“Buyer’s Market?” No Such Thing As a “Good Deal”

Some Realtors think their job is to make client’s feel all warm and fuzzy by making the buyer think that they got a “Good Deal.” Kind of like how almost everyone who buys a car walks out thinking that they got a steal of a deal!

I don’t believe in this. I am not hired to be a comforter. I’m hired to get the most suitable property at the best price possible, and to do so aggressively, if that is what the client requests.

While the client might have landed a “better deal” than other active or sold listings, it is only a “good deal” years later when they sell it and the cash is in their bank account. Even those appraisals that are done while you are under contract, they can come in $10k or $20k higher, that means nothing to me. Appraisers sometimes like to make their loan officers, who hired them, happy by padding the numbers to make the buying client feel warm and fuzzy.

Good deal vs a better deal. Here is an example, I had a client, a close friend of mine, that desperately wanted to “grow up” (in his words) and get in on the action. This was during the bidding war days. I rarely give my opinion (instead giving data and evaluating it with the client) but I told him he was crazy. Yet, he gave me marching orders to “get that condo at whatever cost.” He was scared that if he missed out on this condo, the next condo would be $25,000 higher.

We “lost” the bidding war. Thank God. This $350,000 750 sq foot condo received 8 offers and went up to $400,000!! What a fool that “winner” was! Yet, I bet the winning Realtor assured their client that they got a “good deal” as they ran to the bank to spend the commission.

So what next? Well I had information that maybe only 10 people in the bidding process were privy to (the contract price is only published after the close 30 days later). This building was about to reset $50,000 higher so we had to move fast, since he felt he “needed” a place ASAP.

I immediately sent out inquiries to the entire building. I was able to find him a unit that was 1100 sq ft or about 35% larger… that we negotiated for $395,000. The seller thought he got a great deal, but he didn’t know that the unit he was using as a comp, was just bid up $50,000, and it surely wasn’t my job to tell him that. I work for the buyer, not the seller (in this case).

Side note: I know FSBO’s (For Sale By Owners) love “saving” on those damn Realtor commissions, but how much did this guy “save” by selling it for $50,000 under market price?

So while this might sound like a “Good Deal” it was merely a “Better Deal.” I DID say it was a BETTER deal than the 750 sqft unit, but again, nothing is a good deal until you cash out.

Sure enough, the market immediately took a nose dive. He blames the entire nations price drop on the fact that he made his purchase and that bad things follow him. All I can say to that is thank goodness he didn’t buy the other unit that was significantly smaller. Hopefully the market will come back and if he gets into the positive territory again AND he sells it, then and only then will it be a “Good Deal”

More recently I had a client (that found me 100% through this blog) that I helped put a house under contract for a good deal… I mean for $40k under similar recently closed units. We did the home inspection and found $1,500 of items that we hadn’t seen during our two visits. (I don’t believe in going after imperfect items that we already know about at the time of contract, I’ll deal with those on the initial contract such as a broken step or broken window). The listing agent (did a great job fighting for her client) kept saying that her client dropped their price so much to accept our offer and that they felt they were selling at the bottom of the market and my clients got a “GREAT DEAL.”

To that, I proposed the follow (my clients loved it):

Dear listing agent,
If your clients are so certain that this is the bottom of the market, lets forget the $1,500 for now and instead put $3,000 in escrow. If within 12 months, one house sells lower than our purchase price, my clients get the $3,000, if three sell for more, your clients get the $3,000 since that might signal the bottom of the market. Frank

The listing agent hadn’t ever heard of such an Indecent Proposal!

They accepted the $1500 adjustment.

So no matter what the market is, at the top, at the bottom, near the middle, it is always important to get the best deal possible at that time, even if you are certain “prices can only go up from here.”

And I am NOT talking about % below list either. Oftentimes people get caught up in the “I saved 30% shopping today at Sax Fifth Avenue outlet mall.” So don’t get caught up with % off list and instead look at the value. Value Value Value will be an upcoming blog.

I’d rather have a client buy a $500,000 place for $510,000 which is “worth” $550,000 (based on comps) than buy a $100,000 overpriced house listed at $650,000 for “$50,000 off” list. Focus on VALUE, not on % off list. Some agents will price things to move (see my CRA system featured in RealtyTimes.com) in a week, while others will overprice to get the listing, knowing that it won’t sell but they will get paid sooner or later after price drops (the CRA can tell you this!!).

So even if you buy for 20% off (allow for the slight exaggeration), that only makes it “probably” a good deal. What if another unit next door sells for 40% off? And of course, the longer you hold your house (5-15 years) the better the chance of getting a “Good Deal.” But ultimately you never know, and it is only a “Good Deal” if you can you CASH IN!

Please tell me if you see any ty
pos, I don’t like looking dumb. Also hit “subscribe” to get future blogs.
– Written by Frank Borges LL0SA- Virginia Broker/ Owner FranklyRealty.com
703-827-4OO6 Please report all typos, I don’t like looking stupid. If you like this post, sign up for new blogs daily, use the form on the right of the page.

Videos at YouTube.FranklyRealty.com
Keywords: Housing bubble? Arlington, Alexandria, mls, homes, Real estate, Virginia, Alexandria, 22201, 22314, Fairfax Va, DC Realty, Realtor

  • 12
  • April
  • 2007

16 Responses to ““Buyer’s Market?” No Such Thing As a “Good Deal””

  1. Thesa Chambers, REALTOR®, Sunriver, OR says:

    Very well put – the value is in the buyer’s idea of value for him – I appreciate your ethics as I am sure your clients do also… I hit the subscribe button – look forward to reading more from you!

  2. laurie mindnich says:

    I think that what I got out of this is that we are in a crap-shoot right now. There are no answers that we can provide with respect to predictability, other than the timeless PLAN ON LIVING THERE FOR 7 YEARS. Offer the facts as they are today (it will be different as soon as tomorrow), and let them jump or not. Find them the lowest so that their initial LOSS is lower, making their future GAIN greater. Interesting post, something to think about- and what a challenging presentation that would be!

  3. Kelli Fronabarger- Realtor® Bend, Oregon says:

    Hi Frank-

    You’ve done a great job here, very well-written and nicely articulated : ) Value is an interesting concept. I did not find one typo, either. Well Done !

  4. Richard Parr says:

    The word DEAL in the sales profession is just so disgusting anyway.

    The only time the word should be used is at a poker table where the context it is perfectly fine.

  5. FRANK LL0SA Broker says:

    Hey Laurie,

    You mentioned “what I got out of this is that we are in a crap-shoot right now.” While I agree that now we are in turbulent times, this information applied to ALL times. When we are at the top, or at what we think is the bottom
    .Either way, you only know for sure after you sell it. Things can ALWAYS go down and if the client isn’t prepared for this, they should NOT BUY. Yes do NOT buy a house if you are not able to deal with a possible further price drop.

  6. Johnnie Taylor says:

    Whatever happened to being satisfied with your house anyways?

    If you bought with what was the “Best Deal” at the time, then you did all you could do. Maybe prices will go down. Maybe they will go up. No one can control that. Your Realtor doesn’t have that magical crystal ball. Nor does your lender.

    It seems that everyone wants the iron-clad guarantee that the investment they are making is sure to make them money or equity instantly. No such thing. Prices could drop tomorrow. Or, the loan you got may have been good for today, but, rates could drop tomorrow and you would be thinking, “What if I waited one more day?” This is life.

    But, I think clients and customers should appreciate a straightforth approach. Far too often people take the emotional route to purchasing. If those emotions aren’t backed by some logic, credible information, and real professional advice then there will be a new emotion coming soon…..Pain.

    As a mortgage lender, I can’t count how many times I have dealt with clients whose RE Agents or previous lenders have gotten them all pumped up about one great deal or another.

    Get the best arrangement you can at the time. Make sure you enjoy your house. The rest will be decided by time as to whether it was a GREAT DEAL.

    Thanks Frank for laying it out straight. I think I may add you to my list of Realtor blogs to watch!

  7. Renée Burrows ~ Realtor® ~ Las Vegas Valley! says:

    Frank: I think I am very in love with you sometimes :)

  8. Tchaka Owen says:

    What are you talking about, Frank? I’m in FL where list price rules. So what if the $600k list house is only worth $450k? I’ll get you a great deal for $100k below list. I’m a rockstar!!

    Hahaha, I do like the Saks reference – how apropo!

    – Tchaka

  9. Jay -- Arlington Virginia Condos says:

    Excellent post as usual, Frank. The indecent proposal exemplifies how well you think outside of the box to get to serve your buyers and sellers superbly. And thanks for the lesson on the indecent proposal. That’s guerrilla negotiating…. :)

  10. D'Ann Faught says:

    Great blog! This is something I am always trying to explain to my buyers…especially difficult when money magazine is recommending they start at 10-15% below asking…not taking into account where the property is priced and the property itself!

    You did have a typo though – “More recently I had a client (that found me 100% through this blog) that I helped put a house under contract fopr a good deal”

    D’Ann Faught

  11. FRANK LL0SA Broker says:

    Thanks D’Ann for the typo fix.
    Damn magazines trying to single handedly new rules. Did you know in Miami sometimes it is the NORM to start 10-20-30% under? And I heard in Calif the system is totally different.

    Yeah, I also get asked if there is a rule of thumb as to what percentage under list to start. It doesn’t work that way.

    But my other blog did run an analysis that on AVERAGE homes in Arlington closed 8% lower than their INITIAL list price. But that is Average DOM etc. If there is a new listing that is priced right, it WILL sell in 1 or 2 weeks and you might loose a good deal. Wait, I mean a decent deal, I mean a “relatively better deal than other listings.”

    Yeah, there you go!

  12. Dan- Realtor says:

    Yet another good article!

    I was out with a client last night and we had this very discussion — value vs. savings. The guy’s a first time homebuyer and he had some good questions about the buying process.

    He asked me how I placed value on a property and a long chat about it ensued. I promised to give him access to all of the information I had in terms of comps and other methodologies (I do the CRA too, tells me who I’m up against) so that he would thoroughly understand how I arrive at an offering price, with the caveat that he ultimately made the decision about how much to offer.


  13. FRANK LL0SA Broker says:

    Hey Dan,
    Good to hear that you are using my CRA system.

    As for the “how I arrive at an offering price”. Ouch, that is so old school. Try the Vegas Odds system where the CLIENT picks the price based on the odds that you give certain prices going through.


  14. million says:

    just got the below in an email today…

    “…all of our work finding you the right home and mortgage ~ as well as all of our other services ~ are paid for by the home seller; they won’t cost you anything!”

    do all Realtors lob this one at homebuyers as a litmus test to see if we’re complete idiots?

  15. FRANK LL0SA Broker says:

    Million strikes again!
    You should check out my blog on ActiveRain, I post more frequently there and before I post the polished version here.

    Oh and you’ll love my post on buyer agents being offered 1 penny commissions. How will the buyer agent handle THAT when they promise “we are free and the buyer pays our commission”

  16. […] And even if you DID believe the data, what then? It is still useless! So, if Herndon is one of the few zip codes that are UP (as well as 22046, 22041,22309), what?, you should buy there? Or are they implying that you should buy in the zip code that they say is down 10-19% (22102, 22124, 22031, 22030, 20124)? Since they are a better “deal?” […]

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