Jon Lafferty:
Hey, everybody. Welcome to Avoiding Real Estate Turbulence podcast. This is your pilot, Jon Lafferty with Century 21 Town and Country.

Tony Abate:
And co-pilot Tony Abate with Ross Mortgage, and we are your real estate pilots. Our job is to be your real estate advocate, and also make sure you’re educated about the buying and selling process. We’ll keep you informed throughout until we get you safely closed.

Jon Lafferty:
In real estate transaction, there are many reasons why you can encounter turbulence. Today, we’re going to talk about the kind of turbulence that happens when a buyer falls in love with a house, and wants to write an offer, and doesn’t know what to offer.

Tony Abate:
Yeah, yeah. It’s an interesting path it seems like that buyers go down. It’s both emotional, and mathematical, and financial. They all play in, and Jon, I think when you referred clients to me on the loan side, we go through a lot of the numbers, and so people are thinking of the numbers, and then very often the question circles back to me, “Well, we like this house on 123 Elm Street. They’re asking 220, what should I offer?” And immediately, the stay in your lane light starts blinking in my head, and we talk a little bit about how things go, and there’s not an automatic reduction in asking price versus offer. And of course, referring back to the experts yourself and say, goodness, it all comes down to how motivated you are, but then also where’s the price in the market?

Jon Lafferty:
Well, and that question invariably comes up to you a lot because they’re curious what’s my payment going to be? With taxes and insurance, what am I looking at monthly payment wise? And so, I think that question it comes up to you sort of by default of, well, so it’s listed at 220. What do you think we can get it for? And then, can you run the numbers for us? When it’s kind of out of order, right? They should be talking with you to kind of figure out a scenario of maybe a range. If I offer full price, what’s my payment going to be? If I offer this, what’s it going to be? So, just for their own knowledge. And it’s good that they do that because they should know kind of what they’re looking at. So, that’s good, and I would not discourage a buyer from doing that who wants to know what they’re looking at.

Jon Lafferty:
But there’s a lot of factors obviously that go into what you should offer on a property. And if it’s a day on the market, good luck getting a discount from list price on that property. If it’s been on the market for awhile, well, there may be some room to negotiate. There are different reasons why things are priced the way they are. Sometimes it’s a matter of reaching out to a listing agent to find out what the seller’s motivations are. If they’re willing to share that. Some listing agents don’t share anything, and are incommunicado, and they do their seller a disservice by not answering phone calls or calling people back.

Jon Lafferty:
And then, other times you have realtors that are very willing to talk. Not that they’re doing anything to breach the confidentiality with their seller, but to be able to have a conversation just to figure out what the seller’s doing, and why it’s priced at where it’s at, especially if it’s been on for a long time.

Jon Lafferty:
Now, one of the things though that I like to do for my clients is run comparables. What’s sold recently that’s similar? Sometimes an area, let’s just take Royal Oak for instance. Royal Oak, you typically have a lot of comparable properties that have sold in and around the area. So, pretty easy to know what a comparable is. And even though I may be really, really familiar with an area, I still want to just double check real quick just to make sure what we’re looking at, apples to apples.

Jon Lafferty:
Every house … Now, one could say that the bungalows in Royal Oak are all cookie cutter. They’re all the same. Not so. some of them, well you know, our mutual friend and client who bought a bungalow in Ferndale. Now, one could say every bungalows is similar in Ferndale, but have you been in his house?

Tony Abate:
I’ve seen pictures only. You would never guess from the outside, yeah.

Jon Lafferty:
So, that bungalow is phenomenal. It’s like when they replaced the roof, they blew it out and went up in an additional three or four feet. The pitch on the roof may be a little more so, but the room that you have in there now, and they put in a master suite, you’d never know that if you went in there. How do you place a value on that? So, you actually have to go back and dig, and look for something similar, and figure what’s the value proposition that something like this brings?

Jon Lafferty:
Now, in that instance, that house was priced at 245, and we offered 260. Now, this is a year ago.

Tony Abate:
Yeah, right, right. Different market.

Jon Lafferty:
Different market. And it appraised for that amount. So, how do you know that, right? Now, most people would bump it up a little and figure they’re going to have out of pocket, but I felt confident that we would be able to cover that.

Jon Lafferty:
So, looking at comparables really can help you determine where you should go with a price, especially when there’s multiple offers on a property. And multiple offers are still happening with really special properties. With properties that need some updating and some other things. Maybe where the location isn’t so great or perfect. Those ones are sitting a little longer.

Tony Abate:
Higher end of the market, too, right? That’s always-

Jon Lafferty:
Yeah, yeah, yeah, yeah. Higher end of the market as well. So, it’s all about having that discussion, and seeing, what, if anything, you can find out from the listing agent. Again, some of them are a brick wall, and they won’t call you back, they won’t answer your emails, or even text with you. And so, what are you left to do? You have a buyer who wants to write an offer on this property, and doesn’t know what to offer. So, they’re looking to you for guidance. So, that’s where your experience of, okay, how long has it been on the market? What else has sold in the area? Okay. They’re not calling me back. They’re not responding. Okay. So, we’re going to have to make some assumptions, but I still want to be able to protect my clients. So, we’re going to have that conversation, and we’re going to talk about comfort zones. We’re going to talk about how much they really like the home. And we’re going to have those conversations, and we’re going to come up with a number, and we’re going to submit that on their offer.

Tony Abate:
Yeah, yeah. It seems to me that this is one of those situations, and I’m no engineer, but I think that my brain is kind of wired like an engineer, albeit at a faulty level. And so, it seems like one of those buying situations where a buyer has to acknowledge that as far as how much to offer, you can get maybe 70 or 80% of your questions answered, and then you have to make a decision without having 100% of your questions answered.

Tony Abate:
So, you can look at the comps, you can look at time on the market, you can look at improvements or lack of improvements. But when it comes down to, well gee, what’s the seller’s pinch point? What’s his motivation? There’s just no good way to know. And I think that’s what perplexes some buyers. They feel that there’s a magic formula, or a magic savvy investor way to make that. And part of it is just trial and error, isn’t it?

Jon Lafferty:
It is. That’s funny, savvy investor.

Tony Abate:
Yeah. Well, I think consumers think that way. They think, well, I don’t do this every day. If I was a real estate mogul, I would know exactly what to offer, and it just doesn’t work that way.

Jon Lafferty:
And it’s not true.

Tony Abate:
Right.

Jon Lafferty:
There’s a lot of investors that everybody thinks are savvy, and invest in properties over and over, and have a return. But you know what? You and I both know that real estate investors, that margin isn’t huge. Every now and then an investor may fall into a tub of butter, and look like an absolute genius because they made a big profit on this house, but that same investor can get a little cocky, and turn around, and make a gamble on another house, and lose their shirt.

Tony Abate:
Yeah, yeah, yeah. I think the message is that there just isn’t a magic bullet. You come in as educated as you can. It does two things I think. It lets the consumer feel comfortable that they’ve at least analyzed the data that’s out there. That’s the first thing. And then, the second thing it does, it kind of makes your offer defensible. You can say this is our number and here’s why. We’re seeing this, this, this in the market, and that’s putting your best foot forward.

Tony Abate:
But at the end of the day, the seller is either in a real hurry and needs to accept the offer as quickly as he can, or the other end of the spectrum, right? He’s just kind of feeling out the market, and if he doesn’t know his number, he can just wait. And that’s what there’s no way to really tell where that seller’s head is at, and there’s just no magic answer, is there?

Jon Lafferty:
No, there isn’t. It’s a really good point. And so, sometimes you just have to submit something, and the response kind of tells you where their head is at.

Tony Abate:
Right. Yup.

Jon Lafferty:
There are situations where if a seller’s not motivated, if they don’t have to go anywhere, and the value of where something is, and what they’re asking, and there are still sellers out there who here’s the value range, and they are 10, 15, 20, 25% above that, and it’s not justifiable, and it makes no sense.

Jon Lafferty:
And so, you have to have the conversation with your buyer, “Look, I know you like the house, but there’s no way in hell this thing is going to appraise.” And that’s what we have to take into consideration is is it going to appraise? Are you willing to bring 20, 30, 40, $50,000 to the table to buy this house? Well, if money is no object, then maybe it makes sense for them to do that because they have a vision for what they’re going to do with that house, but for your normal, everyday buyer, it’s not feasible. It doesn’t make sense. And why would you overpay that much?

Tony Abate:
That’s a big part of it, isn’t it? The appraisal is certainly an important element, but then it’s also we want to at least give the buyer the tools to not overpay when they don’t have to because a seller can go at the market any price they want.

Tony Abate:
And I think one of the conclusions that some consumers make that’s not accurate is you’re always going to be able to obtain a home for less than what it’s listed at. And that’s just not a true statement.

Jon Lafferty:
No, it’s not.

Tony Abate:
But I think a lot of consumers have that in their mind. And it’s more of a function of, well, where are we starting at? If they’re already below market, then not only could you and should you offer list price, you’re probably still getting a good deal.

Jon Lafferty:
Yeah. That’s right. Well, and what are people hearing on radio, and television, and what are other agents out there telling all the buyers right now? It’s a buyers market. It’s a buyers market. So, people who are buyers take that as, “Oh, well, I’m wearing the pants on this one, so you’re asking 200? Here’s 160. Dance for me, monkey.”

Tony Abate:
Exactly.

Jon Lafferty:
For lack of a better word.

Tony Abate:
Right.

Jon Lafferty:
But you understand what I mean. And I try to explain this to buyers that I work with, offer them 40 grand under, or let’s just say 20%, 15%, 10%. Now, it depends on the circumstance, but I’d say if it’s a normal, owner-occupied home, and maybe it’s outdated, but it’s priced pretty competitively. And I have that conversation, and the response is still, “Oh, let’s offer 20% under and see what they come back at me with.” And of course, my advice is not to do that because of there could be some consequences to that. Do you really like this home? “Yeah. Yeah. We really like this home.” Do you really want to buy this home? “Yeah. Yeah. We really want to be buy this home.” Don’t do this.

Tony Abate:
Yeah. Do you really want to play at that point? Yeah.

Jon Lafferty:
Don’t do this because if I … And usually I’ll give the listing agent a call and say, “Hey, look, we’re going to come in low. You think the seller is willing to negotiate, or do you think we’re playing with fire?” And if they say you’re going to be playing with fire. If you come in at a low number, I don’t think the seller’s going to respond. In fact, I know they’re not going to respond, and anything that comes from your buyer after that, I don’t care if he jacks it up 10 grand, 15 grand, 20 grand, they’re going to tell your buyer to go pound sand no matter what your buyer offers. Even if your buyer comes back at full price and says, okay, here’s a full price offer. They’re not going to take it.

Tony Abate:
Yeah, yeah. They’re still having their feelings hurt, and they’re not done with that.

Jon Lafferty:
Their feelings hurt. Plus if I’m a listing agent, what am I saying to my seller when I get an offer that’s 20% under? Hey Mr. Seller, we got this offer for 40 grand under your price. 20% let’s just say. 20% under your asking price where I think you should sell. What do you want to do? Do I have to respond to that? No, you don’t have to. Yeah, let’s not respond. To hell with them. Oh, they came back. They’re closer. They’re within 10%. What do you want to do? To hell with them. Oh, they came back. They’re at full price now. What do you want to do? Well, what do you think I should do, Jon?

Jon Lafferty:
Well, here’s my problem. They started this low. Now, they’re up to where you are listed. You know what I think Mr. Seller? I think that this buyer is going to come in and grind the hell out of you on inspections, and tie you up, and make a big deal production about certain things. Said a buyer who feels jilted by having to come up to where list price is usually isn’t a good thing.

Tony Abate:
That’s a good point. Yeah.

Jon Lafferty:
So now, that conversation is relative, right? Because if we’ve been on the market for a hundred days, well okay, let’s maybe look at this differently, and maybe we can tighten up this purchase agreement so that they’re not weaseling. They try and get more money out of you on inspection and tying us up. But if it’s been a short amount of time, I think that’s the conversation I’m having with my client to advise them, “They’re going to try and tie us up. Let’s be really careful and tread carefully here.

Tony Abate:
Yeah. Yeah. Well, I think the other risk for a buyer is if you want to “play the game” and get into a bidding war, it only takes one other buyer to come along with a more attractive offer for that seller to turn his back on you and say, “You know what? This is the one that I was waiting for. So, have a nice day, buyer number one.” I think you hit the nail on the head. If this is the house that that buyer really likes, then they owe it to themselves get those wheels turning to get an accepted offer, right?

Tony Abate:
And it’s just it’s what are you parlaying with here? Goodness, this is your home. This is a roof over your head. And people don’t wake up on a Monday, decide what they want, and buy it on a Tuesday. There was a lot of thought into it. A lot of deliberation. A lot of painstaking analysis. It’s not the time to kind of screw around and play The Price is Right I think.

Jon Lafferty:
It’s not. But I will tell you, have there been buyers that I’ve worked with over the last let’s just call the sellers market the last four years, okay? There have been buyers that I’ve offered this advice to, and they’ve said, “Nope. We’re going to go here. We can always come up, right? And let’s see what the seller counters us with.” And I say, “Okay. Well, you’re the buyer. You’re my client. You’re the one that’s going to decide what to offer. I’ll write it up and send it to you.”

Jon Lafferty:
And in my head I’m saying, yeah, we’re going to get blown out. Not going to get the house. And they’re just going to have to accept that. And invariably, it doesn’t work out. We lose out on it. Somebody comes in underneath us and buys it out from under us, and in the back of my head, I say, okay, they lost one. That’s learning experience number one. They lost one. Maybe they didn’t take my advice because they didn’t really … We didn’t have that rapport, and maybe that full trust that develops over time as they get to know you, and know that I have their best interest at heart, that I’m not trying to inflate a price on them, that I have the experience and knowledge to give them the best advice possible.

Jon Lafferty:
And look, there’s plenty of times where they’ve fallen in love with a house, and I go back and look at comparables and say, “Oh Christ, this thing’s 30 grand over price. There’s nothing to justify this price.” And I say, “Guys, there’s nothing here to justify the price.” And the knee jerk reaction is, “Okay, well let’s offer them 30 grand under where they just listed.” And of course, the reality is, well, you can offer that, but they’re not going to accept it because in their head they’re priced where they should be. So, those homes, we watch, and watch them float down. And eventually when they get close, we go out and strike.

Jon Lafferty:
Now, sometimes some of them don’t make it, but what you find is that that house that was overpriced, and just kind of sitting out there they forget about because there’s something better that’s come along, and they see the value in another home. They’re getting more for their money, and they realize a better value. So, that education along the way for a buyer is invaluable.

Jon Lafferty:
And so, you see this especially with first time home buyers. With first-time sellers and second time or move-up buyers, not so much. They’ve gone through it once, they’ve worked with you once, they understand how you work, they understand that your advice is really crucial. And so, they lean more on you and trust you. That doesn’t mean they’ll always take it, but I think that the trust is there. So, you see that a lot with first time home buyers.

Tony Abate:
Yeah. Yeah. So, really all we can do is fill their toolbox as best we can. Give them the guidance, give them the data, give them the tempo of the market and what’s going on, and then just help them make that decision. That person who fell in love with the house that is $30,000 over value, to them it may not be overvalued, right? It’s kind of in the eye of the beholder.

Tony Abate:
And so, I think the takeaway that I’m hearing is really two things. It’s there may be more than two. There’s no magic recipe. Each home, each transaction kind of has its own heartbeat and pulse. Number two, and maybe that’s most important, listen to your realtor for crying out loud. You got tons of information that is customized for the buyer that is not so readily available from mom, dad, Google, and all the other people that are more than happy to help people spend their money, right? And you got to kind of keep your eye on the ball as far as what are we looking to accomplish? This was the house that we want. Okay, we don’t have the ability to play games because this is what’s going on in the market. There’s no flat recipe of here’s how you should make your offer. This house, it’s one thing. For the other house, it might be entirely different.

Jon Lafferty:
100% true.

Tony Abate:
Yeah. Yeah.

Jon Lafferty:
And so, there have been times, and you’ve worked with clients who have offered above list. And so, sometimes you have to have the conversation with them that this is the house. They have to have this house, and they’re willing to cover a spread. And we went through this for several years where they would guarantee a price for a seller up to a certain amount, and they would cover that difference.

Jon Lafferty:
Well now, that’s still kind of happening in the first time home buyer price range. It’s still happening, multiple offers, and on other properties that are priced really competitively. You’re still seeing that, multiple offers. But now, with those houses that are priced a little above, but somebody falls in love with and has to have, there’s a different conversation that a buyer agent needs to have now on behalf of their buyer with the listing agent. The comparables just aren’t supporting this price.

Jon Lafferty:
Did you see anything differently? What comparables did you use to establish a price? “Well, I told the seller that this was the price range, and they wanted to start here.” “Okay. So, what do we do if we have an appraisal problem?” “Well, I don’t know. Your buyer may have to come to the table with …” “Okay.” Or, “We’ll work with you. Don’t worry. We’ll figure it out.” Okay.

Jon Lafferty:
Now, those are two conversations, and I’m going to go back to the buyers and let them know that I’ve had. Either A, if there’s a shortfall, it doesn’t sound like the seller’s going to budge. You may have to come to the table with cash, and what I’m looking at right now is there may be a five to $7,000 shortfall. What do you think? what do you want to do?

Jon Lafferty:
And converse to the other conversation. Looks like the seller may be willing to come to the table with some cash to help offset if we end up short. Now, I know you don’t have a crystal ball, and I certainly don’t have a crystal ball when it comes to value and getting inside the brain of an appraiser, right? Neither of us do. Sometimes, a lot of times, we’re pretty accurate of where we think value’s going to come in. And then, there’s every now and then we’re one is just, “Where did he pull that rabbit out of a hat?” Yeah.

Jon Lafferty:
But one of the things I wanted to ask you, and I’m curious about this, so we always have the problem when there’s a shortfall. When the appraisal is not an issue, when value isn’t short, everybody’s mom on what the value is, right?

Tony Abate:
Absolutely.

Jon Lafferty:
Especially if it comes in over. So let’s just play with this for a second. So, you have a purchase price of 175, and let’s say that the appraisal comes in at 185 okay? So, you’ve got $10,000 out there. Somehow, some way seller gets wind of this and says, “I’m not selling my house for that. You, Mr. Buyer, need to …” or let’s back up. The seller’s never going to find out about that. Let’s say the buyer decides, “Hey Tony, I’ve got $10,000 in extra equity. Is there anything I can do to get value from that to maybe do some improvements to the house? Or is there somehow some way where we can play with that to my benefit?

Tony Abate:
Yeah. Yeah. The quick answer is no, and the reason is is that as lenders, conservative lot that we are, we’re going to define value as the lesser of the appraised value or the sale price. So, we have that sale price at 175. We’ve got the appraisal of 185. We’re still looking that 175 figure right in the nose. And so, that’s just not something that we can work with.

Tony Abate:
Now, if somebody were to say, “You know what, Mr. Seller? I’m going to offer you 180, but I want you to pay $5,000 in my costs. I want to modify the offer to do it that way.” What happens then, now that buyer is bringing a smaller check to their closing. Their down payment went up incrementally, but their $5,000 concession is dollar for dollar. They bring that much less money to the closing.

Tony Abate:
So, they could leverage it in that fashion. I think that’s a very … the planets have aligned just right for that to happen. The other thing that it can do is it can kind of set the tone that says, well, after the dust is settled and I want to go to get an equity loan, the bank might look a little more favorably because there’s already a higher value. The dangerous is it’s a higher value in the eyes of that one appraiser. And my goodness, how many times do we see it? The ones that we think are going to be a challenge, the appraisal comes in fine, and the ones that we think should be a no brainer, we struggle with the appraisal. It’s just one professional’s opinion of the value of that home.

Tony Abate:
Unfortunately, it’s the pivotal opinion on how the deal comes together. One thing I’ll say on that, because this whole strategy thing is such good information for consumers. When we get into those multiple offer situations, so one of the things that gets risky, and you brought up the multiple offer scenarios, is … and I have to believe you’ve seen this on your listing. Not only does an offer come in high to beat out the other offers, but it comes in obnoxiously high. It’s like, what are these buyers and agents thinking? And then, I will tell you, sometimes the conversation comes to me as the lender, and the person says, “Yeah, we beat out all the other buyers, and we’re pretty sure the homeowner’s going to appraise low. So, we’re banking on a price adjustment when that low appraisal comes in.”

Tony Abate:
Now, all the might point to that, but the reality is there’s no assurance what that appraisal is going to come in. And then, what happens when it appraises at that high price, now everyone’s like what the heck happened here? We thought we were going to be able to negotiate this down. That’s a bad strategy.

Jon Lafferty:
Oh, it’s an-

Tony Abate:
Terrible strategy.

Jon Lafferty:
… awful strategy.

Tony Abate:
Yeah, yeah. Look at the irony it creates. It creates a buyer who is upset because their home value is higher than they thought.

Jon Lafferty:
And awful strategy used by an awful agent is what I would say.

Tony Abate:
Yeah. Dead on. Am I right? Have you seen it though? Sadly, yeah.

Jon Lafferty:
Sadly. There is this realtor I used to work with who would always get himself in pickles, and we used to enjoy watching him twist himself into pretzels, trying to weasel a way out of it, and point fingers in every other direction but right back at where himself. And we used to, you know, we were in offices, so we could hear each other’s conversations, and we would all sit back and wait until he’d leave after he’d have a conversation with a buyer about making an offer on a property, and we’d say, “Boy, we stepped in at this time.”

Tony Abate:
Get the popcorn.

Jon Lafferty:
His favorite line was, “Don’t worry. I know we’re offering 30 grand over, but the appraisal will save you.” “What do you mean the appraisal will save me?” “Seller’s going to have to take less if you offer over, and it appraises for less, he’s going to have to take that.” Of course, invariably, the seller says, “Haha!”

Tony Abate:
Sorry.

Jon Lafferty:
“You come up with the 30 grand extra to cover it, you offered it. Otherwise, we’ll just take the next offer.” “Well, no, they have to take it.” No they don’t, you idiot.

Tony Abate:
I don’t think they do. Yeah. Well put. Wrapped up in a pretzel and then some. Yeah, yeah. It’s just not a transaction that works well with gamesmanship. They need to listen to a realtor, to a good realtor, Jon, like yourself for sure. And they need to look at the data, and I think where it gets hard is that they need to look at it objectively in what is otherwise an emotional and subjective decision. It just is what it is. All you can do is, like I said, fill that toolbox, get the best data you can, and take your own emotional temperature. How important is it to get this one home? There’s no magic recipe I guess is the thing.

Jon Lafferty:
There is no magic recipe.

Tony Abate:
Yeah.

Jon Lafferty:
Every single house is unique and different, and presents its own challenges that we have to address, talk about, and potentially overcome.

Tony Abate:
Yeah. Listen to your realtor. It makes my job a lot easier. That’s for darn sure. Yeah.

Jon Lafferty:
Yes. Then you don’t have to offer advice on what price to offer. That’s right.

Tony Abate:
That’s right. That’s right. All right. Hey, thanks for listening to Avoiding Real Estate Turbulence. And be so kind to subscribe, review, and rate. We would appreciate it. Please share with your friends, family, and coworkers that they, too, can find us at AvoidingRET.com. AvoidingRET.com where you’ll find our contact information, and every episode. You can also find us on Apple podcasts, Google podcasts, and Spotify.