Considerations When Making an Offer on a Home

You want to make an offer on a home and the listed price is $300,000, what do you offer? There are many factors that you need to take into account when offering a price for a home.

First, consider your intentions. Is this a home that you plan to live in or is this an investment property? If this is a house you plan to live in, you want your first offer to be lower that the list price, but not so low that the offer is flatly rejected. If you plan on living in the house for a long time, it may not matter if you pay the list price because you will make that money up and more due to appreciation over the years. However, be wary not to pay more than the home’s worth. You never know when you may need to move and you do not want to lose money on a quick sale.

On the opposite side, if you are buying this home as an investment property, shoot for the fences. In other words, if the list is $300,000, you may want to offer something like $230,000. You would offer this lower amount because you want to maximize your return.

Second, consider the seller’s intentions. If the seller is in a dire financial situation (similar to the current situation facing many home owners in this market), is facing a divorce, obtained an out-of-state job, or something like that, the seller will be more motivated to sell, and thus would take a lower price if you offered a shorter escrow. This would work out for you regardless of your intention.

However, if the seller is selling an investment property, the price is probably going to be firm. In this situation, if you have considered your intentions, (you already know the seller’s intentions at this point) your last consideration is the house’s appeal to your intentions.

Last, consider the home’s appeal based on your intentions. In other words, if the home is a “perfect” family house in which you and your family are going to live for many happy years to come, you may not care if you pay the price listed. If the house is a “perfect” investment property, you may, once again, not care if you pay the list price. However, if the home is just another property that really does not impress you, move on.

Your intentions are most important because they will dictate your next course of action. Know your intentions, find out the seller’s intentions, the make a low offer or list price offering as applicable.

What is the Difference Between a Real Estate Broker and a Real Estate Agent?

As articulated to me by my real estate teacher before I obtained my real estate salesperson license, “the agent is scum and the broker is god!” This is a very important lesson to learn. The problem that most aspiring licensees have is that they are under the false impression that once they receive a license, they have free reign to sell any property and represent any client that they see fit. The truth is, agents are nothing without their brokers. A licensee cannot sell any property or any timeshare, nor can he/she represent any client without the consent and involvement of the broker.

Educational requirements are another difference between an agent and a broker. In order to obtain a real estate salesperson license (depending on the state in which a license is obtained), a person usually need only show proof of having taken a specified number of hours of real estate classes and pass a test. However, the requirements to obtain a broker’s license are far stricter. First of all (once again, all states are different so check your local laws), brokers usually need to have completed a specified number of college credits in specified subjects. Additionally, to sit for the broker’s exam, a person usually needs to have worked full time as a real estate salesperson or real estate broker/salesperson for two years during the last five years. Also, the broker’s exam requires an additional fee that is usually higher than the exam fee for a real estate salesperson. Last, some states provide an exception to the requirements of work experience and college credits for a broker’s license if the applicant has obtained a bachelor’s degree from an accredited university. Some states waive the experience and educational requirements if the applicant is a licensed lawyer. However, absent spending the money and time to successfully complete law school, most applicants will have to meet the educational and experience requirements.

The preceding paragraph begs the question, “If sitting for the broker’s license requires all of those additional qualifications, what is the advantage of having a broker’s license?” The main advantage of having a broker’s license is money! Let us be realistic about the real estate business; I am sure that it feels great to help a person buy their first home. However, if a person wanted a job solely for the good feeling, becoming a real estate agent or broker would not be near the top of the list, if at all. People become real estate agents for the money. Real estate agents can make a lot of money through commissions. However, the broker that employs the agent will always make more. The best way to become rich is to make money of the efforts of others. Brokers usually collect anywhere between 10% to 50% of the agent’s commission. Now, if a broker employs ten agents, that broker is making money off of his/her efforts and off the efforts of ten others. Real estate agents cannot do this, therefore, would you rather be a broker or a real estate salesperson?

Before you answer that question, it is important to note the liability issues with brokers. A broker has a duty to supervise and train agents, therefore, if the agent messes up, the broker could be held liable along with the agent. Back to the example of the broker that employs ten agents; that broker has the possibility of being held liable for the mistakes of ten people whereas a salesperson can only be held liable for his/her own mistakes. The broker in our example may get ten times the monetary benefit, but, in return, he/she has ten times the liability issues.

In the end, if the broker is competent, the liability issues can be easily avoided (also helping a broker in this task is the fact the most states require a continuing education requirement where a salesperson has to take “refresher” classes every two years in order to renew their real estate licenses). Therefore, although harder to obtain, if you possess the necessary qualifications, the monetary benefits of being a broker outweigh any potential liability issues.

Multiple Streams of Income: Real Estate as a Business

Many entrepreneurs get their start in the real estate business. The real estate business can be extremely lucrative, you just have to know what, where, and how to get in. The real estate market, like so many other businesses, is cyclical. You have to know how to survive and be profitable in the bad cycles in order to create the wealth that is truly befitting an entrepreneur.

First and foremost, before you jump headfirst into real estate, you have to learn about the business and the market. Many would be entrepreneurs are hypnotized by the lore of getting rich quick. They think that every deal that they come across is the next million dollar investment. You can not be “star struck” by every real estate deal that comes your way. You have to carefully analyze every deal and even call in a second opinion when necessary.

As I mentioned, you have to know the market. Many entrepreneurs make the fatal mistake of jumping into the real estate market when it is “hot.” This type of market is called a “seller’s market.” You will know when the current market is a seller’s market by, amongst other things, dramatic raises in real estate prices occur. People think that this is the best time to get into the market, but this is simply not true. This is the time when you want to sell, hence the name “seller’s market.” It is simple economics; when more buyers exist than sellers, sellers can raise the price of their property and thus get more return on their investment.

In the worst case scenario, which occurs more often than you may think, would be entrepreneurs buy all their investment properties in a seller’s market. Once the market cools off (as it inevitably will), these would be entrepreneurs find that their investment properties have negative equity and the mortgages or obligations to investors become too expensive to bear. They end up losing their properties and their investment dollars.

The best time to buy is when the market is in the toilet. You can get property cheap, and if you have the knowledge, money, and time, you can follow the most well known real estate money making formula: (1) Buy, (2) Improve, (3) Hold, and (4) Refinance.