September 19, 2014

Have I got a Deal for You!

I often am approached by people who are interested in purchasing real estate if I can find them ‘a great deal’. At first, one may think that this is a natural request. Someone who purchases anything will prefer ‘a great deal’ than overpay.

But what are the components of a deal? If one has information about a product or service that no one else has, perhaps a deal can be arranged. If there is a condition where time is a factor, which provides the Buyer with a ‘take it or leave it’ option, perhaps a deal is available. And of course, threats can also provide a deal but there is always a threat of transaction done under duress getting one in trouble with the law.

A realtor, for the most part, does not have an ability to take advantage of any of these options if they wish to stay in the business. Additionally, it is rare that a person with more information than the real estate agent would use an agent to act on his behalf. (One interesting statistic; approximately 1 in 100 real estate deals done in California end up in a lawsuit; the bulk of them are those completed without a professional real estate agent).

So, in the absence of an ability to get a deal, the Buyer is limited to making certain that he is not overpaying for a property. This also implies that everyone values real estate the same; a fallacy which is demonstrated daily:

Investors value property on the income and capital appreciation potential of the property, Homebuyers would value the property on how well it meets their needs for living.

When a property has great appeal to many people, it will sell to the one who makes the best offer, not one who wants the best deal.

Properties are new to the marketplace rarely sell at ‘a great deal’ level.

Properties on the market longer than what is normal for the current market conditions are generally overpriced for the market or their condition.

Real estate professionals are ‘in the market’ every day. Homebuyers and to a lesser extent, investors are not. They know the current values of the homes and most real estate sales are done within a very tight range of the ‘market value’.

Getting back to my first statement, the intent of the people looking for the ‘great deal’ are looking for an opportunity to purchase a property under market. Advertising done by real estate professionals sometimes advertises property ‘under market’ but this attracts enough interest to bring competitive bids and sometimes create an auction environment which ends up making the sales price over market.

The very best deals that a person can get are those on properties no one else wants (often, these are the same properties that the buyer also does not want). Properties in poor condition, not upgraded to current standards, poorly located and the most difficult one, poorly designed (known in the business as functionally obsolete).

Sometimes, a low offer on a property will get an acceptance from the Seller and it may feel like a deal. If that is enough for the Buyer, then they have gotten their deal.

The bottom line is; there are great deals out there but they are not ‘under market’ deals, they are fair to both the Buyer and the Seller, and full disclosure provided by your real estate professional will keep litigation to a minimum.

If you have any comments or questions, please contact me at 925-382-9771.

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