This is my column this week from the Arizona Republic (permanent link):
Looking for a bargain-priced home? If you don’t Flinch!, the seller will
Let’s talk a little bit about buying strategies. Last week’s rate adjustments by the Federal Reserve Bank may have scared up a few buyers. I’m taking a lot of calls from Canada, and investors seem to be trying to time the bottom of the market.
Here’s a simple idea: If you were to buy a newer three bedroom, two bath stucco-and-tile suburban tract home for $160,000, putting 20% down, it would be cash-flow positive at $850 a month rent. That includes everything, mortgage, HOA, taxes, maintenance, vacancy — everything. The positive cash-flow would net out to about $5 a month after taxes, but the point is that the Phoenix real estate market is back to the point where a rental home is self-amortizing. If home values go up in the future, so much the better, but the home will pay for itself either way.
Here’s a better idea, one that has been making me crazy for more than a year. The name of this game is Flinch!
Normally, when buyers are looking for a home, they’re looking for that one unrepeatable masterpiece, the only home they could even consider buying.
What if, instead of looking for one ideal home, they resolved to look for three — or five — that might fill the bill? Now they’ve got bargaining power.
The game works like this: Make multiple low-ball offers on all the houses that might work for you, with all of those offers being subject to your final approval. Make it plain to all of your sellers that the first one to salute goes under contract, and the others go home empty handed.
This is exactly what sellers were doing to buyers two years ago, with multiple counter offers. By now there are at least eleven homes for sale for every qualified buyer. It’s time buyers exercised their incredible negotiating power.
What happens if it doesn’t work? Try again in a different neighborhood. Or try same neighborhood six weeks from now. Here’s the trick to winning at Flinch!: If you don’t Flinch!, sooner or later someone else will.
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Chris says:
Thats what I am going to start doing. My good friend is looking for a deal on a multi family. I found three that he likes. All three have been on the market for 6 months. So we are going to figure out at what price he breaks even, offer that and see what they do. I will let them know we are offering on three properties and whoever comes down to a reasonable price first wins. One’s $70k over priced, one is only $10k, and another is about $25k.
September 28, 2007 — 11:20 am
Greg Swann says:
Here is a fuller discussion of the strategy, along with some prototype contract language. Good luck! Let us know how it turns out,
September 28, 2007 — 11:38 am
Brian Brady says:
…and sellers shouldn’t bitch about it. They played the same game 3 years ago.
Great idea.
September 28, 2007 — 1:47 pm
Chad Huck says:
This seems to be a great idea, but what about the whole “It’s a contract if the seller signs the offer”? Now when one offer is accepted, and the others havent responded yet, then thats fine, but if two offers get accepted at the same time, what would you do?
September 28, 2007 — 7:37 pm
Greg Swann says:
> if two offers get accepted at the same time, what would you do?
From the post above: “Make multiple low-ball offers on all the houses that might work for you, with all of those offers being subject to your final approval.”
Here’s a way of doing that:
When any seller accepts an offer, they are accepting it subject to the buyer’s final acceptance, just like a multiple counter offer.
September 28, 2007 — 8:44 pm
Chad Huck says:
Thanks for the reply Greg. It makes sense now. I will pass this along to the agents at my company.
September 29, 2007 — 6:57 am
Elizabeth Weintraub says:
This is an excellent idea, Greg, but it would go over in my office like a lead balloon. That’s because our legal team would get their fingers into it and take ten months to draft suitable and approved language for the contracts, and by that time, the buyer’s market could be history.
Now, if NAR came out with an approved form, we’d be in business!
September 29, 2007 — 9:42 am
Eddie D says:
Or wait until 3 of the 5 go into foreclosure and purchase for even less directly from the lender.
September 29, 2007 — 11:43 am