Want to buy real estate like a pro? Learn to tie ’em up
Special to the Tribune
Does the following scenario sound familiar to you? Your Real Estate agent has finally found you the perfect property. It offers an ideal location, all the features you have been looking for and it’s right in your price range. It is indeed perfect. So you think it thoroughly through, talk about it until you’re blue in the face, dwell on it into the wee hours, and by the time you’ve mustered up the courage to submit an offer, your agent regretfully informs you that someone else beat you to it. Ouch.
Losing out on that perfect property can be, for some, a major emotional letdown. Fear and second guessing are second nature to us and, unfortunately, also common traits of the inexperienced Real Estate buyer. It’s the classic “Failure to Launch” syndrome. You can point the gun well enough, but you just can’t pull the trigger. We in the business see it all the time. Another paralyzed buyer caught in the headlights of a screaming Real Estate deal.
What you have to realize is that this is the biggest buyer’s market in years. And it’s also true that there are many people looking for the same thing you are. In fact, all those anxious buyers, sitting like crows on a fence, just waiting for the ideal time to swoop, are now doing just that. And why shouldn’t they? The conditions are ripe. The lethal combination of low interest rates, tons of inventory, and affordable opportunities in areas that were nearly untouchable just a few years ago has created the perfect storm for investors. They get that the time is now.
Sure, maybe the prices will go down a bit more, but will the savvy investor wait and see? Nope, because they might just as likely start going up. And what if the interest rates decrease some more? Do you seriously think that the smart buyer will wait for that to happen? It’s not very likely, because those rates could just as easily start climbing. They’re good enough where they are right now, thank you.
The smart investor knows what they are looking for and is willing to get the property they covet without quibbling over what amounts to very little over the term of a loan. One of the secrets that experienced buyers use in a competitive market is what we call, “tying up the property.” No, this is not a strange, new form of bondage. It is, however, a useful technique for removing a property, nearly any type, from the open market for a fixed period of time. If a well seasoned Real Estate vet finds a property that fits the bill of what they are looking for, then they are quick to assess, make the offer and take the property off the shelf so that no one else can snatch it away.
Many newbie investors don’t fully realize that, no matter what type of sale it is – bank-owned, short-sale, conventional or even as-is – once the offer is accepted and escrow is opened, the buyer should have a set time period to perform their due diligence. It’s imperative that this inspection period is covered contractually. The term can vary from state to state, and is negotiable, but it will usually be around 17 days for California Residential Real Estate. This is when inspections, appraisals and most loan approvals will be done. If there are red flags, then the buyer will have the right to either ask for more time for further inspections, ask the seller to make repairs or a cost adjustment, or cancel the agreement altogether. If, however, everything looks good, and the buyer wishes to proceed, then the seller will normally ask that the buyer remove any remaining contingencies and close the deal by the specified closing date. One possible exception to this would be a loan contingency. That can run until the actual closing date, if the buyer specifies, which protects the buyer should the bank change its mind at the final hour. It happens.
But be aware that due diligence can cost you money. Most inspections and appraisals, although they can be negotiated in the purchase contract, are on the buyer’s dime. Those invoices must be paid regardless of if the property closes or not. Cold feet could also cost you if you have a change of heart once past the due diligence period. If that happens then be prepared to lose some money to the seller, and rightly so. This is why it is so important to know what you want and what you can spend to get it. You have to do your homework, and be familiar with the market so that when a “good” deal comes your way, you can make it happen quickly, confidently and with a minimum of emotion.
It is very important to have your ducks in row before you are ready to get serious. I recommend to my clients that they get not one, but several pre-qualification letters for different amounts around their price range. Let’s say you make an offer of $225,000 on a $250,000 property, but submit a pre-qual letter for $275,000 with the offer. The seller may look at this and assume that you can afford to pay a little more and may give you back a counter offer instead of an acceptance. It also wouldn’t hurt to include proof of your down payment funds. And, if you plan on paying all cash, be prepared to show proof of those funds as well. The idea is to make your offer clean, strong and irresistible.
It’s critical that you work with an agent whom you trust. You really do have to be “Johnny on the Spot,” sometimes, if you want to come away with a hot property. Many times, the buyer isn’t even in the area where the property is for sale, and they must rely on their agent. It is not uncommon for a Real Estate buyer to have their agent submit an offer for a property sight unseen, with the deal being contingent upon the buyer actually viewing the property within a specified period of time. Talk about trust! Some of my most nervous moments came when I was showing a demanding foreign buyer a property for the first time that they already owned! Yikes.
Communication with your agent is vital. So when your agent asks you some seemingly dumb questions, just listen and answer the best you can. There is a reason why.
So remember, don’t worry too much roofs or pipes, etc., before you actually write the offer and get it accepted. And don’t get into drawn-out petty negotiations that aren’t going to amount to a hill of beans when you calculate out a 30-year mortgage. Work with an experienced agent who can get that offer accepted and tie that baby up! You may just wind up with property of your dreams, before someone else does.
– Mike Mulligan is a California / Nevada Realtor with Century 21 at Tahoe Paradise.