whiz that I had used from time to time to help me with my computer issues. He was a huge guy who looked like he belonged on the Dallas Cowboys offensive line versus helping me with my computers. To my utter surprise one day, he greeted me with a huge smile on his face. I asked him why he was grinning and he told me that he just got engaged to be married. I gave Paul a huge high five and asked him if he needed help getting a house. He smile fell into a frown. When I asked him what was wrong, he said that he was terrified of working with sellers because of rejection. He didn’t like rejection at all. What if they say no because of something I did, Paul whined to me. I told Paul not to worry. It was all part of the process to get rejected on offers from time to time. However, if it would make him feel better we could go over some potential deal breakers for sellers in a seller’s market.
This is what I told Paul.
A seller’s market is a tough one for buyers who can’t handle rejection, because rejection is more common than acceptance. Agents and buyers have to be sharp in the way they present their offers to sellers to give them the best chance to get an offer accepted. As I have told many of my clients in the past two years, you have be aggressive in your approach to all aspects of the home buying experience. When a property comes on the market, you have to move fast to go see the home and then move even faster to get the offer into the listing agent. Seller’s markets mean that the seller is in the driver seat when it comes to the process because if the first offer is not exactly what they want, they can just wait for the next inevitable offer. First and foremost, you have to offer at least asking price (unless it is the asking price is too high, or the property’s condition does not call for it). Most offers need to go in above asking. I had one go in recently twenty thousand above asking (against my recommendations) and it was not accepted. Paul groaned at hearing all of this. He didn’t know what to do! I tried to simplify it for him and told him about three potential deal breakers in a seller’s market.
1. Unrealistic demands from the buyer – In a seller’s market, the seller has the luxury of being picky on the offers because if they don’t like one, another one will come along to take its place. I had a property last year get 26 offers the first weekend it was on the market. My seller selected one and we got to the point of negotiating the repairs. My seller refused to do one repair and the buyer’s agent said that it was a deal breaker. I told the agent that I would simply put the property back on the market, after all we had 25 other buyers waiting in the wings. She called me back ten minutes later and said her buyer was willing to do what the seller wanted. Unrealistic demand on a seller is one potential deal breaker. Sellers are in control so you can’t go into the process expecting otherwise. One demand many of my investor client insist on putting in the contract is that “the offer is only good for 24 hours.” I tell them this doesn’t much good, will only make the seller angry, but they insist anyway. It never works!
2. Too many misc expenses put on the seller – Sellers are looking to make as much money as possible with their deals. In a seller’s market, offers with too many expenses for the seller will most likely be a deal breaker. Buyers can really strengthen their offers by offering to pay for the various items in the contract. The big savings is the title policy, which can run into the thousands of dollars. Buyers can also show good faith by paying for the survey and not requesting a home warranty. How about closing cost assistance? For those who don’t know, closing costs can really be a bother for a buyer because they can be in the thousands of dollars. Many buyers will have enough for the mortgage down payment, but not enough cash to cover closing costs. As much as I hate to say it, I believe the offers I have put in recently asking for closing cost assistance have been rejected more often than not because of the ask for closing cost assistance. Sellers don’t want to lose the money. If buyers really need closing cost assistance, ask the agent to raise the sales price offer by the closing cost amount so the seller does not lose any funds in the long run.
3. Too many repairs requested – I have written about this before and I will probably write about it again. Repair amendments make perfect sane, logical sellers into insane, unreasonable individuals. Sellers don’t like them and most buyers don’t realize the disfavor sellers have for them. One potential deal breaker for buyers is putting too many repairs on an repair amendment. Buyer’s agents need to work with their clients in requesting only repairs that are absolutely necessary which include structural, electrical and plumbing. Minor repairs should be an expense a buyer covers after the property has been purchased. Buyers don’t do themselves any favors by sending a long list of repairs. Just don’t do it.
Buyers do have a tough time in a seller’s market. You have to walk a fine line when making offers and negotiating with sellers on points of disagreements. Don’t make unrealistic demands of a seller or you risk them walking away. Buyers should make their offers more attractive by taking off some expenses from the seller. Finally, repairs are not something any seller enjoys so don’t get carried away with the number of repairs you request from the seller.