Make an Offer

Probably the question I field most frequently is, “How flexible is the owner?” in other words… “Is there some wiggle room in their price?” in other words… “How much do you think they’ll come down.”

My answer is always the same:  Make an offer. You’ll find out very quickly how flexible the owner is.

As a matter of fact, you should be making lots of offers on lots of places. It’s the only way to make things happen. It’s the only way to get the negotiation process started. It’s the only way you are going to find a bargain.

Here’s how I see it.  If you really like a place, then you should always make an offer as long as you can meet the following criteria: a) you are sincere (it’s not nice to mess with people); b) you are making an offer for no more than the property is worth to you (this is not necessarily the market value); and c) you are making an offer for what you can currently afford.

Finally, try to remember that you will always catch more flies with honey than vinegar. Be respectful and polite when presenting an offer – especially if you are speaking directly to the owner. You want them to want to work with you (return your phone calls, take you seriously, etc.). Here’s an example of how I’ve always presented offers in the past: “I think this is a great house (or apartment, or brownstone, etc.). I really love it. I know that the offer I’m making is below asking, but I want you to know that it is a serious offer. I have been pre-qualified for a mortgage and have retained a lawyer and so am prepared to go forward immediately. That all being said, I’d like to offer $XXX,XXX for your house.”

So make an offer!  You’ll be surprised at the results. Thanks for reading, Jim.

The 650 Rule

At least once a week I’m asked by a prospective buyer to estimate the monthly mortgage expense for a specific property. Usually, I look up at my forehead, pause a second, and produce a fairly accurate figure. Sometimes, during a slow open house, I show off by computing the calculation for a number of down payments.

I’m neither a math genius nor a savant. What’s my secret? It’s the 650 Rule and you can use it to do the same calculations in your head. Simply stated, for every $100,000 you borrow, you can estimate a monthly mortgage payment (a.k.a. Principal and Interest) of $650. Borrow $200,000 and your payment is $1300. Borrow $500,000 and you’ll have to cough up $3250 a month. Want to verify it? Just go to any standard mortgage calculator , enter $100,000 for the Loan Amount, 6.75% for the Interest Rate, and 30 years (or 360 months) for the Term. What do you get? OK, admittedly, not $650 spot on, but would you read a post called The 648.60 rule? One other thing, 6.75% is a little higher than today’s average interest rates, but we’re erring on the side of caution.

Remember this estimate is just for the money you’re borrowing not the entire purchase price. For example, you are purchasing a two bedroom Condo in Crown Heights for $500,000 and are putting 20% down. What is your monthly mortgage payment? Answer: $2600. How did I calculate it?

Down Payment = $500,000 X 20% = $100,000
Amount Borrowed = $500,000 – $100,000 = $400,000
Monthly Payment (applying the 650 rule) = 4 X $650 = $2600

There are other monthly expenses (fodder for another post), but the 650 Rule calculates the bulk of your expenses and is a damn good estimate in a pinch. Thanks for reading, Jim.

The Elusive Perfectly Priced Brownstone

Let’s talk about the Elusive Perfectly Priced Brownstone: a rarely seen, near extinct animal that any respectable house hunter would love to bag. Why so hard to find? There are at least two answers to this question. As an agent, I have first hand experience about one of them. That is, once a property hits my desk, it gets advertised at the market price or I’m not doing my job. That’s right, my job! We, the licensed, are all contractually obligated to the seller and committed to selling his or her property for the most money. This is what we do. As a result, we are always inadvertently driving prices higher. Have I ever seen an Elusive Perfectly Priced Brownstone? Sure have. Chances are I’ve seen a lot more of them then you have. That’s because I counsel the owners to sell it for the market price (because that’s my job…). Now that being said, it’s not all my doing. Another factor driving prices up is the Internet. The existence of readily available and frequently updated sales information makes it so that even the casual surfer can accurately value their own home. Bottom line – the vast majority of properties sell for what they are worth.

But not all of them. With a bit of elbow grease, you can find a property below market value. Stir in a little luck, and maybe, just maybe, you can actually find the Elusive Perfectly Priced Brownstone. I bought the limestone my wife and I own for much less than market. It took over a year and I treated the search like a second job. In the end it was worth it. I purchased a great house at a great price. I also learned a hell of a lot. All of which I’d like to pass on to you. Here’s my list of suggestions.

1. Get pre-qualified by a bank or mortgage broker. Don’t worry, this won’t commit you to anything, but what it will do, is give you a damn good idea of what you can afford. This will save you mucho time by focusing your search only on those properties that are feasible for your budget. It will also allow you to act more quickly if you do find a property you want to buy (remember you are not the only house hunter out there).
2. Start looking at listings. The best and most efficient way to do this is via the internet. There are a lot of sites out there, but if you only use the following three, you should be able to cover 90% of the market. They are: The New York Times, Craigs List, and Trulia. (If you find something else cool out there, please pass it on. I’m always looking for new sites). If you are just starting out (and can stand it), do this for 5 to 7 days without answering any of the ads. Just look for a while. This will give you time to soak it all in and get a feel for the market.
3. Go to open houses. The more you do this, the more educated you’ll become and the quicker you’ll be able to recognize a bargain. A cool thing is that some open houses are poorly attended and so the agent hosting the open house has time to answer your questions. Take advantage of this. Brokers and agents are around real estate all the time and are a wealth of information. If the open house is being hosted by an owner, it still may be an opportunity to ask questions, but you should be polite. After all, it’s their home.
4. Find some agents you like and keep in touch with them. At least five, but as many as you can handle. Don’t be disappointed if most of them don’t return your phone calls. They may not be overly enthusiastic about working with you because they won’t have what you are looking for (re-read the opening paragraphJ). Just keep calling them. If they have what you want, they’ll call you back. The smaller firms often have the bargains, so don’t just call the big firms. Another reason for working with many agents is that no brokerage in Brooklyn has access to every listing. Brooklyn doesn’t work this way. Fact is most Brooklyn realty firms don’t share their listings or belong to a Multiple Listing Service. Also, and just as important, no agent can say that they are your agent and that they can show you everything. If they do, they are flat out ly– let’s just say they are being a bit disingenuous, and you should feel free to call them on it. We (brokers/agents) are all contractually obligated to, and working for, the seller. Incidentally, the seller is also the person paying a commission to the agent who has claimed to be your agent. If you are a buyer, you technically have no agent and no agent is representing you — not even your agent (your lawyer is your representative, but that is a discussion for another post).
5. Make offers. When you see something you want make an offer. Make an offer for what you think the property is worth and what you can afford. The only way to really find out if an owner is willing to negotiate is to make an offer below asking price. Don’t worry about offending anyone. If the offer is made to an agent, than that is his or her problem. If the offer is made directly to an owner and they become offended, then they should have hired an agent. I’ve made lots of offers on lots of places and believe me it’s a great habit to get into and the only way you are going to make something happen.
6. Repeat Steps 1 through 5 frequently (at least once a week).

Here are two more caveats I learned the hard way.

• Look for problems because problems can be fixed. When I bought our limestone, it had an illegal apartment in the cellar, the cellar had extensive flood damage, and the garden apartment was occupied by a section-8 tenant. These things scared a lot of people away, but it gave me an opportunity to purchase the property for a good price.
• Hire an attorney before you start looking. I’ve seen more than a few deals fall apart because prospective buyers needed extra time to find a lawyer. By the time they had hired someone the seller went ahead and found another buyer. Better to be prepared before hand.

That’s it for now. Please feel free to email your questions or even your own favorite tip. Thanks for reading, Jim.