Oct
27
Promised follow up from Post September 26, 2007
I have heard many people remark to me over the years that the best way to buy real estate is to do so from a desperate seller, and in negotiating with them to “stick it to them”, “grind ‘em down”, or “make them hurt”. There are few problems with this.
First, and probably most critical, is the moral/ethical questions. Is all of life about money and the accumulating of more of it? Business is business, but there is no reason to behave as the above statements portray. If you get good feelings from doing this to ANYONE, EVER, don’t bother reading the rest of this post. We won’t agree on much.
There are really three kinds of sellers in the market place: Emotional, Rational, and Desperate. We will tailor our comments today with a new construction seller in mind (that’s my world), but most everything would transfer to a resale property as well.
Emotional:
Emotions are ammoral - neither good nor bad. It is how you use them, or allow them to mold your decisions. Selling a home is one arena where emotions MUST be left outside the door. The marketplace is always chock full of emotional sellers, and today it is out of control. There really is no reason to buy from an emotional seller - their price is too high, they are unrealistic on terms, and in this market you have better options.
In our LAKES community, there are so many emotional sellers, it appears that the market is glutted with available homes. Truth understood, there are very few homes realistically for sale, but there are LOADS of homes that emotional sellers have “on market” hoping to “get lucky”. Let me illustrate two recent listings;
A) Rambler built & sold in 2004. Closing price high $800’s. Like any new home, it would be worth low $800’s after move in, and typically begin to appreciate slowly at 3%-4% annually normal for the Twin Cities. It’s value today should be in the neighborhood of $900 - $925,000 in a normal market. It is “on market” for $1,250,000, even though recent comparable sales have been $880,000 for new, and $780,000 for used.
B) Similar rambler, same community, - 2004 sold at $975,000 +/-, currently on market for $1,250,000 also.
Interestingly, there is not one single comparable sale that would indicate either of these homes would sell for $1,250,000. It is clear these sellers both determined their priced primarily on emotion, and did not consult comparable SOLDS in the community.
Rational:
Selling a home is primarily a business transaction. Rational thinking needs to prevail. Fair play, honesty, legal dealings, and sense of humor are other neccessary components you’ll need. A rational seller has ALL the advantages in the market. They have asked and answered the following questions, and best if done with the help of a real estate professional:
A) What are the last 3-4 comparable sold homes in my close proximity? How does my home compare - according to real estate pro’s in the area.
B) What 2-3 cosmetic items on my home do I need to improve immediately. Only an un-involved outsider can give objective advice here.
C) How many days does it take to sell a home in my area? And, what are the comparable actives now on market I need to be below on price?
D) Have I made up my mind to move, and if no offers come in for 30 days, what will I lower my price to in that circumstance?
After these honest questions are asked and aswered, your home will be on market with a correct price, and proper expectations. Your home will get showings, it will get offers, or you will lower its price. It will sell, and probably rather quickly if it is not an odd property. Rational sellers do not mind getting a few dollars less because when they buy in today’s market, they will pay a few dollars less.
Desperate:
Contrary to what some might think, buying from a desperate seller (especially if it is new construction!!!) is rarely a great idea. The word desperate usually indicates a person who is in distress and likely may not be thinking clearly. If it is a builder, and they are desperate, it would usually indicate they are not the best at business, and probably are near being gone. The few dollars you would hypothetically save will almost always prove false later.
Let’s consider an example;
Currently in our market there are quite of few new or newer expensive homes for sale in Ham Lake. A few years ago this rural suburb saw a boom of large home building by small builders - we call them gypsy builders. The only reason you might want to live there would be a wooded lot, but it ends pretty quick there. No good roads, no retail, no commercial tax base, no schools, and poor comprehensive plan. Now that the market has slowed, it is almost impossible to sell these large homes - families with children do not want to live there. There are new construction homes built by individual operators who do not have the skill, design experience, nor financial strength to sell them at a loss. So they sit, and sit, and sit - until the bank gets them back. Ultimately they are sold for less than the hard cost to construct them - and the future is going to prove even that was not a great deal. It was built by second-rate builders, usually with second-tier subcontractors, and now has no warranty.
Contrast that with a suburb like Maple Grove where all the problems mentioned above do not really exist. Builders, including larger companies, are building and selling homes at drastically reduced profits, but if they downsized their staffs, they will be fine. The “desperate” builders are not there, never were. Those types were banished to lesser locations.
All said, the things would cause a builder to become “desperate” do not typically exist with the top tier of operators.
If you have the choice today, you want to find a “realistic, willing, honest” seller. That is the winning combination for the location you like.
Is your home an investment? Should it be?
Help your fellow American . . .
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