The media is abuzz with news of springtime in the housing market! Headlines trumpet:
Sales And Average Home Prices Are On The Rise Again!
Bidding Wars Are Back!
Good times appear to be back in real estate land and you will soon see your local Realtors rolling around in the hottest and newest automobiles again (we don’t use the lowly term “cars”- that’s recession terminology). Real estate school enrollment is up and the housing market is sizzling.
And you’ve been holding on to your rental properties tightly, making the repairs, paying down the loan, and living the ups and downs of your tenants’ employment statuses for the past 6 years. It’s been tough, but now it is time to get rewarded, right? Based on news reports, it is time to sell your rental homes and make some dough.
Or is it? As always, that depends.
The homes that are in bidding wars where buyers are making above asking price offers are typically in high-price, highly desirable areas, which are not where most rental homes are (it’s OK- those homes are tough to get to cash-flow on a long-term basis anyway). But what about the average rental homes that we hold in our portfolios? Can we sell them now?
One type of buyer that is very active in the market now says, “Yes, but not for the price you want. But not so off the mark that you won’t consider our offer.”
This type of buyer is the big institutional investors (Big Buyers) who are invading the local real estate markets armed with tons of cash. They employ some real estate agencies to find affordable homes for sale, send lowball offers (typical haircut of 30% from what I’ve seen), and snap up the ones that accept.
I view this positively. Besides the obvious disadvantage of below asking price offers, they bring a lot of advantages. They pay all cash (it’s so nice when financing snags doesn’t crush deals in the last minute), close quickly, don’t ask for closing costs, and don’t ask a lot of questions. They are really easy to work with; the deals happen rapidly and easily. The only real question is if the price is acceptable to both parties.
So how does this work in practice? Here are 3 examples on 2 houses we listed for sale (some details have been changed slightly):
House #1: On market for $89K
First big buyer (BB #1) offers $55K
We counter at $94K
BB #1 doesn’t dignify our counter offer with a response
BB #2 offer on house #1: $70K
The same day we receive word we have another offer coming in
We inform the BB #2 of the other offer and ask if they would like to submit their best and final offer
BB #2 responds that $70K is their final and best offer
We let them know the other offer was accepted and theirs was declined
House #2: On market for $105K
BB #3 offers $85K
We counter at $104K
BB#3 comes up to $90K
We counter at $100K
They come in at $95K final offer
Offer accepted at $95K
The BB’s are looking to accumulate properties and are not looking to nit-pick on repairs. Sure, if something is majorly flawed, they will ask you to fix it and/or cancel their offer. But the small repair requests that are typically negotiated by owner-occupants aren’t asked for; the BB’s just fix it up themselves. As stated previously, when the price is agreed upon upfront, the deals typically fall into place easily.
To sell or not to sell? That is the question. But, for average rental homes, be thankful it is now an option!
Brett Furniss is President & Owner of BDF Realty (Charlotte Residential Property Management), the trusted real estate advisor for
landlords, managing single-family
homes, condos, and town homes in the Charlotte-Metro Area. BDF
Realty’s services include property management, home fix-ups, and home sales,
including Rent-To-Sell (“When You Need
a New Solution to Sell Your Home”). His
newest book is A Real Estate Agent’s Complete
Guide to Representing Rent-To-Own (Lease Option) Tenants (Delight Clients, Fill
Vacant Homes, and Earn $2,250* Upfront! (*Minimum!) which is available
on-line now. Charlotte