Sacramento Real Estate Views

Offer Clause of the Moment

Increased Investor Presence in the Coming Year

I work with many all cash investors in the Sacramento real estate market.  My feeling is there is going to be more investor activity in our area this year than we’ve seen in many years.

Here’s why:

1.  The inventory will be increasing this year over last year.

2.  This will depress values more than they have been depressed already.

3.  That said, the perception from various economic sources is that we are well within 20% of the bottom of the market.  This is when smart money comes out of the woodwork.  (I’m seeing this in my business currently)

4.  Not so smart money will be “waiting for the bottom” before they purchase.  This won’t decrease the competition, just extend it for a longer period of time.  By the time not so smart money finds out that the bottom has come, it will be gone.  The media generally reports real estate info 90 days late.

The Ebay Approach to Getting Your Offer Accepted

I learned very valuable contractual clause from an investor who has been in the real estate industry for many years.  There are a lot of great values out there right now and he’s looking all over the area.

The listed price of the home we made an offer on was such that I couldn’t determine what we should offer.  It was priced well below where the comps and the condition was pretty good for a foreclosure.  Neither of us could figure out what to offer.

While there are many, one rule of thumb for purchasing an investment home is that the rent should be roughly 1% of the purchase price of the home.  For example, if the prevailing rent in the area of a home is $1000 then you don’t pay more than $100,000 for the home.  This is important to this strategy.

The clause he came up with reminded me of ebay.  You set your max and as other people bid, your offer automatically goes up.  If the bids go over your max, you’re out.

It is especially helpful if you’re financing your home and you’re competing with all cash investors.  It’s frustrating out there right now for people who are trying to buy a home to live in.

In the financing terms of the contract, we entered this verbiage:

“Buyer to pay $1000 above any bonafide offer not to exceed _______.”  (blank)

This essentially satisfies the “highest and best” requirement many of the listing agents spew forth in an effort to get more money for the seller.  If the price gets too high, you’re protected.

Because I knew the rent in the area, we were able to determine the max price we should pay for the home based on the above stated general rule of thumb.  We were able to offer slightly more than list as our minimum and then establish a “smart money” maximum.

Now I know that many of you are probably saying, “that’s nice but how do I know I still won’t pay more than I should?”  That will be a topic for a post in the very near future.  I have a strategy for that as well but I’ve got to play that a little “close to the vest” for now.

Trust me and stay tuned.  The information is free anyway, right? 

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Tags: foreclosed homes, Sacramento homes

This entry was posted on Friday, January 30th, 2009 at 8:33 am and is filed under Local Real Estate Info, Market Commentary, Sacramento Foreclosure Statistics. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.

1. Nate Sisam said at February 2nd, 2009 at 8:27 am

   That is a great technique, I will add it to my Bank owned bag of tricks. Thanks !

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