Essence of a bargain is the urgency to sell

One of the topics that everyone loves to talk about is bargain real estate. Where and how to find it are among the hottest topics in America today. And although we are in a real estate slump, bargain homes can still be very profitable for those who dare to buy them.

So how do you find an ultra-bargain home? It’s all about the motivation of the seller.

The vast majority of sellers in any real estate market are, in my opinion, mostly testing the waters. Sure, they would be willing to sell their house. But only if they get their asking price (or very near it). They don’t have to sell, and they can simply stay where they are indefinitely. They are experiencing no urgency or pressure to find a buyer, so they are largely inflexible.

It’s important to recognize that some sellers simply can’t afford to be flexible. For example, if I owe the mortgage lender more than the house is currently worth, and I have no additional financial resources, I simply cannot afford to sell for less than the loan balance, no matter how much I would like to do so.

Also in that situation, external time pressure won’t help. So even if the lender is in the process of preparing to foreclose on the loan, and my credit will be completely ruined, I still am unable to lower my price because I would not be able to complete the transaction. The sale would not generate enough to satisfy the existing lien.

The opposite situation also creates an inflexible seller. Consider the senior couple who has lived in the same home 30 years and now own it free and clear of any debt. All their children are grown and have homes of their own, so it’s just the two of them in that big old house. And the yardwork and increasing maintenance are beginning to become a burden.

The couple is invited to tour a new senior living community around the corner, offering weekly housekeeping, one meal a day, lots of activities and freedom to travel at the drop of a hat. So they put the old homestead on the market at a price that would have challenged the market two years ago.

The problem is that they have no motivation to sell. If it does, that’s great, but if it doesn’t, well, that’s OK, too.

In order to find the true bargain piece of real estate, you have to find a truly motivated seller, and that’s like looking for a needle in a haystack. When looking for super bargains, there are two all-important steps:

First, you have to see a lot of houses. I know this sounds basic, but you would be surprised how many buyers believe that they have stumbled onto a great deal when it’s one of the first few they have viewed.

To make it into the ranks of the ultra-deals, you will likely have to see more than 100 homes over a multimonth period. But there is another reason you must see a lot of houses. It’s because every house you view goes into your mental inventory of homes to then serve as a comparison to all the future houses you will see.

Remember that the concept of value in real estate is always relative to other houses. And the more houses you see, the more confidence you will have that you have found a remarkable opportunity, once it arrives.

Second, you have to make a lot of offers. And this requirement is where we lose most would-be bargain hunters.

Making the written offer puts the ball into the court of the seller. It forces the seller to decide exactly how much the house is worth to him at that moment. If the seller declines to accept your offer, then he, in effect, has just purchased his home for that price.

Thus it is critical that real estate deal seekers base their offer on what the house is worth to them, and not upon a percentage of the current asking price. That’s because the asking price is often reflective of what the seller wants rather than either what the seller needs or what the house might be truly worth.

Only by making a written offer can you discover the seller’s true level of motivation. I have found that more often than not, if you ask an agent, or even the seller himself, if he might accept a particular offer, both will reply in the negative. But if you make that same offer in writing, the highly motivated seller is revealed, at least in a counteroffer if not an acceptance.

See a lot of houses and make a lot of offers. These two suggestions are a real estate agent’s nightmare. But they should become your watchword if you want to join the ranks of the ultra-bargain finders.

John Adams is a broker and investor. For more real estate information or to make a comment, visit www.money99.com.