Terms Dictate Price, or Supply and Demand, or a Little of Both
The phrase, “Terms dictate price,” is a credo I apply to life on a regular basis and, unfortunately, it applies itself to me as well.
Let’s say I’m at a ballgame with the wife and kids. A vendor approaches with soda for sale and the asking price is $9 per soda. Surely the sign is upside down, I thought, (not that $6 is much more acceptable than $9!). I now have two very simple choices: either (1) pay the man or, (2) live without the soda, listen to my children whine about being thirsty for eight more innings, and sleep on the couch.
Why does the stadium vendor charge $9 for a soda? Because he can.
Some might suggest this in nothing more than supply and demand. With the demand high and only one supplier one can expect a higher than normal price. The competition is removed for the stadium vendor and his price reflects it. Boy, does it ever.
Why would I ever consider paying $9 per soda when at the local food store I can buy a 12-pack of soda, a box of cookies, a candy bar, a bar of soap and a bag of carrots for the same $9.00? Let’s take a closer look at this transaction while applying the theory of terms dictate price.
The seller has his terms set in stone: all cash, closing immediately or no sale. You mean I can’t even try to counter offer? How about if I throw in one of my kids? My dog? My wife? (just kidding about the kids and dog.)
Imagine if the vendor selling sodas instead were selling houses. This is exactly how the real estate market was in Florida between January 2003 through September 2005. Buy a house at the foreclosure sale, put a sign out front and receive four written, full price offers before you got back to the office. This was an example of a seller’s market to the nth degree.
“Irrational exuberance” was the term coined by Alan Greenspan (former economic bigwig for the federal government) as he attempted to describe this sort of frenzied buying of the dot.com stocks.
The real estate market in Florida has since cooled back to a less than normal pace. I hope to soon see the days where terms again will help to dictate the price of property. Unfortunately with the market so saturated with inventory and with so few buyers, the buyers in the market place will be dictating the price and terms on real estate transactions for a few years to come.
One of the ways a seller of real estate can advance his efforts to gain a higher price is by offering better than normal terms to the buyer. Seller financing at a lower than market interest rate is an example of good terms for the buyer; adding deferred payments for the first year is better, while adding no money down at the time of purchase classifies these terms crazy good.
This is an extreme example, I know, but adjusting the terms slightly during negotiations can do wonders for your bottom line.
Find out what the buyer’s hot spots are. What issues do the buyers consider non-negotiable and on what issues can they be moved? For example, don’t be afraid to give the buyer additional time to close if you, as the seller, get to pick the Title Company or closing agent. There are many negotiable items in the typical real estate transaction. Consider which terms are important to you and think about giving in on some others; unlike my friend the $9.00 coke vendor.
Mr. Meyer is an accomplished real estate student, investor and trainer. He has participated in thousands of real estate transactions from foreclosure auction purchases and home retention (loss mitigation) to note and mortgage purchases and extensive foreclosure litigation.
Mr. Meyer will be launching a website in early 2008 (www.180LoanWorkout.com). The website is designed to address some of the concerns of delinquent borrowers, and to expose them to available options while gently guiding them towards a solution. This ambitious venture will require the participation of many local, well trained real estate investors, and may include intervening negotiations with lenders, home retention transactions and short payoffs and purchase opportunities.
Mr. Meyer currently operates Rockland Trust Corp (www.RocklandTrustCorp.com). Any questions or comments should directed to: Rich@RocklandTrustCorp.com
 E-mail: Rich@RichardBMeyer.com
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Richard Meyer is a proactive, create your own momentum, real estate theorist as well as the ultimate real estate student and a genuine outta-the-box thinker. (Whew, what a mouthful, I mean keyboard full) Rich seeks to convey a sense of humility, individuality and the importance of thinking outside the borders of conventional real estate wisdom when assessing default investment opportunities. He has personally participated in literally thousands of real estate transactions ranging from foreclosures (courthouse steps purchases) and home retention transactions to mortgage note purchases and (almost) everything in between.