Cheap Real Estate
By Steve Gillman - 2005
Want a simple way to get cheap real estate? Offer less. This
is the oldest and simplest negotiating ploy of real estate investing.
Everybody knows this technique, at least in it's crudest versions,
but most are afraid to use it. Why? Well, it can be embarrassing,
and it can be a waste of time if you don't do it right. On the
other hand, do you really mind being a bit embarrassed if it
saves you $20,000?
The first piece of real estate I ever bought was a small lot
for which the seller was asking $4,500 (now that's cheap real
estate). Fortunately for me, in my ignorance, I didn't know then
that offering 22% less than the asking price was considered insulting.
Looking back on it, I now understand why the realtor didn't want
to present the offer. In any case, the seller accepted my offer
of $3,500, because he was anxious to sell his last property before
A friend bought a home on a lake for perhaps $40,000 less
than it was worth. How? He made the offer. He was always making
low offers as he shopped for a home, and of course this meant
he had most of his offers rejected. I might have even hinted
to him that he was wasting his time. Good thing he didn't listen.
Would you be willing to have a dozen offers rejected if it meant
buying a home for a savings of $40,000?
Then there is the investor from California who routinely made
dozens of offers at a time on houses - without even look at them.
He wrote the offers for 25% less than the asking price, and included
an inspection contingency and other clauses to protect himself.
Most sellers said no, of course. Most did, but not all. He occasionally
got some very cheap real estate this way.
Cheap Real Estate - Lowering Expectations
During a seminar, a real estate investor once told me,"If
you aren't embarrassed by your offer, it isn't low enough."
Considering that he's made millions in real estate, he may be
worth listening to. You need to understand, however, that a truly
low offer will almost never be accepted. Is it a waste of time
then? Not at all, because there will often be counter-offers,
and a low initial offer is just a way to alter expectations.
Let's suppose you think your home is worth $300,000. You mention
to a friend that you are considering selling it, and he says,
"You should be able to get $250,000, right?" You ask
another friend what he thinks the home is worth, and he tells
you $260,000. How confident would you be about your $200,000
estimate of value now? You might lower your expectations, right?
This is one of the primary functions of a low offer; to alter
expectations. When a seller is asking $300,000, and you offer
$250,000, will he accept your offer? Probably not. He'll almost
certainly reject it. Getting cheap real estate isn't going to
be that easy. He may counter-offer, however. Suppose you go back
and forth, and finally agree to $282,000. He might not have considered
selling this low before, but maybe now it even seems like victory
to him after starting at $250,000.
You'll lose a lot of potential properties this way. Sellers
sometimes won't even take subsequent offers seriously once you
have offended them with your extreme offer. You might avoid this
by assuring the seller that his property may indeed be worth
what he is asking, but that it only works for your purposes at
a lower price. On the other hand, so what if you have a lot of
rejected offers. Isn't a bit of rejection worth it to get really
cheap real estate?
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