Let's say you find your dream home that you want to buy. Unfortunately, everybody else wants to buy your dream home too. With competition so difficult, let me share what to do if you real estate offer is rejected and you still want to buy. Sometimes, a home is just too good to pass up.
I firmly believe the housing market will recover as interest rates decline. With corporate earnings rebounding, strong consumer spending, AI, and mortgage rates coming back down again, I'm a buyer of real estate.
Real estate is one of the best ways to build wealth from the middle class.
Competitive Real Estate Market
There are many times when even after you submit what you think is a great real estate offer, it still ends up getting rejected. This has happened to me more times than I can count because I've been incorporating my “spray n' pray” methodology since 2015.
With the creation of Docusign, once your realtor has inputted the terms, it takes less than two minutes to sign and submit your real estate offer over a mobile phone. And unlike applying to colleges, there is no application fee. Therefore, you might as well submit as many lowball offers as possible. You never know what might hit!
Despite coming up $175,000 or 11% on price and writing a convincing real estate breakup letter, the sellers of the single-family home I wanted to buy rejected me. They didn't outright say no. Instead, they strategically dragged their feet on getting back to me.
Several days after I submitted my counteroffer, they told the listing agent to let me know they wanted to list the property for $1,980,000 on the MLS. Darn. There goes my $1,725,000 offer.
I felt that if they aggressively marketed the place for two weeks with two open houses, two broker showings, and a firm offer date, they would get their appraised value of $2 million or maybe more.
I considered giving up on this property, but with a second child on the way, I wanted more space. Therefore, I deployed several last moves to help seal the deal.
When your real estate offer gets rejected, don't give up. If you really want the house, here are three things to consider.
When Your Real Estate Offer Is Rejected
OK, so your real estate offer is rejected, but you still want to buy the home. Here are some steps to take.
1) Don't be afraid to swallow your pride.
Even if the seller calls your bluff about you submitting your best and final offer, don't be too proud to come up with an even better offer after some time has passed. I've seen too many deals come so close only to never close due to big egos.
Unless they have an exploding offer from someone else, I wouldn't come back the very next day. Instead, I'd wait two or three days to let them digest the magnitude of their decision. This also gives you time to think about whether you really want the property or not.
If you can pay all cash for a house, then see if an all cash offer might sway the seller. Include a fast close and maybe you might just win back the deal!
Whatever your final counteroffer is, make sure the numbers make sense for you. If they don't, move on. There are always other properties that come up for sale.
2) Set a hard deadline.
When you first make a counter-offer with your real estate rejection letter, you may elect not to make a hard deadline to show you are not desperate or because you want the sellers to feel comfortable making the best decision possible.
However, with your final offer, you must include a hard deadline. If you can combine a slightly higher price with slightly better terms and a hard deadline, you may be able to finally get the seller to acquiesce.
Deadlines make people get off the pot and take action.
3) Ask the sellers if there's anything else you can do to sweeten the offer.
Price is the main component for getting your offer accepted. But other things such as the amount of earnest money you put down, your total downpayment, inspection and financing contingencies, and the length to close are all important as well.
Many sellers are too afraid to say what they really want. It's the same thing as your significant other not telling you what she really wants until she blows a fuse and leaves you for someone else.
During your final maneuvers to get your best and final offer accepted, you should specifically ask whether there are any other contract conditions that can be changed to come to an agreement. For example, you could waive the home inspection contingency.
For example, going from a 30-day close to a 21-day close could make all the difference because the seller needs the proceeds to do a 1031 exchange. Or waiving the inspection condition might work because the seller is nervous you'll balk at the pest report.
You just never know until you ask. A real estate offer is often just the first move.
Your Best And Final Real Estate Offer
It's important to realize that if you're deploying my real estate offer strategy, you will get rejected MOST of the time because you are starting off at a low offer price.
In order to get a steal, you not only have to follow all my steps, but you also need to brace yourself against frequent rejection. It's only through constant rejection that you will ultimately win because getting a steal is a numbers game.
My Negotiation Process
As for my real estate negotiation, I told them they had five days to give me an answer on my final offer before I was gone, forever. I mentioned there was this other house I was in talks with just in case this one fell through.
With the five-day deadline, the sellers decided to put their property on the MLS before getting back to me. For them, it was the right thing to do. They couldn't stand not knowing what the price demand might be.
During the five-day deadline, the listing agent kept on asking me to raise my offer price from $1,725,000 to $1,850,000 She said she would be able to convince the sellers to give me the large discount, but I continued to refuse.
The listing agent was highly motivated to make a deal happen because she would earn a double commission representing me as well (a key strategy to use if you are an experienced real estate investor).
Raised My Real Estate Offer
On the last day of my five-day deadline, I decided to raise my offer by $20,888 to $1,745,888 to sweeten the deal. I knew other people were interested in buying the property because I came during a Tuesday open house and stayed for two hours listening to what prospective buyers were saying.
One buyer had come back a second time and brought his parents. If they held another open house on the weekend, I felt my chances of buying the property at my low offer price would drop to zero.
After one tense evening of waiting, the listing agent gave me the good news. She had convinced the sellers to accept my offer! Not only did the sellers not want to risk losing me, but the listing agent also didn't want to risk losing out on at least $15,000 in extra commission.
After my offer was accepted, two other buyers approached the listing agent and wanted to submit an offer. But the listing agent, true to her word, took the listing off the MLS and told the prospective buyers she was already in contract.
Write A Real Estate Love Letter
Finally, I highly recommend writing a real estate love letter to explain why the seller should accept your offer. The key is to make a connection and give the seller confidence the offer will go through.
I have written five real estate love letters that helped me seal the deal and/or get a lower price. A letter takes an hour of your time but could save you thousands.
Reviewing The Housing Purchase
Although I would have much rather preferred to have stumbled across this house in 2014 when prices were cheaper, I feel good about this purchase for the following reasons:
- I got the home for $255,000 or 12.5% below appraised value and $200,000 – $300,000 below market value. Further, the SF housing market has already weakened by 5% – 12% since 1Q2018. If the house had been listed at the peak, it may have gotten closer to $2,200,000.
- The S&P 500 went up about 31% in 2019, which enabled me to use about $500,000 in paper gains to help me buy the property with cash. I've always enjoyed turning funny money into real assets. Losing so much money on paper in 4Q2018 wasn't fun.
- Paying cash feels nice. Despite the significant purchase price, I am less concerned about the price had I purchased the property with a mortgage. Further, the house is 36% cheaper than the one I sold in 2017 that had an $815,000 mortgage.
- The $1,745,888 purchase price is close to the median-priced home in San Francisco of $1,600,000. This means there's more demand/liquidity for the house should I ever need to sell. Further, I bought this home for only $680/sqft versus the city average of ~$1,020.
Great Home Features We'll Enjoy
- The house is roughly 700 square feet larger than my existing home with one more bedroom, one more bathroom, and one more office to accommodate a larger family. Originally, I had considered building another story onto my ~1,920 square foot house. Thus, buying this house not only saved me at least one year's worth of construction headaches but it also saved me about $500,000 in construction costs. Going through the SF permitting process is a nightmare.
- The home has panoramic ocean views on all three levels. I strongly believe ocean view homes in San Francisco offer one of the world's best values because similar properties with water views in international cities trade at large premiums.
- The property is only a block away from our existing house, which means our existing house could turn into the new Financial Samurai office and/or be great for guests.
- I also have the option to rent out my entire existing house or just the upstairs section for income. My ultimate goal short-term goal is to generate an incremental $5,000 a month in investment income to get back to early retirement glory in 2022. Renting out the old house should generate a net increase in income of between $1,000 – $3,000 a month since I will lose some stock dividend income.
- I feel good providing for my family. As a husband and father, this is one of my principal duties.
Enjoying The Property
While much of this article and previous related articles focused on how to get a great purchase price, my main focus was not on making a great investment. My primary focus was on providing a right-sized home for my expanded family.
The house is large enough to accommodate an au pair and long-term guests if necessary. I also foresee a situation where we may have to take care of my parents or in-laws. The ground floor living area is perfect if this situation were to arise.
I'm content with wherever the value of the home goes from here. Our plan is to own it forever.
Remodeled The Property From 2020 – 2022
We expanded the downstairs area from about 300 square feet to 600 square feet. We gutted the place and are adding a full bedroom, living room, full bathroom, closet, and laundry room. Getting a remodeling permit took a year and the whole process took 2.5 years.
It was a painful process, but I'm glad I remodeled. We ended up renting out the top two floors for $6,800 a month and then the whole house for $8,200 once the remodel was complete.
The demand for single family homes on the west side of San Francisco is strong. People want more space and backyards. If you're thinking of buying property in a big city, I would do so before there is herd immunity. People are going to come rushing back.
Without heavy negotiating and paying all cash for the house, my real estate offer likely wouldn't have been accepted. Now, the property is way in the money by over $550,000. The pandemic has really made real estate much more desirable since we're spending more time at home.
Recommendations For Real Estate Investors
Beyond owning a primary residence, it's a good idea to diversify your real estate holdings. You don't want to have too much concentration risk in one location.
Today, you can invest in commercial real estate via Fundrise and CrowdStreet, my favorite platforms today.
Fundrise offers diversified private eREITs for passive income. Fundrise funds predominantly invest in the Sunbelt, where valuations are lower and yields are higher. For most people, investing in a diversified fund is the way to go.
CrowdStreet focuses on individual real estate properties mostly in 18-hour cities, which tend to be growing at a faster pace. If you are a real estate enthusiast who likes to pick and choose deals, CrowdStreet is a great platform. Just make sure to careful review each sponsor as you build your select portfolio.
Both platforms are free to sign up and explore. I've personally invested $953,000 in real estate crowdfunding since 2016. It's been nice to diversify my real estate holdings and earn income 100% passively.
Readers, what are some other strategies you use to get your rejected offer accepted? Anybody recently taken advantage of rising housing affordability and gotten a great bargain?