Motivated and Unmotivated Buyers and Sellers

by Mr. Cheap

In a recent real estate post, frequent commenter Ryan Martin made a suggestion, in reaction to a statement at the end of my post:

Mr. Cheap:  “I’d certainly be willing to sell if the right opportunity presented itself, but I’m not in any rush either

Ryan Martin:  “Mr. Cheap, judging by your last paragraph, it sounds like you want to sell. I suggest you be proactive instead of waiting for the opportunity to present itself.  Real Estate can be stressful if you let a decision like that drag on.

Which made me thoughtful for a while.  Should a decision to buy or sell be an either/or choice?  Either you want to sell, and will take the best price you can get, or you don’t want to sell and won’t even listen to offers.

My gut feeling is emphatically NO! The best prices will be obtained by buyers and sellers who are willing to walk away from a bad deal (or even hold out for a beter-than-average deal).  Anything we own has an intrinsic value to us, and if market rate is below this, there’s no reason to sell (hang on to it and continue to enjoy it).  Heck, I regularly see people who demand a great deal or they won’t do business.  They may have a hard time finding someone to do business with, but if they do they’ll get a great deal.

In “get rich quick through real estate circles”, finding “motivated sellers” is scheme #1 (a Google search on “motivated sellers real estate” turns up almost 4 million hits).  The idea goes, find people who need to sell urgently, such as people going through a divorce, and demand an insanely low price from them.  I could be wrong, but I’m sceptical that there are many people, even those going through a contentious divorce, who are looking to give away their house (except maybe for this property Mike saw).  In fact, I suspect the opposite situation, where people expect an unrealistically high price for their property, is more common.

I’ve been in situations where I’ve been willing to buy something, but only if I get a great deal.  Often I get that great deal.  Without being obnoxious, sellers realize when a buyer is on the fence about whether or not they are going to buy and a smart seller will bring out their best price.  When I’ve shopped in marketplaces in developing countries, thanking the seller for their time and starting to walk away often resulted in a dramatic reduction in the price:  they realized that the negotiation was going to come to an end without a sale, which made them very motivated to find a price I’d accept.  Alexandra has commented that her husband has used the same strategy to good effect buying triplexes in Toronto.

Comparably, I think being willing to sell something, but only if I get a great deal is an EXCELLENT way to think about something you’re happy to keep.  Years ago I saw a property in Toronto that was a condo being rented to 4 students that had been TRASHED!  The carpet was buckled, they had taken out a lot of the light bulbs and wrapped aluminium foil around the sockets, and there were massive numbers of ants crawling all over the kitchen.  Their asking price was about market rate for the building, which seemed pretty optimistic to me given the state it was in.  I made an offer that was significantly lower (to compensate for the repairs) and they counter-offered $1,500 off their asking price.  Their agent wanted me to make another offer, but at that point I told him we were all wasting out time and I’d let it go (and told him to contact me if they were willing to be more realistic about the condition of their unit).  They never contacted me, and my hat is off to the sellers.  They had tenants in place and were making money, and had managed to find an agent who would actually show the place and try to push their crazy price.  It was no skin off their back to keep waiting and either get the rent checks, or possibly make a sale at an incredibly good price.

That’s smart.

For a personal residence, obviously you wouldn’t want to keep the property in open house condition for month-after-month while you execute this strategy.  Likewise, I’m not going to run off to Toronto to show my property a few times a week and ask a price no one is going to pay.  HOWEVER, if a tenant or someone in the building mentioned wanting to buy, I’d *CERTAINLY* talk to them, and if they were willing to pay a premium I would be happy to sell.

To be fair, I don’t think what I’ve detailed above is EXACTLY what Ryan was saying in his comment.  What I took from his comment was that he suggests, if I decide I’m ready to sell, I should go all out and put a lot of effort into selling it, not just wait around hoping for a buyer.  As far as that goes, I agree with him.  However, I haven’t decided that I want to sell.

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