Nobody likes to break up. But sometimes you need to break up to get what you really want.
In a previous post, I explained how to write a real estate love letter to get the best deal possible. The goal of the real estate love letter is to make a connection with the seller. Once you make a connection, your hope is that the seller will be less ruthless when it comes to negotiating.
Think about all the times you lowered your guard when you found out so and so went to your same school, also has a 3-year-old daughter, or also grew up in your hometown.
In this post, I’ll explain how to write a real estate breakup letter so you can also get the best deal possible. After all, we tend to cherish more the things we may lose.
Being able to walk away from a negotiation is one of the most powerful negotiating tactics. Being a seller of real estate is much more stressful than being a buyer. Therefore, a good breakup letter is your ultimate weapon.
Keys To A Good Real Estate Breakup Letter
The goal of a real estate breakup letter is not to walk away from a deal, but to get the best deal possible. Here are the keys to a good breakup letter.
1) You must make it clear to the seller what they will be missing if you were to walk away.
2) You must write your letter so convincingly that it gives YOU doubt about whether buying the property at your offer price is a good financial move.
3) You must provide supporting evidence why your lowball initial offer is reasonable.
4) You must make the sellers want you to buy their property and nobody else.
5) You must write in a matter-of-factual way that will keep the dialogue open.
Example Of A Real Estate Breakup Letter
After writing our real estate love letter, we got a very positive response from the sellers according to the listing agent. We proceeded to offer $1,550,000 cash for a home we thought was worth ~$2,000,000.
The sellers thanked us for our lowball offer instead of being offended. They said they would get back to us in five days because they were still waiting for an independent appraisal report to make an informed decision.
I told them no problem, even though I had a strong feeling the appraisal would come out much higher.
Five days later the appraisal report came in at $2,000,000 using recent reconstruction costs and $2,060,000 using comparable sales. As a result, they asked if we could increase our offer to $2,000,000 and we declined.
The sellers then asked whether we would offer $1,950,000 and I declined. They finally said they’d be willing to go down to $1,900,000 to make a quick sale.
They wrote, “We’re willing to sell the house to you for $1,900,000 and let you have $100,000+ in equity to help with your upcoming remodel costs.“
I verbally declined their offer again. Unless I would be getting a great deal, I wasn’t just going to buy another house since we already had one already.
I then decided to write a breakup letter, along with a new offer price of $1,725,000. The contract was again for all-cash, no inspection contingency, and a 21-day close.
I felt fine with the no inspection contingency because I had already had two contractors explore the place with me for a couple of hours each. I had also inspected the place myself for roughly five hours. Having remodeled multiple properties before, I knew what to look for.
Let’s read the real estate breakup letter and discuss some key points afterward.
The Real Estate Breakup Letter
Dear Nancy and Family,
Thanks for your letter and appraisal update. We visited the house again today with Rachel (listing agent) and reviewed the documents. We love the home and are willing to come up in price by $175,000, a significant sum for our family, as we were hoping to use this money to update the home over time.
We would like to lay out our reasons for why we believe $1,725,000 is a fair price for all parties.
1) Comparable home sale. The home one block down the hill at XXX Address sold for $2,000,000 on October 3, 2018. The home is 3,000 square feet, not 2,500 sqft per the appraisal you showed us. The appraiser got the details wrong.
The comparable is significantly larger than (Seller’s Address), and my family toured the house seven times but decided not to buy because it would have left us feeling too financially stretched. The condition of (comp home) was similar to (seller home), but the owners had newly painted the entire outside, refinished the hardwood floors, and installed a completely new roof in 2018.
At 3,000 square feet, the house sold for $667/sqft. If we apply $667/sqft to the official square footage of (seller’s home I’m looking to buy), that results in a price of only $1,732,000. There is generally better value with larger houses and Comp Home Address is one block down, but it still has views from all three levels.
Comp Home Address took six months to sell after a price cut. It was a very stressful process for the seller according to the agent, whose 85+ year old mother moved out to live with her. At the $2 million mark, demand falls off a cliff, especially if remodeling needs to be done.
We are happy to send pictures and videos of the inside of the house at Comp House Address as proof of its condition and size per the public records. The selling agent was (selling agent’s name).
2) The San Francisco median home price is down since the peak in early 2018 because inventory is increasing, the S&P 500 was down 6.4% in 2018, and there is buyer fatigue as home prices have been aggressively outstripping wage growth since about 2010. Many economists are predicting a recession by 2021 since we are already 10+ years into a bull market recovery.
Below is a chart from Compass Realty, the largest SF Bay Area real estate group.
3) Home inventory is up in the SF Bay Area. Although the economy is still generally strong, the supply is beginning to aggressively pick up, which is one of the main reasons for the softness in prices.
For example, right now there are two homes on XXXX Ave next to each other that haven’t sold. The first one has been on the market for two months and lowered its price by $125,000. It is highly likely the second one will have to lower its asking price as well. I don’t think these homes will even sell for their new lowered prices.
Please see the chart below from Realtor dot com displaying the rise.
4) Buyers are getting more fickle. Many buyers fall out of escrow (comparable house down the block) either because they have second thoughts, fail their financing contingency, or there’s some disagreement after inspection. When this happens, this causes tremendous stress on the sellers and taints the property because new buyers will wonder what happened.
When buyers fall through, there is often a further 5% – 10% discount to the original asking price as buyers reassess “what is wrong with the property.”
Our offer is all cash with no financing contingency. We are also buying the property as is with a quick 21-day close. We are also taking the risk that the property might have unforeseen expenses, such as wood rot and termites, which is almost always the case with a house of this age.
If you accept our offer, it will be a much less stressful process that doesn’t run the risk of taking months to sell with potential price cuts if the initial two-week public listing period is a miss.
Given the declining median price, the rising inventory, and the comp at (comp address) for $2,000,000, we really think $1,725,000 is more than a fair offer, especially given the clean terms. Further, I think you and your family will feel better selling to a neighbor and a family, as opposed to a flipper or landlord solely looking for profit.
As some wise people say, a bird in the hand is worth more than two in the bush!
We plan to honor your mother’s home and take good care of it, forever. Please take a drive by our home one day. You will notice we’ve meticulously maintained the property and landscaped the front and back yard. We plan to do the same for your home.
With the $175,000 increase in our offer price, we must also be more careful with our finances going forward given the expected $200,000 – $300,000 in basic remodeling costs we plan to spend. We definitely do fear a recession may occur again within the next couple years. The 2008-2010 financial crisis was extremely difficult for us as we lost ~35% of our net worth within 6 months.
Thanks for your timely consideration. If our offer is not accepted, no hard feelings. We wish you and your family the best of luck and hope you find another buyer who will take care of the house as much as we would.
If you decide to try the MLS, and if no other suitable buyer emerges after going through the public listing process, perhaps we can have another discussion if we are still in the market.
Sam and Family
Reviewing The Breakup Letter
I basically wrote a blog post trying to convince them that now is a good time to sell to a family like mine. Although I’ve used older charts and data in my letter to make it seem like things are worse than they currently are, I’ve now got doubts on whether buying the home is a good idea!
When I was selling my main rental property in 2017, I was filled with uncertainty. All I really wanted was a buyer who loved my home as much as I loved the home.
The letter makes it clear what they will be missing if they lose me as a buyer – cash offer, quick close, no contingencies.
Finally, I reminded the seller about how much better it would be to sell their house to a neighbor who would lovingly take care of the home, rather than some stranger who might just want to flip the home for profit.
If you remember nothing else from this post, remember this: we appreciate most the things we fear losing.
The reason why you haven’t called your parents in ages is that you’ve taken them for granted. It’s only after you find out one of them is extremely sick do you finally pay them a visit.
The reason why you haven’t bothered finding a side hustle is that you’ve taken your job for granted. It’s only after a downturn hits that you suddenly find yourself scrambling to find other income sources.
The reason why you haven’t done anything special for your husband, despite his working 14-hour days for years, is that you’ve taken him for granted and assumed that he will always provide for your family. It’s only after he loses interest in you and finds interest in someone else that you finally make an attempt to appreciate his efforts.
Writing a real estate love letter is your way of making the recipient appreciate what they might have. Writing a real estate breakup letter is your way of making the recipient appreciate what they might have to lose.
Shop around for a mortgage: If you’re looking for a mortgage, check out Credible, one of the leading lending marketplaces where you can compare real rates and qualified lenders in one place. Mortgage rates are back down to 6-year lows in 2020.
Explore commercial real estate: If you don’t want to deal with negotiating a real estate purchase or managing real state, consider real estate crowdfunding with Fundrise and CrowdStreet. Pre-vetted sponsors have already presented pre-vetted commercial real estate deals around the country for you to choose from. Both are free to sign up and explore. They are my favorite platforms for non-accredited and accredited investors. Always do your due diligence before making an investment.
Readers, anybody else ever write a real estate breakup letter? What other tips do you have during the counter-offer negotiation stage?