I went on a long hike today with my friend. It’s 25 degrees in Portland but we walked for miles and miles before we turned back because he’s trying to buy a house in the impossibly hot Portland market and he just put in an offer on the house of his dreams and now he is FREAKING OUT that he made the wrong offer.
Before we even got out of the car, he decided the offer was too high. What was he thinking?!
Two miles in, it was WAY too low. He was going to lose his dream house!
“I’m going to call my Realtor,” he said. “I’m going to call her right now.”
My shoes were soaking wet and I couldn’t feel my fingers by the time he decided that maybe, hopefully, he had made the right offer.
Hearing him talk brought me back to the first time I made an offer on a house.
(note: the numbers are laughably low for a Portland house but the moral of the story is the same…)
The bank was asking $155K. We offered $150K and they declined. Then a month later they lowered the price to 150K.
Our realtor assumed we would want to offer $150K again. So did I. My (then) boyfriend said we should counter at $144K.
“Are you crazy?!” I told him. “We can’t risk it.”
“But if they’re asking $150K, then it must be a bad price. There’s always wiggle room.”
“What if there’s not, and then we lose the house over SIX FUCKING THOUSAND DOLLARS?!” I still remember standing in our kitchen, in a cold-sweat, over the prospect of this.
“What if we offer $150K and they accept it, but they would have accepted $144K? That’s like six thousand FREE DOLLARS?!”
Ah, he had me there. I love a good deal, and in the end we decided (against our realtor’s adamant advice) to offer $144K. 12 hours later, the bank accepted. Which then lead to another mental breakdown over how many more FREE DOLLARS we could have squeezed out of the bank, if we had just been ballsy enough.
When you make an offer on a house, you can be certain you made the wrong offer.
First, there’s the psychology of pricing. Then there’s the highly-subjective and dubious advice of your realtor. Factor in how long you’ve been looking and how much you can envision yourself (or your dream renters) in this house.
A couple years ago, when I was looking for my second investment property, I found an adorable little duplex for $175K. I was (naively) determined to meet the 1% rule. The units rented for $850 each which meant I could only pay $170K for this property. I offered $168K, they countered at $163K, I countered at $170K, they countered at $172K.
After my experience getting six thousand FREE DOLLARS, I thought I was a hotshot. And I was determined to get another killer deal.
I ended up losing out on an amazing property over $2,000. Totally insane. What was I thinking? But if I had accepted the $172K, I’d probably be berating myself for not getting a better deal.
There just is no damn winning with real estate pricing.
So stop obsessing about making the perfect offer.
Here’s a few thoughts to help pass the time if you’re waiting to hear back about your offer:
A few grand NEVER makes or breaks a bad deal
Seriously. I promise you. Anything under 10K can get straightened out in the wash. And the opposite is true. If you get an amazing price on a property that ends up needing significant repairs, you can have a terrible deal on your hands in the blink of an eye (or drop of a shingle?)
If you aren’t planning on flipping this property within 12 months, don’t lose sleep over a few grand.
Your realtor is lying to you
They don’t mean to lie. They probably don’t even know they’re lying. But they are.
Think about my friend. He asked me for advice because I know a lot about local real estate and he knows I will give him my honest opinion. I want him to get a great deal but also get this house he loves, so I mulled over his situation and gave him the best advice I could.
Now imagine this: if he buys the house, I get $8,000. If he loses out on the house, I get $0. I have bills to pay, kids to feed, dogs to groom, cars to fuel, all that jazz.
In that scenario, I still care about my friend and I want him to get a good deal and have a house he loves. But if he asks me if he should risk the deal over $10K, I’m going to do a risk / benefit analysis and tell him no. Risk = he loses house, I lose $8K. Benefit = he gets better deal, no benefit for me!!
This is the psychology your realtor goes through. I’ve worked with a lot of realtors and think most of them are exceptional human beings, but they’re also human beings who make money off of closing deals, not negotiating good deals. I always get a lot of value from my realtors, but I also take everything they tell me with a grain of salt.
So what’s a homebuyer to do?
Get a second opinion, run your own comps (email me if you have questions about this), follow your gut, and don’t be afraid to question your realtor.
There will be other houses
When you go through a breakup, you always hear the same thing: you will love again.
When my dog died, I heard that over and over: there will be other dogs.
And, now I’m going to tell it to you: there will be other houses.
Maybe you found your dream house but you can’t afford it. Or you made an offer that was too low, and you lost the deal. Maybe you offered the asking price and you still lost the deal. In Portland, I have friends who have gone over asking price, and still lost the deal!
Fear not. There will be other houses.