Is It a Deal or No Deal?

The offer, and the inspection/due diligence associated with a deal, are probably the most negotiated parts of a real estate transaction for both residential and investment property buyers. So with regards to the offer, how do you determine what to bid? As an investor, will the bid allow you to make money? If you are a home buyer is the property something you can afford that will also help you build equity? What contingencies can or should you include? As a buyer, have you seen the seller's disclosure documents? And are you paying by cash or financing (what kind of loan). Many factors go into both the buyers' and the sellers' decision. What will the seller accept and if they don't accept it can you strong arm them into submission? Probably not. But when faced with objections, you should feel free to debate things like days on market, condition of the property, even comparables though in investing it's usually focused on a wider range of variables in order to determine a property's fair market value. Following an accepted offer, the inspection can also bring up a host of topics to negotiate. Doesn't hurt to ask for things, but don't expect a seller to fix some things or in some cases, anything, except of course (hopefully!) health and safety issues. Despite all of the "back and forth" that goes on, you've got to know when it's a "Deal" or "No Deal" in real estate.

If you are an Investor, you've looked at Cash on Cash, Net Operating Income, Cap Rate and all of the various other calculations used to determine if you want to pursue a property or not. If you are residential buyer you've looked at your current financial situation including your current income, assets, bills and other liabilities to determine affordability. You've looked at proximity to work, school, shopping and lifestyle amenities. From there you know what you want to offer, but how far off from list price is that number? The key is not to have too much of a spread where there's no chance that a seller will feel it's feasible enough to even respond. You at least want a counteroffer. Especially in this current market, as a buyer, you are going up against a lot of competition wanting the same property. So just because your number works for you doesn't mean that it will work for the seller. And the seller doesn't have to concede to any objections no matter how valid they are. You should, however, always debate your point and defend your offer if it's valid. I mean, what do you have to lose, right? You may end up getting the property. Still though you should always come to the realization that all negotiations come to a stop at some point. Don't be afraid to walk away. There are plenty of other properties on the market that can work for all parties involved.

So we've talked about this from a buyer's standpoint. But what about the residential or investment property seller? You, too, have the power to make this a deal or no deal. Right now in many parts of the country (not just here in Pittsburgh, PA) it's a seller's market. With low inventory and high demand, sellers are commanding top dollar...for the most part. I say "for the most part" because if your property isn't in top-notch condition it may not garnish such high offers. Not to fear as by now I'm assuming you have consulted a real estate professional that can offer valuable tips to make your property even more attractive than it already is. Back to the deal part, though. Let's say you are faced with 3 offers, 1 uses a conventional loan with no contingencies, 1 uses a VA loan with 3% seller assistance, 1 uses FHA with an inspection contingency. How do you choose which offer is most appealing as there are many factors involved, including such things as the offer amount, the contingencies, the closing date, the hand money, and so on. Again, consulting a real estate professional can help you go through them to spell it out including what your net proceeds will be. That way you can make a very informed and sound decision. The real trick with the offer process is to not take things personally.

Everyone wants to feel like they got a good deal. And there are many reasons why some buyers make very low offers. As a seller, try not to take offense to this, but do feel free to either counter-offer or say no. There are other buyers out there. Likewise, try not to get so hung up on price that you let a buyer slip away by dickering over a few dollars. Same advice to buyers, don't let your dream home or property slip away when you are so very close. Typically, the difference will not change your monthly mortgage payment significantly. This is also where I can't stress enough how important it is to distance yourself emotionally from the purchase. Investor clients may have more experience with being able to keep things on a business level and it's important to do so. For the residential buyer, we know this is your home, the one you have cared for all of these years, the one perhaps you raised your children in with a lot of memories. But when you go to sell it, honestly that's not the most important thing to a buyer. So keep it professional or better yet hire a professional to be the mediator. And remember, as a buyer and seller of real estate, you both have the right to say "Deal or No Deal".