Home Buying Tips – How to Get a Bargain on a Real Estate Investment

Success in buying a home at a bargain price is usually dependent upon the buyer’s willingness to compromise specific lifestyle requirements, features and the condition of the property itself. In the real estate marketplace, a well staged home in immaculate condition and located in a desirable neighborhood is not conducive to being purchased at a below market price. Competition for those properties can be fierce. The typical home buyer has a check list of requirements or features their home must have to satisfy their family needs. So does everyone else and their requirements are similar. If they can’t afford their dream home, they want to come as close to their ideal home as possible. Buying a home is an emotional pursuit and for most buyers it should be. A sense of family well being is a primary emotional element in the decision to buy verses continuing to rent.

Investors, second home buyers, singles and couples with no children have the best chance of taking advantage of a below market opportunity because they can be the most flexible in their demands and therefore the competition is reduced. A single buyer might want a two bedroom with a den condominium but can justify the absence of a den if the price is right. The second home buyer may desire a beach front property but can live with beach access if there is a bargain to be had. A property that has lingered on the market because there are cosmetic issues and just doesn’t show well probably has a motivated seller that could not afford to properly stage the home to be market presentable is frequently a prime candidate for a below market offer.

Foreclosures and short sales

The buying public correlates foreclosed properties and short sales with a bargain opportunity but that is not necessarily the case. There are so many buyers focusing on these properties that a bidding war may ensue. With foreclosed property, it is the responsibility of the asset manager representing the bank that holds the mortgage is to analyze the market for each property including a market value appraisal. The real estate agent selected to list the property is required provide a competitive analysis report to the asset manager to include recent sales, current listings and a listing price recommendation. This thorough evaluation is not conducive to low priced offers.

Lenders representing foreclosed properties are already faced with the prospect of losing money on the sale therefore they are resistant to the cost of extensive renovations. As a result, properties in poor condition are most likely to be had for a below market price but they are also a higher financial risk because of repair issues that may not be obvious from a routine inspection. Frequently the handyman special is not so special in the end.

Short sales can be an even higher source of frustration. When a property is listed the mortgage holder has only agreed to entertain an offer. Often acceptance of an offer requires several layers of approval which can be time consuming. If there is a second mortgage on the property, the second trust holder is likely to derive little if any of the proceeds from the sale and is therefore unmotivated to accept the contract. Sometimes the first and second mortgage holders will negotiate a compromise but that also can take an extended length of time.

Time on the market

The most revealing indication of a property that is ready for a below market offer is one that has been on the market for a period of time greatly exceeding the average for the marketplace. Realtors have this information through their multiple listing services. This is an important consideration because the longer the time on the market the more pressure the seller may feel to just get it done. If the seller has purchased a home elsewhere or is in temporary housing until the home is sold, that is an indication of a high motivation to sell. A seller who is facing eventual foreclosure or has been transferred by his employer and is paying rent as well as mortgage payments is certainly highly motivated.

The Realtor

Buyers should make their intentions clear when selecting a realtor. Chances are that the realtor will play the real estate low offer game if the client is forthright in their intentions in the beginning and declares an oath of loyalty providing the agent is patient enough to work diligently researching properties and presenting under priced contracts on multiple properties. Most realtors are not indisposed to hard work if they are certain that they will eventually make a sale. The buyer’s agent does not normally have knowledge of the sellers motivation to sell but the listing agent usually does. Whereas the listing agent has an ethical restriction against disclosing the details of any seller dilemma, they will usually encourage or discourage a low priced offer in discussions with the buyer’s agent.

Keep it simple

When submitting an under priced offer it is critical that the contract be as clean as possible. A lender letter of buyer pre-approval is normal procedure with any contract offer but a letter of underwriting credit approval subject only to the property purchase and acceptable appraisal is much more powerful. It means that the buyer’s application has been processed and reviewed by a mortgage underwriter, providing the seller a higher comfort level with the buyer’s loan credentials. Contracts should be void of seller requirements such as repair items and contingencies. A “clean” contract with a substantial earnest money deposit and a quick settlement stands a much better chance of being accepted at a below market price.

Counter offers

When a contract to purchase is presented, the seller has three options; accept, reject or counter the price and/or terms. A common strategy by real estate investors is to write contracts on multiple properties and instruct the buyer agent to inform the listing agent of that event discouraging any thought by the seller that a sizable counter will result in a ratified contract.

Positioning for a bargain is frequently a matter of taking advantage of the desperation of the seller whose home has been on the market for months without a viable offer. It is a brutal game but the alternative for the seller may be much worse than selling at a reduced price. The primary dilemma of the buyer is that in today’s market the seller frequently can’t accept the offer because the proceeds of the sale will not cover the mortgage.

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