How Much is Too Much?

Posted by Dan Connolly on August 19th, 2008

Well I hear that question a lot! In fact that is probably the single most important question in a Realtor’s day! And I am here to tell you that there is no easy answer. There are some easy questions, that may help you figure it out, but no easy answers. Everyone’s brother tells them not to pay more than 50 cents on the dollar, and to try to get it for 30 cents. But there is something important to understand about rock bottom bargain deals!

Bargains smell like cat.

One of the unfortunate truisms is that there is no free lunch. Yes there are occasionally some killer deals that are in great shape, but the best bargains smell like cat. Well not all of them, some smell like mildew, or need every surface cleaned and painted, foundation work, roof work, mold remediation, and asbestos removal. Some have problems that are tougher to fix; like they back up to the all night bowling alley, or the train, or the power lines, or the expressway. The best deals have rotted gutters and roaches, no insulation and building materials that have been targeted by class action lawsuits. The very best killer deals have the floors caving in. I know you think I’m kidding but I am not. Truthfully there are some pearls that need no repair in this low tide of polluted mollusks, but be forewarned that there are hoards of folks just like you out there looking for them as well. The average low priced foreclosure is pretty beaten up. So it begs the question, can you take a sow’s ear and make it into a silk purse? Are you willing to invest either the sweat equity, or the time it takes to manage others to take care of the issues? So that takes us to the First easy question: Do you like fixin’ stuff up?

Timing is Everything

Is this a stepping stone to bigger and better things, or is this where you plan to live for a long time? It is important to establish this, but not just according to your wishes, but your realities as well. Is your job likely to change? If the company you work for went out of business, could you find another job locally? If an incredible opportunity in a different city opened up could you resist? Are you sure that you may be here for the next ten years or so? Are you single or married? If you are single would you change cities for the ideal mate? If your married, do you get the sense that it is going to last for the duration? Why is this important? Because if you know that there is a chance that you may have to move in the next couple of years it will really affect what you should pay for a house. We are not in an appreciating market, yet there are costs that will be incurred each time you sell, so if you buy now and you may need to move soon you’d better be sure you get a slam dunk killer deal. That takes us to the Second Easy Question: How long will you live there?

Are you an Ant or a Grasshopper?

Understanding you motivation for the Purchase is an important bit of knowledge that will help you make the right offer. If you are an Ant and your house is a home, a castle, a refuge from the wild world, a place for family dreams to flourish and for community ties to develop, you may have different needs in determining how much to pay than the Grasshopper. The grasshopper doesn’t get emotionally involved with their house, for them it is simply a place to crash, sleep, eat, and launch back into the world. Gardening and decorating don’t matter, only the investment vehicle and a tax deduction. The grasshopper looks at the price first and foremost. Mr Grasshopper won’t buy the house that reminds him of his favorite childhood home if the price isn’t a killer deal. If your real goal is to relax and live in the house for a number of years, and which house it is, is very important, then don’t make it all about money. Here comes the Third Easy Question: Why do you want to buy a house?

Who do you like better Nancy Grace or Walter Cronkite?

So it’s very difficult for the average Buyer to know what to do! If you believe the bobble headed news anchors, the sky is falling, the sky is falling, and at eleven they have a report on really breaking news, which is that the sky is falling. Real Estate is local, not national. Some parts of the country are doing great and some are sliding into the volcano. National news needs to step away from the hype. In a smaller level local market, like… say Atlanta GA, some areas are doing great and some are really suffering. So the decision of how much to offer for a house, has a lot to do with the subtle neighborhood factors like the quality of the schools, the crime rate, and whether the area has charming historic architecture. If the neighborhood offers galleries, restaurants and coffee shops, within a short walk, and is it an area where people really want to live, it may be worth considerably more. Some people will pay considerably more for these things. Public transportation, traffic, taxes, access to public parks and recreational areas, all make some areas much more valuable than others. How do you figure out how much to offer? Well everyone has a friend who will tell them not to offer more than 50% of the list price of any home that they want. They forget that most Sellers pull their prices from… uh, the air. We hear about the crap market in every news media out there. So it would make sense to lowball everyone right? Well maybe it is not, if you are an ant who has no plans to move, who doesn’t want to fix anything up, and who doesn’t think Nancy Grace always knows what the hell she is talking about. There is no concession or agreement by any of the talking heads, economists, politicians, financial consultants, presidents or special task groups of when the market will recover. But they all seem to agree on one thing that eventually it will recover. So at that point when inflation has us paying $10 a gallon for gas and $7.99 for a loaf of bread, I think the well maintained updated charming home in a great neighborhood that is a local favorite will probably recover nicely. Probably better than a dumpy home in a more marginal area that was bought for 50 cents on the dollar. And finally Fourth Easy Question: When will the market recover?