There’s a little bit of an art to writing an offer. Write it too low and the seller is offended. Offended people don’t mind shooting themselves in the foot as long as they get to shoot you in the foot too. Write it too high, and you might leave some cash on the table.

I think it all starts will knowing what the place is worth. That in itself is part science and part gut. The science part is essentially just looking at comps and cutting/pasting the differences between the subject property and the recent sales. The gut part is knowing how buyers will perceive the house. There are a lot of examples of appraisals coming in higher or lower than what the sale price was. An appraiser makes no adjustment for things like a steep driveway, a bad view, ugly carpet, lack of natural light, the neighbor’s deck being too close, etc. Buyers determine value by how they feel inside a house as much as they do square footage and features.

So once I get past all that, I look at how well the listing was presented, how long it has been on the market, if it has been on the market before and didn’t sell…..and also who the listing agent is. A poorly presented listing isn’t going to pull in the buyers. Lots of days on the market usually means something is wrong, being on the market before and not selling usually means an unrealistic seller or a seller who really needs to move and hasn’t had an offer yet. Aaaaaaaaand some agents are better at negotiating than others.

I recently sold two properties where my buyers got pretty good deals because of my gut:

One of them was priced about $10k too high. It was a house that could actually be worth more than the listing price, but needed just about everything cosmetically. It was priced between retail and foreclosure price. That means it won’t attract retail buyers since they typically don’t want to take on the work. It won’t attract investors either since there was not enough money to be made flipping it. My gut was that it had gotten a lot of showings but no offers. We write an offer that I thought was low enough to take serious but not so low that it was counterproductive. The buyer and I both expected the seller to counter for more, but she did not. BAM! Sold!!

The next one was a house that had been off and on the market for a while. The price wasn’t bad really, it just did not show well…..which is realtor speak for a when a house may be nice but you can’t tell it because the occupant is sloppy. It is in a complex of identical townhouses, so it was super easy to figure out what the place should be worth. My buyer could see past the clutter and barking dogs in their kennels. We wrote an offer. The seller wanted to counter it for a few thousand more. I implied that my buyer could not go higher. BAM! Sold!!

And I can do it again.

I had a great time with this deal.

So, I’ve got a buyer who is an investor. It is getting much harder for investors to find houses these days. Fewer distressed properties and more buyers in the market have not helped them at all.

I’ve got a portal that automatically sends listings to this client. I woke up to an email from her asking about a specific property that had just come on the market. I hadn’t even put my contacts in yet and I am suggesting we look at it ASAP. I usually like to see pictures and map the house to see what is around it first. I knew this street had maybe 10-15 houses that backed to an old rural street that was kind of run down….but at this price, that didn’t even matter. Fortunately, it was not one of those houses.

I call the listing agent to see about showing it that day. The agent tells me that they already have an offer coming. I ask if we can see it at 4. She says yes, but then begins to tell me it is an estate sale and the relative was initially going to fix the house up himself, but can’t do it from out of state as easily as he hoped. She also tells me that this person is leaving for home later that afternoon. Now, I have been doing this long enough to know that this guy was not going to stick around waiting for multiple offers. I have seen it happen several times where somebody just wants to be done with a property and will accept the first decent offer rather than wait for top dollar. I change the appointment to 1:30, which was the earliest my client could get there.

We look at the house. Having fixed up several houses myself, I am familiar with what things cost and can quickly give a good ballpark figure of what all it needs. The listing agent and seller are there too.

Once we are done, everybody is standing in the garage. I ask what it will take to get the house, but they don’t fall for that. It is always worth a try. I throw out a number a little over the asking price (which is still a bargain.) The listing agent says that could work if I put it on paper. I ask if she has a sales packet with her since I quit carrying them in about 2009 due to everybody signing electronically. She does not but says her office is close. I didn’t want to wait to write it up, have my buyer sign it electronically, send to the listing agent, who has to then meet with the seller……all while other offers could be coming in.

Once the seller gets in the agent’s car, I know we have a deal. I don’t think he would have come along if they were planning on countering our offer or waiting for other offers.

We get to her office and 15 minutes later the ink is drying on the contract. My hunch was right and the fast moving actions is what got my buyer this property. I love it when it works out like this. It was kind of fun to go “Old School” by writing an offer by hand, in an office, with both the buyer and seller there. That was how we did it when I first got into real estate.

Below is a post I made in Spring 2010. You don’t have to read the whole thing, but check out the sentence in block quote at least since that is what this is really all about.

I fought hard to get my people the best price on this house back then. When people buy a house they like, they often don’t care about a few thousand dollars, especially now that the market is better and people aren’t as afraid of their house losing value. I care because one day, all of my buyers will be sellers and that is the day they will appreciate my efforts the most.

That time is now for these clients. I just listed their house. They will be netting $3000 more from the sale of their property had the events on the post below not happened.

“Man, I’ve had a fantastic week. I had a great family come into town to pick out a house. It was another one of those marathon weekends, but I always have fun. I really saved these folks some money too. See, they were willing to pay more for the house than they got it for. They wouldn’t have been smiling as big, but they would have done it.

The other agent is somebody that I have a lot of respect for as a listing agent. This person knows how to get things done, which is probably why they are so successful. (Thought I’d better lay that out since I don’t want to come across otherwise.)

While I like this agent, the bottom line is that I’m not working for her, I’m in this for my folks. They’re the ones trusting me to do my best for them. We made an offer a little lower than what the comps showed the house to be worth. Then the agent and I talked about a range of where we’d both like to land. The other agent came back with a number and said that was the sellers bottom number. Like written in stone bottom number. Knowing the personality of this agent, I knew she would want to wrap up the deal ASAP. I had a theory that if I just moved slow and drug this out, that I might get a little more out of this for my folks if I was the one in control of the gas pedal. I told her that I didn’t know if my folks would go for that. Since it was getting late, I said I’d call them in the morning and let her know. The agent reminded me that we were only a few thousand bucks apart. I said that I thought the gap was enough to send my folks back to the thinking chair, and at which point they maaaaay just have to go with an identical model house around the corner that was $5k cheaper. I also told her that the listing agent for that house had e-mailed me saying that the seller would buy new carpet for my folks and let them pick the color. The agent was on the computer looking at that house before I got done…….which was pretty smart. The agent was like, “John, that house has white cabinets and I have those nice cherry ones”. I was like, “Well, a few thousand bucks covers a lot of negatives. Plus white goes with anything.” Then the agent started in about how little the gap would make in my peep’s mortgage. It was about $18 a month. I told the agent to convince the seller that if they would only add $18 to their next mortgage, they can sell their house tonight. That worked, because about 20 minutes later I got a call that they would meet our price.

So, I am feeling pretty good about going the extra mile for my folks. They are only going to be here short-term.

If they had gone with the $18 a month logic, they still would have felt the price gap when it was time for them to sell.

I always say that now is not the time to overpay for a house!

I also had a great time working with this agent. This person is high energy. I totally respect that this agent was trying their hardest for her peeps. I also always learn a lot when I am working with great agents, I just wish there were more of them out there.”

I never use price per square foot as a way of comparing two houses. I think it is lazy and doesn’t really do much.

There is much more to figuring out value than just one single number can ever tell you.

I just had an agent question why my clients would spend $125 per square foot for the house they chose rather than paying $95 per square foot for her listing. I didn’t say it, but the house that was $125 per square foot was newer, the windows didn’t need replaced, it didn’t have a 20 year old furnace, it didn’t need all the carpet replaced, it didn’t need the hardwood refinished, it didn’t need painting. It didn’t need about $80,000 worth of work to get it close to the condition of the other one. What the $125 per square foot house did have was top of the line appliances, move in ready condition, totally updated and in a district with better performing schools. In the end, that $80k in work amounted to about $12 per square foot more, which is another reason to not use this model for establishing value. It doesn’t reflect the money that needs spent on the house.

One more reason to not use a cost per square foot number to assess value is that it doesn’t accurately reflect the value of the land. The bigger the house, the more square feet to absorb the value of the lot. The house that is now up to $107 per square foot was 2200 square foot bigger, so that lot value looks like a bargain.

If you ever hear a realtor use cost per square foot to compare houses when you are their buyer, I say run. That means he or she is not really looking at differences in condition, view, features, lot, location, ages of important things like roof/windows/HVAC, and all other things that contribute to market value. They are taking the easy way out and feeding you an average number so they don’t have to think. Multiple the size of the house by the average cost per square foot and BOOM, done. Do you want to hit a home run or just be in the ballpark? Because all a cost per square foot number gets you is in the ballpark. In this case though, the listing agent was using cost per square foot as a way of making her listing seem like a bargain…..I’ve got to give her credit for trying.

Oh, and another reason my people bought the $125 per square foot house is that they liked it better. While the other house was very nice and they did like it enough to have on their short list, they didn’t want to go through the hassle of updating when they could get one that was ready right now. There are more factors involved than just price when making a decision.

I’ve had a sudden flush of first time homebuyers lately. Seems like a good time to share the advice I always give them……..and I can just send them this post so I don’t have to say it multiple times 😉

MY ADVICE TO FIRST TIME BUYERS:

1. Buy as big of a house in as good of condition as possible in a neighborhood that has good resale potential. Right now, a small houses probably seems big to you since you are likely in an apartment. I don’t understand it, but somehow, the older you get the more space you need. The larger the house is, the more likely you are to stay longer. Plus, if interest rates get high, you might not be able to move into the next house you want for awhile. NEVER sacrifice location unless you just got a screaming good deal on a house. Reason is because you will one day need to be a first time seller. You want to be able to dispose of it quickly so you can make an offer on your next house. I have had several first time sellers miss their dream house because they had a hard time getting rid of the old one. Enjoy your first home, but realize it is a tool than can help or hinder your steps up the property ladder.

2. Be ready to pull the trigger when you do find the right one. Most first time buyers have only thought as far ahead as finding the right house. Once they do, there is that point where a decision has to be made. I see many first timers need time to wrap their head around the idea that they are about to buy a house, and lose it to another buyer while they waited. So, think ahead. Do whatever you need to be able to move forward when the time comes.

3. Realize the house is for sale. I know it seems silly, but most first timers kind of feel like the house is reserved for them until they decide if they want it or not. Truth be told, I did the same thing when I was a first time buyer. Unfortunately, there is no calling dibbs on a house until you have a contract to buy it.

4. Don’t be afraid to hire your own realtor……and know that they are free to you. Your realtor splits the commission with the listing realtor, but works only for you. I run into a lot of first time buyers who haven’t hired a realtor because they think they have to pay them.

5. Don’t be too impressed with how pretty the seller’s furniture looks. Most people buy a house on how they feel when we are inside of it. It is sooooo much easier to sell a house when the seller has it decorated really nice. I love it when I am the listing agent for those houses! Keep in mind that all the pretty stuff is going with the seller. Focus on what you are really buying……the house. And, don’t assume a house with a lot of new updates is in good condition. Plenty of people prefer to spend their money on a new counter top or hardwood floors and have a roof or furnace that is on their last leg.

6. Have fun on the journey. It can be stressful at times, but it should be a happy milestone in your life. You only get to be a first time buyer once!