Buying Real Estate For 20% Below Asking

The following is a free, easy-to-implement, legal, and moral approach to buying real estate that can easily let you buy for 20% below the asking price.  This works for all types of property, including residential, condos, multi-units, or commercial.  I have successfully purchased properties using this approach in radically different markets (once in Canada, many times in the American Midwest).  There are a couple of caveats, which I will detail, which may make some people decide not to follow such an approach.  For the majority of buyers, this is a good way to find a great deal.

What’s The System?

1. If you haven’t already arranged funding:  get pre-approval for a mortgage in the range you’re looking to buy.
2. Find an agent, explain the system and ensure that they’re willing to execute it with you.  I would recommend meeting with many agents and not bothering working with any that are reluctant or argue against this approach.  Certainly consider their arguments, and if they convince you not to do this, fair enough.
3. Decided on the criteria for what you want to buy, as with any property.  Get a list of possible properties to go see with your agent.
4. For each property, decide “would I buy this if I got a great deal?”  Make notes about the property, you’ll forget difference as you’ll be seeing a ton of them.
5. See all local properties that meet your criteria, at the end of the this process you’ll have a list of “no” properties and a list of “yes” properties.  You can start the next step while you keep seeing the remaining properties.  You’ll hopefully be seeing dozens of properties, so you will probably be going out with the agent repeatedly.  You should be particularly interested in properties that have been on the market for a long time.
6. For each property, determine what would be a fair price for that property.  You’ll need to find recent sales of similar properties to do this.  In the US, Zillow is great for this.  If there are recent sales for that property Zillow will tell you what they were.  Otherwise ask your real estate agent for “comps” (comparables), which will tell you the price similar properties sold for recently.
7. Have your agent submit offers on each property you have in your “yes” list.  Start with a standard percentage off of the “fair value” you calculated.  20% below asking price might be a reasonable starting point.  More than 20% isn’t crazy.  If you aren’t embarrassed by your first offer it’s too high.  You want your agent to react with “I can’t imagine them accepting this, but let’s give it a try”.  For example, say a house has an asking price of $100,000.  I figure it’s worth $92,000.  I can offer $80,000 (which is 20% below asking, and 13% below what I figure is fair value).  Make sure your “fair value” takes into account the condition of the property.  “Move in ready” is obviously worth more than “needs renovations”.  If a property has huge problems, decide whether or not you want to deal with those problem.  It’s fine to put a property with more issues than you want to deal with into the no pile.
8. Tell your agent to explain exactly what you are doing to each seller with the offer.  Tell them you understand it’s a lower offer than they were probably hoping for, but tell them there are X other properties you’re also interested in and will also be putting similar, low offers in on.  Have your agent explain that if everyone else declines your offer, you will return to them with a second, higher offer, and that you’ll be continuing this way until someone accepts.  Your agent can add that if the sellers are so furious about the offer that they aren’t interested in receiving higher offers in the future that you will respect that and not make another offer on their property.  I’ve never had anyone do this.  Give the offer a short turn around time, like 24 hours.
9. Submit an offer on the next property on your list.  Make the offer the same discount off of the fair value you calculated for the 2nd property that you did on the first property (13% in the above example).  If you feel the 2nd property is worth $110,000, make your offer $95,700 – 13% off of $110,000).  You don’t care about any of the asking prices at this point.  You’re using your calculated “fair price” with a set discount to make your offers.
10. Once you have put an offer in on every property and they have all been declined, raise your offer by $1,500 for each property and start again at the beginning.  If someone in the first round accepts your offer, you should have started lower.
11. When you get an offer accepted, finalize the purchase as with any other real estate transaction, get it inspected, etc.

But Does It Work?

Absolutely yes!  I did this once in Toronto and got a condo that was listed for $147,000 for $122,000 (17% below asking) and I bought a duplex in the Midwest for $70,000 that had been listed at $90,000 (22% below asking). I also bought another duplex, a four-plex, and a single-family home, all in the Midwest, and was very happy with the price I got in each case.

I tried executing this in a small town in southern Ontario, but the real estate agent I was working with agreed to the approach, then started fighting me with each offer once she had gotten me to sign an exclusive agreement with her.  I abandoned my search instead of trying to proceed with her.

How Does It Work?

What you’re doing is a sort of “reverse auction”.  Instead of having a single item for auction where many people bid on it, you have a single pot of money and are getting the properties for sale to “bid” on your cash.  Auctions are known as a far more efficient way to sell things, certainly massively more efficient than looking at a single property then haggling for it with your agent.

The reason why you get a good deal is you’re talking to many sellers to find the one who is most interested in selling.  This approach gives them the opportunity to sell right now and helps you to connect with the most motivated seller.

Why Doesn’t Everyone Do This?

This approach gets you a good deal on a property that is acceptable to you.  Most people can’t buy real estate this way.  They find a property, fall in love, then haggle to get THAT property.  There’s no way to guarantee a good deal with that approach and you’re almost guaranteed to get a bad deal when you fall in love with a property.

This approach also requires a bit of confidence to look an agent in the eye and say, “well, we’re going to do this my way instead of yours”.

Dealing With Real Estate Agents

Some agents will flat out refuse anything like this, some will happily do whatever you want and some will try to convince you to do things their way instead.  I would suggest meeting with a number of agents, and picking the one you like best from the “happy to do it this way” camp.  The times this worked for me was with less established agents – which was fine, I just needed them to properly manage the paperwork parts of the transaction.

The first agent I did this with (for the condo in Toronto) was preparing to cancel my contract with her when my offer was accepted.  Don’t waste any time on agents who aren’t with the program.

But Is The Asking Price Fair?

If you thought of this question, take a cookie and go to the front of the class – you’re my kind of thinker!

The “weasel word” in the title of this post and throughout is “asking price”.  Obviously, the biggest discount will be from a seller with an unreasonable asking price – the 20% in this title.  You *SHOULD* still get a discount off of the “fair value” you calculate when you’re searching.  If you don’t – say you make offers and keep increasing them until you hit fair value – reconsider your calculations or rent instead of buying.

This technique is quite nice in that you can approach those sellers with outrageously high asking prices, make them a fair offer and move on to the next property if they decline.  Often people looking to buy just ignore overpriced properties – so you have the advantage of potentially buying one of these that have been overlooked by the market.  In many of my purchases, this was exactly what happened.  The people I bought from had stuck with an inflated asking price and weren’t getting offers, but refused to lower it.  When they got my signed offer, which would be a done deal if they just signed it, it forced them to be realistic and got me a good price.

Book

I released a book on Amazon expanding this post to a short, 6000 word book. If you enjoyed this post, I think you’d dig it.

What has been your best approach to buying real estate?  Have you ever tried or heard of anything like this?  Does any part of it make you uncomfortable?