Buying Real Estate Below Market Value

On a recent article, I explained my thoughts on making a low ball offer and why I felt this was a bad strategy to pursue. There is a low offer and then there is a ridiculously low offer. I explained that you might even afford yourself the opportunity to pay more for your property. In this article we will change hats, and look at how to increase your chances of having your offer accepted, and still be able to save money.

Increasing Your Chances

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 money down loan returning to the real estate market. Never say never, but you will see why this is not likely to work.

Convince the Seller w/small Concessions

There is enough material here to fill a book, but in an attempt at brevity some things were left out of the previous article. At an attempt of impartiality, this created a good opportunity to issue the sequel and correct many of the mistakes that homebuyers make. With a little more in depth analysis, here are a few tips if you aspire to be a deal maker, and achieve your purpose of buying a house below market value.

Insult Then Compliment

Mom, if you reading this the next couple of paragraphs are for written just to draw an analogy.

When I was in middle school I was sent to the vice principals office for a certain acts of behavior that were Less that acceptable. Punishment was in the form of a couple of pops on my rear end. The paddle looked like a giant stick you would use to stir paint. It was about 2 feet long and a half inch thick. The stinging 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. Ah yes, the good old days.

After the punishment, the vice principal would shake my hand and imply “No hard feelings, right?” So what could this possibly have to do with buying real property?

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. You need to find some issue, some point of agreement upon which you can begin to find common ground. Your low offer will immediately convey negative thoughts to the seller and that you are indeed the bad guy. Therefore you must begin to reverse that perception and show the seller that you intend to and can work with them to a mutually satisfying end.

Everything is on the Table Except Price &Terms

In a previous career, we used to joke that everything was negotiable with the exception of price and terms. Is there anything else other than price or terms? If you base your entire offer on price, then you should be flexible with your terms. Here are some suggestions for increasing the odds your offer will be accepted:

1. Money – the old adage that cash is king is true. Cash indicates intent and that you mean business. If your offer is not accepted, it shows you have ability to move on. Cash is definite and you have also removed the loan contingency and eliminated another barrier to closing the deal.
2. Escrow Period – is a quick escrow needed to avoid foreclosure or is 60 days in order to allow the seller the opportunity to find a new place to live?
3. Deposit Money- this one can be ill advised, so you will have to use your own judgment or seek professional advice, but releasing some of the deposit may allow the seller the intermediate funds they need and increase their motivation to leave.
4. Tenancy – again an iffy situation, but allowing a seller to remain in the property 30 – 45 days after escrow closes could seal the deal.

People do have motivations other than money. The key is finding out what they are and how to effectively utilize them into your offer and allow you to shake hands with the seller.