WRITING AN OFFER

In This Article
Appraisals
Who Writes the Offer
Hiring a Lawyer
Earnest Money
Contingencies
Clear Title                       View all LAND BUYING articles

The most powerful tool in any negotiation is knowledge . I learned this decades ago in a course on negotiations, and it has proven true again and again over the years. The more information you have about a property before you make an offer the better. In addition to the physical characteristics of a land and its status under zoning, it is helpful to know why the owner is selling it now, what he paid for it, how long he has owned it.  At the outset, it’s highly likely that the seller knows more about the land than you do, so do everything in your power to gather enough knowledge to level the negotiating table.

Put it in writing. Also remember to get any critical information in writing – from the seller, agent, or town official. In real estate transactions, verbal agreements or communications carry little weight. Nor do opinions, such as “I think you could probably subdivide the lot.” Make sure any important information that might affect the value of the land or your ability to use it as you desire is put in writing.

APPRAISALS: HOW MUCH IS IT WORTH?
If you’ve looked at enough pieces of land in the area, you will know if a piece of land is in the ballpark. Then you should make deductions for issues that detract from the property value – for example, proximity to a busy road or railroad track, building issues such as wet land or excessive ledge, or the need for an expensive alternative septic system.

If you’re not confident that you can fairly value the land, you can get an appraisal done by a licensed real estate appraiser, typically for $300 to $500. Real estate brokers will often do a free informal “market analysis” of your property if you are a seller. If you are working with a broker to sell your current property, they may provide the same service for you as a buyer – or if you are working with a buyer’s broker, he or she may offer this service.

There’s no guarantee that either a formal appraisal or informal market analysis will accurately pinpoint the actual sales price – it’s just an estimate of what a real estate professional thinks a property will sell for at that point in time. In slow markets, many properties sell for less than the appraised value; in heated up markets, they often sell for more.

However, an independent appraisal can help you decide if the asking price is reasonable and can also be used as bargaining tool. This is especially true if the formal appraisal price is well below the seller’s asking price. To avoid spending money on an appraisal before an offer is accepted, you can make an appraisal a contingency of the sale (see Contingencies below). If you are borrowing money, an appraisal will be required anyway, although appraisers working for the bank may come up with a different value than an appraiser working for you.

WHO WRITES THE BID OFFER AND P&S
If you’re experienced in real estate transactions, and in particular with purchasing vacant land, you may feel comfortable making an offer on your own or through a real estate agent. Otherwise, it’s a good idea to have a lawyer review your bid offer and P&S, or for a little more money, to have the lawyer draft his or her own bid offer.

Most buyers use the real estate agent’s Bid Offer form (also called an “Office to Purchase” and other things) to make an offer on a property and, if the offer is accepted, then use the agent’s Purchase-and-Sales (P&S) form to spell out all the terms of the sale. Remember that both forms are binding, legal documents. In some states, these forms can be combined into one form, locking you into a obligation to purchase under the seller’s terms in one swoop – generally not a good idea from the buyer’s perspective.

Also remember that however professional and friendly the real estate agent may be, the agent typically works for the seller and has a legal  fiduciary obligation to act in the financial best interests of the seller.

After signing the P&S, the buyer typically hires an attorney to conduct or arrange for a title search and to handle the closing. On a piece of land with a lot of unanswered questions, I’d strongly suggest talking to a lawyer before making a bid.

HIRING A LAWYER
It’s wise to hire a  real estate lawyer, with experience in land purchases, to assist with the title search and to represent you at the closing. However, an experienced real estate lawyer can be a lot more valuable before you make an offer. In particular, a lawyer can help you structure the offer with the right contingencies, and proper escrow arrangement, to protect you and your earnest money if, upon closer inspection, the property doesn’t meet your needs. An experienced real estate lawyer will also be able to advise you about any clouds on the title, deed restrictions, or zoning issues that may affect your ability to develop the land as planned.

EARNEST MONEY
Earnest money is a small amount of money put into escrow that signals to the seller that you are making a serious offer. The seller has the right to keep the money if you decide to walk away from the deal for a reason not covered in the contract – like you find a better property or just have a change of heart.  (If you have a valid reason for back out and the seller is a decent person, he may refund your earnest money anyway, so it’s definitely worth asking).

The escrow amount is up to you, but often ranges from $500 to $1,000, and shouldn’t exceed 1% of the value of the property. A higher amount signals that your offer is serious, but puts you at greater risk of losing the money if the deal falters and the seller claims that you have broken the contract. Having the right contingencies written into your bid (see below) helps protect you from disputes over earnest money.

ADD CONTINGENCIES TO THE BID OFFER
When you make an offer, you will probably still have some unanswered questions about the land and whether it can be used the way you envision. You won’t want to invest the time and money required to get all the answers until your offer is accepted. The best way to make sure that no unpleasant surprises await you after the sale is to make your offer contingent on satisfactory answers to your questions. If you don’t get the right answers, the contract is void, and you can back out of the deal with your earnest money.

From the sellers perspective, a clean, cash offer with no contingencies for financing or anything else is ideal. You give them the money, they hand over the title. From a buyer’s perspective, this is far too risky. Of course, too many open-ended contingencies or anything that costs the seller money, will make your offer unattractive to the seller. For that reason most contingencies are pretty specific and require you, the buyer, to foot the bill for any testing or inspections.

Study period. Every offer to purchase real estate should include a period of time for the buyer to inspect the property in detail and bring in any consultants, as needed. This is referred to as a “study period,” “feasibility period,” or “due diligence period”. Naturally the seller (and the seller’s agent) wants this time to be as brief as possible and the buyer wants sufficient time to inspect the property.

Make sure the study period does not start until you have a binding signed offer, rather than just a letter of intent which is non-binding. You don’t want to waste time and money inspecting a property that can be sold to someone else. Also be wary if you are pressured to accept a two-week study period.

Make sure you have enough time to do the required inspections — 30 days at a minimum for vacant land. There has been a trend over the years to speed up transactions and shorten the due-diligence period, which is great for sellers but risky for buyers. Since raw land is much more difficult to evaluate than an existing home, you will need more time. Make it clear in the contract that inspection reports must be satisfactory to the Buyer “at Buyer’s sole and absolute discretion.” Consult with a lawyer about the specific language to use.

For a developed lot in a subdivision with all utilities in place, two weeks could be sufficient. If there are special problems that require design approval, a survey, engineer’s report,  or other consultants, negotiate for the extra time needed ranging from 30 to 90 days or more.

Have an escape hatch.  In my experience, it’s very useful to have at least one broad contingency that provides an  easy“out” in case you discover something unexpected or have a change of heart for whatever reason. In a house purchase, this might be “Results of all home inspections shall be satisfactory to the Buyer at Buyer’s sole and absolute discretion.” On a piece of land, it might read, “Results of all land inspections shall to satisfactory to the Buyer at Buyer’s sole discretion.” Check with your lawyer about the specific language you should use in your state.

Only these same lines, if you are borrowing money,  your financing contingency should state something like  “Buyer is to obtain financing by [date] at terms acceptable to the buyer at buyer’s sole discretion.”

Twice I had my earnest money returned on offers to buy vacant land under these type so contingencies: On one, an engineer said that the private access road was being poorly built and would probably be flooded every spring. On another my proposed house plan was rejected by the original developer who retained full discretion to approve all house designs. He thought mine was too small, even though it complied with written HOA guidelines. In each case I backed out and walked away with my earnest money.

TYPES OF CONTINGENCIES
Contingencies on buying land typically have a time limit and expire if the buyer fails to do his part. Contingencies can also be written so they require the seller to fix a problem within a fixed period of time, but I generally avoid this type as you have little control over their interpretation of the contingency or whether they meet it to your satisfaction. That puts you at risk of losing your earnest money if the seller claims they have met your contingency and you think otherwise.

Contingencies can be pretty general or  very specific: for example, a well drilling contingency might state that “Driller to find potable water of at least 5 gpm and at 300 feet or less”  or it could read “Driller to find well water at a depth, flow rate, and quality satisfactory to the buyer.” As stated above, make at least one contingency an escape hatch that is general enough that, in the event that you want to back out for any reason,  you can do so without a fight over the earnest money.

Contingencies will vary depending on the specific site and how much you know prior to the bid. They should be written or reviewed by a lawyer to make sure that they accomplish their intended purpose. Typical contingencies for land purchases include:

  • That the buyer can obtaining suitable financing — typically within 30 days
  • That the lot appraise at the purchase price (if you are buying cash)
  • The ability to pass a perc test and/or obtain permits for a septic system (you may specify that it must be a conventional  vs. a more expensive “alternative” system.)
  • The ability to find sufficient supply of well water that meets local health standards for potable water quality
  • Obtaining an adequate deeded right-of-way to access the property
  • A survey be completed to show that the marked boundaries are accurate
  • That the design review committee approve your house design
  • That the buyer can obtain approval to subdivide the land
  • That the zoning regulations are acceptable to the buyer or that the variances are granted to use the land as planned
  • That the buyer is issued a building permit

Broad  guarantees. What, exactly, a seller is required to disclose to the buyer varies from state to state (see Disclosure of Defects).  Just in case you missed anything, many bid offers contain broad guarantees that there are no material problems with the land or title. For example:

Seller warrants that he has disclosed all material defects in the land or title that he is aware of that might affect the Buyers use, enjoyment, and ownership of the property, free and clear of any encumbrances. Such warranty shall survive the closing by 12 months.

IMPORTANT DISCLAIMER: I am not a lawyer and am not dispensing legal information. Review all legal issues with a lawyer before proceeding. These are general suggestions based on my personal experience and should be reviewed by a lawyer licensed in your state before proceeding.

CLEAR TITLE
“Clear title” is a phrase that means that the seller has the legal right to sell you the property, that it is free of encumbrances, such as liens or other financial or ownership claims, and that after the sale, you actually own the property. Your lawyer will conduct or make arrangements for a title search before closing to make sure there are no problems with the title. A thorough search should turn up any defects, but land records (and the people who search them) are not always perfect. If you buy a property with a “cloud” on the title, you could end up with big headaches and legal expenses, especially when you go to sell the property.

If you are not using a lawyer for whatever reason, then you’ll need to find a title company to conduct the title search. Your real estate agent can probably give you some names. In addition to conducting the title search, the title company will also provide you with standard forms for purchasing real estate, and will make sure the deed is properly recorded after the closing.

Title Insurance. If you are borrowing money, the lender will require you to buy lender’s title insurance at closing. This protects the lender against most financial losses that are caused by past title problems discovered after the sale, such as liens, fraud, or long-lost relatives who claim ownership in the property. You, as the buyer can also purchase buyer’s title insurance, giving you the same or greater protection – although buyer’s policies are usually more expensive than lenders’ policies. The good news is that title insurance is purchased with a one-time fee, due at closing.

In some states, prices are regulated; in others it pays to shop around. Policies may vary as to what is covered and up to what dollar limit. In some states, you cannot shop around as all the policies are sold through the real estate lawyers  who close the deals (and get a cut). Of course title insurance is a contract with the usual fine print and exclusions, but it is generally money well spent and  protects you against most title problems. It’s a good idea to make your offer are made contingent on your ability to buy title insurance.

Warranty Deed. The deed is the only legal way to prove and transfer real estate ownership in the U.S. There are different kinds of deeds, including the quitclaim deed and grant deed. However the warranty deed is the strongest type. With a warranty deed, the seller guarantees that he is transferring good title to you and will pay to defend your title if it is ever challenged. This is similar to the protection you get with buyer’s title insurance – so either a warranty deed or buyer’s title insurance affords you good protection against title problems.






Comments

  1. Is Letter of Intent Binding?

    Hello. I have found a building lot and made an offer which was accepted. However, the seller cannot close for about two months due to some tax issue. They want to provide a “letter of intent” to say they have agreed to my offer, but I don’t feel comfortable with that letter alone. Is that going to count as legally binding or am I just in for a ride? Is there any other way or documentation I could use to legally bind them?

    • buildingadvisor says:

      In general, letters of intent are not binding. They simply state that two parties have reached a general agreement and will work in good faith to work out the final terms. At a later date, when final terms are agreed to, both parties would sign a binding “purchase & sales” (P&S) agreement.

      Under special circumstances, some courts have enforced letters of intent as binding, but this is not common – and, of course, going to court to enforce this agreement is the last thing you want to do. For that reason, you should not spend money researching a property until you have a signed P&S.

      If you are uncertain about what type of agreement you are signing, a quick review by a real estate lawyer is always a good idea. This is a ultimately a legal question and I am not a lawyer.

      The P&S is agreement is typically used to control a real estate transaction. It includes all the conditions of the sale for both the buyer and seller. It gives the buyer time to so further study of the land (the Study or Due Diligence Period), states the conditions and contingencies under which the buyer can back out of the sale, and specifies the closing date.

      If you are working with a real estate agent, they can provide you with a P&S to sign. You can also obtain one from any real estate attorney. It’s always good idea to have the P&S reviewed by an attorney before you sign it to make sure that it protects your interests – and your earnest money.

  2. Seller Refuses To Refund Earnest Money

    We built a home and gave $5,700 in earnest money. We had walk-through today and it has failed the structure and framing city code four times now. Also they didn’t build the fireplace properly and now they don’t want to refund our money. What can we do? Thanks!

    • buildingadvisor says:

      Whether or not you can get your earnest money back depends on what contingencies are in the Purchase & Sales (P&S) contract you signed, as well as state law which regulates the escrow accounts in which earnest money is typically held.

      I assume you signed a contract with a developer for a custom or semi-custom home and now want to back out of the deal for substandard workmanship. Your contract may not include the type of inspection contingency you typically find in a P&S when buying an existing home. However, since the home you are buying has significant structural, framing, fireplace, and code problems, you cannot be forced to take possession of the home until these things are fixed.

      If after multiple attempts to fix these problems, the contractor cannot get it right, you may have a strong case that the builder has breached the contract, giving you the right to cancel the contract and get your money back. You would need to speak with a lawyer about whether this is feasible. In most cases, the earnest money is (and should be) in an escrow account controlled by a real estate agency or a law firm. State law strictly regulates how these escrow accounts are managed giving you the right to place a claim against the account.

      It would be simpler if you were buying an already built home from a private seller. In that case, your P&S contract would contain some version of the standard inspection clause, and you should be able to get your earnest money refunded.

      I recommend that buyers put a broad escape hatch into any P&S that gives the buyer the right to back out of the sale, or demand repairs, if the inspection reports area “not satisfactory to the buyer at the buyer’s sole discretion.” The buyer has a fixed period of time to hire whatever experts he feels are necessary to inspect the house and property.

      In buying an existing home, you may want to hire an engineer, exterminator, septic system contractor, chimney cleaner, or other expert, in addition to the ubiquitous “home inspector” to inspect specific areas of the house or property that you are unsure of.

      I have had real estate agents pressure me to sign an agreement, as a buyer, that would let me out of the contract only in the event of a “major structural problem” or similar language. Don’t agree to this unless you are very certain you want the property no matter what. Also make sure that your P&S has a mortgage contingency that refunds your earnest money back if the house does not appraise high enough to obtain a mortgage.

      If you are working with a buyer’s broker or a lawyer, they should be negotiating for the return of your earnest money. If you do not have anyone representing your interests, you should contact a local real estate attorney as soon as possible.

      See also  The Final Check    Is Earnest Money Refundable?

  3. Bidding War Strategies & Buyers’ Brokers

    I am trying to buy a building lot…

    In the past I lived a situation where I did my homework.. made an offer for a house at $270K but then the bidders drove up the price to $330K and I lost. But then when the house was appraised only at $275K that high bidder was given the house for $275K. Wrong behavior was rewarded!

    I am in a similar situation now.

    I think that I am a bidder in a multiple offer situation on a lot where I want to build a home. I hired the seller’s realtor as my realtor as well. I have some findings based on which I have to make a an offer which is way below the asking price. I am afraid that the other bidders did not do their due diligence and they will drive up the price and I will lose. When they try to build on this lot they will face the hard reality. If they had access to what I have they would also lower their bids. Is there an addendum or contingency I can use with my offer which will clearly obligate the seller to disclose to all bidders my findings? If the Seller takes the position that “he did not know” can I sue after the sale?

    • buildingadvisor says:

      Being on the losing end of a bidding war is difficult. I’ve been there on a number of occasions so understand your frustration. Unfortunately, there’s not much you can do to prevent someone from outbidding you. The listing broker works for the seller and it’s his or her job to present all bids to the sellers and help them get the highest qualified bid.

      People pay premium prices all the time in bidding wars, prices that are sometimes seem way out of line. Only time will tell whether the high price was justified. A low appraisal by the mortgage lender can sometimes influence the seller to drop the price as you witnessed in the first transaction. On a cash offer, however, the appraisal is less of a concern unless the buyer stipulates that the house must appraise for the amount offered.

      There is nothing to stop you from adding the sort of contingency you describe to your offer, but I don’t think any seller would accept such an offer. Sellers are generally obligated to disclose buried toxic waste and other hidden defects that they are aware of but not financial concerns such as development costs. It is clearly the buyer’s responsibility to calculate these costs and factor them into their bid.

      Finally, you said that you “hired the seller’s realtor as my realtor as well.” The seller’s real estate agent has a fiduciary responsibility to the seller – not to you, the buyer. Most states now allow an agent to represent both parties – so called “dual agency” – but this is a bad idea, especially for the buyer.

      On the face of it, how can one person work in the best interests of two negotiating parties? When a broker is acting as a dual agent,” technically they need to remain neutral and can only work to facilitate the transaction. However, there are inevitable conflicts of interest and either party can end up suing a dual agent for failure to represent them properly. So this is a bad arrangement for agents as well (although they may benefit financially by not having to share the commission). Some real estate companies such as Redfin, prohibit dual agency.

      In many cases, buyer’s think they are being represented by an agent who is really working for the seller – the person paying the agent’s commission. Just because a real estate agent is friendly and shows you lots of properties does not mean they are working for you. Unless you specifically sign a buyer’s broker agreement, the agent is working for the seller and is trying to get the seller the highest price.

      While agents are now required, in most states, to disclose to the buyer that they are working for the seller, or working as a dual agent, this may be in the fine print and overlooked by a buyer excited at the prospect of making an offer.

      By all means, buyers should work with a buyer’s broker, who has a legal obligation to work on the buyer’s behalf. Nowadays, many agents will agree to work this way on a non-exclusive basis and get paid out of the seller’s commission. Some buyer’s brokers want an exclusive contract and some want the buyer to pay their fee, but these types of contracts benefit the broker more than the buyer.

      Having an agent representing you as a buyer is especially important in highly competitive markets like the one you are working in. While there is no guaranty that you will prevail in a bidding war, at least you have someone going to bat for you who may be able to provide you with useful information, strategy tips, and direct negotiations that may give you an edge .

      Best of luck with your real estate purchase!

      • Thank you for your response. This time for this particular vacant lot if I am not late I will make my realistic offer by adding some statements to the offer. Those statements should bring the seller back to reality. However, I realize that this does not obligate them to share the reality with other bidders.

        In regards to the realtors:
        This time I am thinking in the following way: When I was in the market to buy a house my realtor did not add much value other than being there to open the door of a house for me. All research and calculations were done by me. In fact my realtor was in my opinion in my way to talk to the seller’s realtor. My realtor was busy with other clients and I could not have the attention whenever I need to.
        From my perspective the buyer pays both realtors seller’s and buyer’s simply because I am the only one who comes to the table with money at closing. Again from my perspective none of them work for me, they work for the seller because if the property sells and if it sells for as high as possible they make money and as high as possible. I think that this would be the case even if I sign an exclusivity agreement with an agent who will be buyer’s agent. So, I don’t trust them. I can do the research and I don’t feel like I depend on them.

        So, if I believe that no agent is working for my interests anyway this time I am choosing to work with the seller’s agent for every property I am visiting directly. I am paying the same 6% no matter what. When I have one realtor per property I will have a chance to talk directly to the horse’s mouth. I can do my searches directly with realtor.com which is updated every 15 minutes. I will write my offer and contingencies up with a lawyer, not with a realtor.
        We will see what happens.

        • buildingadvisor says:

          Thanks for your follow-up. This is a topic I’ve thought about a lot, having worked with a lot of realtors. It’s often hard to figure out who’s zooming whom?

          You make a lot of very good points. To a large extent, I have drawn the same conclusions after having worked every which way with real estate agents and sometimes without them (in FSBO transactions). It is complex game with a lot of players often working at cross purposes. The better you understand the dynamics and go into this with your eyes open, the better your chances of success.

          In most cases, I have found real estate agents to be hard-working and professional. But you do need to understand their economic incentives to make sense of their actions and advice. My conclusion is that the first priority of all brokers is neither the buyer nor seller, but themselves. Their strongest financial incentive is to complete a sale as quickly as possible, at any reasonable price, but not necessarily the highest price.

          To foster a quick sale, brokers have an incentive to price a house a little on the low side. If a house is overpriced, the broker risks having to wait a year to get that price, or losing the listing altogether. On the other hand, an agent may toss out a high number to a potential client to win a listing, or to “test the market,” assuming they will drop the price quickly if there are no takers. Or it may be the seller who comes up with an unrealistically high price and fails to take the advice of his agent. In any event, you can never assume that the asking price was rationally produced.

          Selling real estate is kind of a wacky business. One broker can show a buyer 25 houses over two months and make nothing. Another can show a house one time and make several thousand dollars. An exclusive seller’s broker is more-or-less guaranteed that they will get a commission eventually, as long as the house sells within their contract period, but how many hours they have to work to make the sale is still highly variable.

          So much of the advice you get from a broker will be advice that will help close the deal – not necessarily get you the highest price as a seller or lowest price as a buyer. Sometimes these currents work for you as a buyer, sometimes against. Here are my thoughts on using your own buyer’s broker vs. the listing broker:

          Going Direct to the Listing Agent. For a sophisticated buyer such as yourself, there are real advantages to going to the listing broker. I have often done the same thing. As you point out, you are closer to the seller with fewer intermediaries, and can sometimes glean useful insights into the seller’s situation and priorities. Information about the seller – why they are selling, how motivated they are, their preferred timing , etc. – is golden. This type of information allows you to craft a bid that is very appealing to the seller even though it may not be the highest number. The agent may even help you craft this bid, assuming you are a qualified buyer and your bid is in the ballpark, because the broker wants your bid to be successful. Then they can get paid quickly and move on to the next sale.

          Another reason the broker wants your bid to be successful is that they will not need to share the commission with another broker in their firm or an outside firm. This type of “dual agency” is not allowed by every firm or every state. You may be assigned to a different agent at the same real estate office, for example, who may work for you as a non-exclusive buyer’s broker. When working with a listing agent or any seller’s broker, don’t divulge any information that would hurt your cause as the agent is obligated to provide this information to the seller. For example, don’t say that you would be willing to spend an extra $5,000.

          In my experience, this approach can break down in a multiple bid situation, or a bidding war. The last time I was in this situation, about three years ago, the listing broker told me that unless I was prepared to make an offer at least $100,000 over the asking price, don’t waste my time. A buyer’s broker might have been able to provide some insight into what was happening behind closed doors, but probably not.

          Using a Buyer’s Broker. Cultivating a good relationship with a leading broker can sometimes get you an edge in a highly competitive market where the good properties are going fast and often for more than the asking price.

          The main advantage of working with a buyer’s broker is that they can sometimes bring you properties that are brand-new to the market or not yet in MLS, so-called “pocket listings.” These are often very desirable properties that the listing agent shares within their own firm and with a few handpicked outside agents for a few days before officially listing the property.

          Or the agent may know of a property about to come on the market and contact the seller pre-sale on your behalf. The buyer’s broker can be your eyes and ears and, as insiders, can help you get an edge. I think this works best if you work with a leading broker in a smaller city or town where the leading agents tend to know just about every property that is coming up for sale, or potentially for sale. You want to be the one they call first when they hear about or see the type of property you are seeking. I have bought a few choice properties this way – at the asking price the day they hit the market or a few days before.

          There are different types of buyer’s broker contracts. Just for clarification, I was only suggesting that you sign a non-exclusive buyer’s broker agreement – either for a specific bid or if you find a broker you want to work with on an ongoing basis. They are still paid out of the seller’s commission as a co-broker. I would not agree to pay the agent’s fee out of your pocket unless you feel they bring you enormous value. Also, I would avoid locking yourself into an exclusive buyer’s broker agreement. On the other hand, if you feel that a broker has worked hard for you and you spot a listing yourself, you might contact them to place the bid for you.

          Having a signed buyer’s broker agreement is no guarantee that they will act any differently, but will nudge an agent in the right direction. For what it’s worth, they now owe you a fiduciary duty to act on your behalf in any negotiation. I have found this to be helpful by clearly defining the relationship. You can ask more probing questions about the seller, and if you reveal any information like the maximum you are will to spend, they are legally obligated not to reveal this to the seller. A seller’s broker is obligated to do the opposite.

          Establishing the Price. It is great that you are doing your own pricing research. Whether a buyer or seller, you have to do your own analysis and should never rely entirely on the advice of an agent. Still the advice of a good, experienced agent working on your behalf can be very useful as they have their finger on the pulse of the market and know what is selling to whom and for how much. As a seller, especially on a FSBO, it is often a good idea to bring in a professional appraiser for a few hundred bucks. Also most real estate agents are willing to stop by and provide a free “market analysis” based on comps – possibly a more realistic number than you get from an appraiser. These are all useful data points in coming up with your own price. In addition, an appraiser’s price can help you justify your number if asked by a buyer: “How did you come up with that price?” Just realize that if you hire two appraisers, you will get two different prices.

          Pricing is more art than science, especially in a changing market. The value of a business, stock, house, or any commodity is not just about the present market value, but also its potential future value. People sometimes pay a premium for real estate because they think the market is about to take off, or they see a creative way to add value to a lot or house. Only time will tell if they were right.

          Bidding Wars. In a hot market with a bidding war, all normal negotiation rules go out the window. Things happen fast and under pressure, often leading to bad decisions by buyers. Unless you willing to enter the fray and potentially overpay by a large margin, it’s best to just walk away once the bid exceeds what you think the property is worth.

          For what it’s worth, I’ve never prevailed in a bidding war — not necessarily a bad thing. A couple of times, I bid the asking price for a building lot and my bid was used by the seller and his broker to motivate another buyer who had long ago walked away. In one of these transactions, I felt lied to by the broker who assured me that my bid had been accepted. The broker told me that the other buyer threatened to sue if the property was sold to me. I briefly considered suing, but then thought better of it. A lawsuit is usually the worst, most stressful and most expensive way to solve anything, so I moved on. There’s always another lot or house if you are patient and persistent.

          Best of luck!

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