Ten Rules for Successful Real Estate Deals in 2011
Having successfully closed well over a thousand real estate deals, trends develop that separate those deals that are successful, from those that fail. And in the new reality of post-Lehman markets, the rules of the game are different – sometimes markedly so. Looking forward to a successful 2011, I offer the following insights that might make the difference between a deal going to closing, and a deal going south.
1) Respect The Offer: It’s easy to get offended when a low ball offer comes in. But sellers should remember that many buyers, particularly first time, are often under the impression that they must “start low” but be willing to move up. Don’t get twisted at an unusually low offer, respect that the buyer took the time to initiate a negotiation, and come back to them with the reasons that the number won’t work. Sometimes there is plenty of room for that buyer to move up, and they will if you work with them.
2) Don’t Impose Unnecessary Deadlines: In the old days multiple offers were the norm, now they are the exception. Buyers in today’s market have lots of questions, and sometimes it takes time to get them answered. “Pressure” imposed with artificial deadlines (contracts must be signed by Friday at noon) often times will drive buyers away, souring their taste for the “experience” of buying and making them move on to less hectic real estate waters. Be careful.
3) Give Buyers Time To Get Financing: The days of fast and quick financing are over. The documentation required for a traditional, institutional loan is significant, and bank underwriting is far more stringent than it used to be. Some sellers think it’s an advantage to give a “short loan commitment period” in the contract, but in fact such a tactic effectively gives the buyer an option to terminate if they change their mind. A 20 day loan commitment period? It will never happen, and a buyer who after 20 days changes their mind can simply terminate for failure to get financing.
4) Who Cares What The Seller Paid For The Apartment?: With the plethora of online tools available to buyers today, it’s easy to figure out what the seller paid for the apartment 10 years ago. But why should a buyer care? It’s an interesting footnote, but it has virtually nothing to do with today’s value.
5) Interest rates: Missed the 50 year historical lows we saw last month? Well we’re still in a great environment, don’t kick yourself if you’re a buyer or refinancer. Evaluate the deal in today’s terms, not against what you could have done a month or two ago. Gold used to be $2 per ounce, does that mean that you wouldn’t buy it today at $5 per ounce because you missed the “record lows?”
6) Sell First, Buy Second: Most sellers need to release the equity in their current home before purchasing another. If that’s you, get the sale done first, bank the funds, then buy. Timing a sell direct into a buy (let’s close on the sell at 10am and do the buy in the afternoon) sounds great, but it’s very tricky to get done and a whole lot of issues that can happen to derail these plans.
7) Poor Credit Is Expensive: Most buyers start the home buying process by looking for an apartment. But smart buyers start with a mortgage banker, and pull their credit report to see where the numbers are. If you are on a borderline, get a credit coach to “repair” your report and bring the numbers up 30 or 40 points. That difference can be 50 basis points on a loan, or thousands of dollars in savings over the lifetime of the mortgage.
8 ) Don’t Move The Goal Posts: At the end of last year we had a deal that “had to be signed by Christmas.” My buyer was serious and we got it done, only to learn that the seller went on vacation and was “unavailable” for the entire week after Christmas. When the buyer found out, they pulled the contracts and killed the deal. Yesterday, we signed a contract for another apartment.
9) Don’t Negotiate To Win: Negotiation is back, and there are plenty of “experts” out there and each one seems to have a different theory. Here’s the report from the trenches, based on successfully negotiating over 10 deals a week over the last year: don’t focus on winning, focus on getting the deal done. I’ve seen deals go south over a light fixture, when the truth is the light fixture was merely a symbol over which the seller wanted to get a “win” in the negotiation, having felt “beat up” by an aggressive buyer. It’s a light fixture, get over it, buy another one, get the deal done.
10) Be Creative: Very few things any longer are off the table in real estate. Identify the barrier to entry for a buyer and see if it can be addressed. Buyer short on downpayment? Seller has an empty apartment with no mortgage? Offer seller financing in a secondary position. As long as the bank approves – and often they will – the result can work for both parties and can get a deal that that might not have happened with a less inventive approach.