Yes the market in many parts of the Country has (and is) suffering the inevitable post “sugar high” crash and I’m sure for many, as it is here in Northern California ( Sonoma County ), the market is becoming flush with properties for sale. Either in the hands of a Bank (REO) or by a Party with this possible threat looming over their shoulder, the end result is the same.
“There’s deals to be had…” I here more and more, “…just low ball ‘em…” bellows the Pitching Coach, “bottom feeders…” the Anger Seller laments!
To no element of surprise, the other day a dear friend asked me my opinion on the market, whether it was a good time to buy, whether they should wait, whether this, whether that! Eventually, the conversation turned to more specifics and I was asked about my thoughts on a particular property (REO) and what I though it could be purchase for. I thought for a moment and I responded with a (typical) two-sided answer; “…well, there’s the price I’d pay for it and then there’s the price they’ll sell it for!” I then gave him the “numbers”, he paused for a moment, then said the magic words, “…well, if we low ball ‘em, maybe we can do better!”
No need to go into the details of the conversation here however it does present an interesting opportunity to include my personal thoughts on the “low ball offer” idea to the thousands that have come before my offering. So let’s dance, shall we!
Throughout my years in the business I’ve seen only one result from “low ball offers”! Waste of precious time! Yes I’m keenly aware of the psychology which lies back of the concept however, I’ve rarely seen it accomplish the intended result. Many cases, it’s the equivalent to offering a sleeping aid to an individual who’s fast asleep (to much, to little, or to late) or, better yet, teaching pigs to sing (frustrating for you intensely irritating to the pig, why? Pigs don’t sing!). Your pick!
In the case of the REO, typically, the Portfolio Manager (particularly now) is saddled with more properties than he/she can handle effectively. Add to this the mesmerizing number of guidelines they need to follow regarding disposition and you’ve recipe for “Pig Singing Lessons”!
In the case of the Private Party whose trying to avoid a foreclosure, sleeping aids, typically, “to late”! The only avenue, in my opinion, is the “short sale” option which from my experience is far better an opportunity than waiting for the property to land in the hands of an “REO” department.
Going to the basics of property valuation, the willing buyer – willing seller concept, is, in part, a foundation of establishing value to be sure. However, in depressed markets, the “willing seller” end is not necessarily (and is frequently not at all) viable. Correct?
The point is, why bother wasting time with the “Low Ball Offer”. Either the property will eventually work its way down in price or someone will pick it up along the way or it will come back to you! There is the approach that says, “throw enough offers out into the ring that eventually you’ll hook one…” and yes, I’ve seen this work but only in limited.
My approach is somewhat different. I’m not looking to establish a game of piracy, I simply want to pay for the property what it’s worth to me. If the numbers are right, I buy it, if they aren’t, I don’t. I take the market value (based on 30 day comp sales) and I work backwards deducting improvement costs plus 10% (contingency), holding costs, 10% (or more) for my effort and another 6% for market risk. I prepare the offer with a cover letter explaining (even if I present it directly) and that’s it. Organized, logical, supported, rational,…what could be better! No emotion, numbers don’t laugh/cry and they don’t lie!
Now, one might come to the thought that suggest that this approach still may produce a “low ball offer”. My response to this is that, yes, it quite possibly could however, if this is your thought then perhaps you might first check your premise. The reality may be that the Property is, in fact, not priced properly to begin with in which case. I’d never make the Offer. I’d sit back and wait them out, meanwhile, I’ll have done 2 or 3 other deals in the 30,60 or 90 days it might take.
In the case of the Agent/Broker who’s Listing REO properties, they’ve got it the real challenge! They have to wait for the Lender/REO Dept. to come to grips with reality all the while spending time and money to maintain not only the Listing, but also the relationship with their Client. I’ve had Contracts with 14 different Lenders/REO Dept. over the years and I can say, uncategoricly, that it was the most difficult process to navigate through. Particularly if you’re an Agent/Broker that understands the process!
My listing process has matured over the years and I can tell you that if you aren’t moving Properties into “Pending” status within 100 days of them hitting the market, you’re not serving your Client and you are loosing valuable time and quite often, you’re going to loose money! As a rule, I’ll no longer List REO properties even though it’s tempting! I do, presently, have a few of them however they are only with a Lender/REO Dept. that will permit me to do my job. A sleep and sing quite well by the way!
To conclude, the most successful transaction is a “Win – Win” ! There’s no need to modify nor even attempt to! Typically, the “Low Ball Offer” works at odds with the fundamental principal and if you think it doesn’t, try teaching a Pig to Sing! I love being welcomed back through a door that is being held open for me! I consider it an honor and a testament to sound and principled business practices and the benefit (value) it provides my Clients has been proven many times over
And oh, by the way, I sleep and sing quite well too!
Curtis C. Greco, Founder