Question: We are considering making an offer on a rental house. It is not for sale right now, and the landlord is an absentee. Do you have any tips on making an offer on a property when you’re not sure if it’s for sale? And how do we figure out the property’s worth before making an offer?
Answer: Some of the best buys in real estate come from making offers on a property that is not for sale because you are not competing against other prospective buyers.
This is especially true in today’s market where there is a limited supply of desirable homes for sale.
If you find a house you want to buy, follow these three steps:
•Determine the current market value of the property.
Locate the owner.
Make an offer (preferably below market value).
Unfortunately for you, the rental housing market is pretty strong now and rents are up, so landlords may not be as anxious to unload their rental properties today as they would have been a couple of years ago when the rental market was slow and rents were lower.
Before you make any offers, you must know the current market value of the home you are interested in. The easiest way to determine market value is to work with a friendly real estate agent who is willing to run “comps” for you on the multiple listing service computer.
The agent can enter the specific property type and location and the computer will print out a list of recent sales of comparable properties in the area you are analyzing. If the agent works in the area where the property is located, he or she should be able to give you an accurate estimate of its true market value.
Agents also have access to property tax records, which will give you the name and address of the legal owner of the property.
Of course, real estate agents work on commission. Some agents are willing to provide free service as a means of building a long-term relationship. But if the property you are interested in buying is not listed for sale, the agent can’t earn a commission on your purchase, so you may have trouble finding a good agent willing to give you his or her time for free. You might offer to pay the agent a fee for negotiating a deal with the property owner.
If you are Internet savvy, you can do the research on your own. You can find the public access version of the Northwest Multiple Listing Association’s computer listings at www.nwrealestate.com/nwrpub/ and real estate websites like zillow.com, trulia.com and ziprealty.com provide a wealth of information including homes for sale as well as recently sold homes.
Surfing the Web is just the first step. You need to get out and actually look at some houses to get a true feel for market values. Sunday open houses are perfect for that.
After a few weeks of research you should have a pretty good idea of what homes are worth in a certain area so that you’ll know a good deal when you see one.
If you are buying the house for an investment property, you’ll want to make an offer significantly below current market value. If you are buying the house to live in as your primary residence, you can afford to pay a little more, but you should still try to get it for less than full market value.
To contact the property owner, you can look up the owner’s address shown on the property tax records, or ask the tenants of the rental house how to contact the owner. The farther the owner lives away from the property, the better the deal you are likely to make.
Out-of-state landlords are particularly good candidates because managing a rental property from long distance is a hassle.
Since the rental market is fairly strong, don’t expect the property owner to give the house away. Be prepared to make a reasonable offer based on your market research and don’t forget to deduct 6 percent because the owner is not paying a real estate sales commission.
Before you make an offer, ask the seller, “What is the lowest price you’d be willing to take for your property if I bought it today?” The answer might surprise you. There’s an old saying in negotiating: “The first person to name a number loses.” So always make the seller go first.
If the owner’s asking price is far above what you are willing to pay, negotiate a lower price or walk away. Don’t fall in love with a house, especially if you are buying it as an investment property.
If you have done your homework ahead of time, you can make sure that you don’t end up overpaying for the property.
Steve Tytler is a licensed real estate broker and owner of Best Mortgage. You can email him at firstname.lastname@example.org.