I received a call from an experienced and talented real estate agent  today and I told her that my buyer client is reviewing financing options and that we have been discussing the terms and conditions of a contract.

A contract on one of her listings – a really nice property in a really nice master planned community in Intown Atlanta.

I told her that my client is probably going to make a “lowball” offer.

She knows what to expect for a win with her seller client, and so do I.

My client wants a win/win. He wants the seller to accept his offer, but he also wants to negotiate.

He thinks that the seller wants to negotiate.

Sellers really don’t WANT to negotiate.

So, I emailed my client and I told him that one way to help establish his offer as a serious offer that demands a serious response from the seller, and not just a toss, is to increase his earnest money offering.

Do you have a clear understanding of the role of earnest money in a real estate contract?

Do you see the role of earnest money from both sides – the buyer’s point of view and the seller’s point of view?

Read this link and this link, plus the earnest money section of my guidebook, if you want some deeper insight.

If you want my guidebook to purchasing real estate in Georgia, then call me or write me, OK?

Let me touch on a few other things about this offer and offer you the same advice that I offer my clients when strategizing a “lowball” offer.

My best advice is to consider the word “authenticity” when thinking about the role of earnest money.

Desires for what many buyers want their contract to look like at the closing table are very contradictory to what an experienced seller will accept in Georgia.

My second best advice with earnest money is to consider that the amount can play a “leverage” role. The leverage of MORE earnest money than a buyer might WANT to commit can help a buyer who is making an offer that might be considered outlandish and not worth even countering.

I do not want the seller to respond to my client’s offer with a simple, “hell no,” but I am confident that their current stance will never be a win for the seller.

Since it is the initial offer, it could also hurt my client, if the seller decides to be emotional and angry about the offer and think: “how dare they!”

Buyers never  want to insult the seller, and if my buyer wants this house, then he needs to choose his negotiation battles wisely.

Since my client’s current unwritten offer stance is so far away from a win with this seller, the only tactic that I can suggest to make it more “authentic” is to make the earnest money amount 5% minimum.

I would suggest 10% of the sales price as the Earnest Money amount for maximum effect.

He only risks this money if he defaults.

I will not let him default on any deadlines.

I also suggest a 14 day maximum for the due diligence period and a 21 day maximum for the financing contingency, since this is not an “as is” sale and my client is obtaining mortgage financing.

Right now, if my buyer gets the price that he wants, then this price is 74% of the original list price. That is below average for a sale of any property, even distressed property, in Atlanta. At this point, most sellers in this seller’s situation – unstressed and unmotivated to move – will just say “trash the offer.”

I see this all the time – 58.4% of all listed property never sells at all in Intown Atlanta. No wonder, right?

The mother of all Intown Atlanta real estate charts does not lie.

So in many cases, adding earnest money of at least 5% will help the “earnestness.”

Also, closing within 45 days will help the seller’s motivation.

I asked the listing agent, to receive my client’s offer as a serious offer. I also suggested to her that when she presents the offer, would she please ask the seller a question that I ask my seller clients who are similar to this seller, in this situation:

“If you knew that the market would be down another 10% in 6 months, how would this affect your behavior today?”

Sometimes that question helps sellers to be less resistant to any offer.

I would hope that they would counter regardless of the amount, terms and conditions of any offer, but hope is not a strategy.

Heavy earnest money is a solid tactic that a strategic agent and a savvy buyer would deploy, to cushion the blow of a “low” ball offer…

So, the first thing that you may notice is that I have helped more buyers than I have sellers.

So what?

Well, the strength of my business going forward will be based on my ability to help a few more Intown Atlanta and Decatur sellers, as well as buyers – Sellers need help, many sellers have been misled, and many sellers are looking to hire a real estate service provider who can actually produce.

I can cause the sale of property – I am a sales professional with a 22 year resume’ – The numbers in the fifth column reveal a tremendous success story with the sale of my listings. The fact that I have helped more buyers than I have sellers in the past 6 years of full time agency is advantageous, right now, in this market. Why?

1. I have intimate “product knowledge”

2. I have intimate Intown neighborhood knowhow

3. I have built a reliable network of over 700 real estate professionals who serve the Intown Atlanta and Decatur submarkets and I can market directly to these salespeople

That being said, I met with 12 sellers in Intown Atlanta and Decatur in 2009 who did not hire me – 9 sellers who did hire me sold their properties within an average time period of less than one month.

Those 12 sellers who chose to hire someone else…NONE of them sold in 2009.

If you would like to meet, then please call me or email me – I love helping people and I believe that I will help 22 sellers, maybe more, get their property sold this year.

Sellers need good help – I’m that good help. My US Army logistics career, my background in construction sales for most of the 1990’s and my technical savvy that I’ve been cultivating over the past 15 or 20 years, all combine to make me a very effective Listing Agent.

Will you be one of my clients this year? If so, then see you at the closing table!

The Wall Street Journal’s Nick Timiraos analyzes the 5 issues that he believes are critical to the housing industry and to the entities that revolve around it. Click here for a link to his article from today’s WSJ.

He states that there is “an uncertain outlook for the year ahead, one filled with questions about what policymakers will choose to do and how markets will react to those decisions.”

He quotes Ivy Zelman, chief executive of Zelman & Associates, a housing-research firm who states that “The can has been kicked down the road…”

Ivy’s firm studies the big builders, the large building trades firms, and the home center businesses, like Lowe’s and Home Depot.

So, Nick and Ivy are coming at these issues from a broad, established perspective and at this point in history, if you focus on the stock performances, the outlooks and the various profit centers of these multi-million $ and billion + $ operations, you see a period of history that is marked by pain, blues and agony!

Regardless, we are all moving on – I’ll attempt to break these 5 issues down to the Intown Atlanta street level:

1. Mortgage rates – the limited demand in our submarket is part of a nationwide repositioning, but our limited demand has been fueled by the lowest rates in 50 years (see a recent Intown Insider POV here) and by government intervention. Nick writes: “Whether the private market is ready to fill the gap when the Fed exits is one of the hottest debates between economists, investors and analysts. The Mortgage Bankers’ Association says that it expects rates to rise by around one-quarter of a percentage point, but others say rates could jump by as much as a full percentage point.”

Intown Atlanta Sellers – if you really want to sell, then strike while “consumer demand” is hot and well fueled in the next 5 months. All bets are off after that.

2. Fannie, Freddie and the FHA – Lamentations abound for these troubled quasi-government entities. What a trainwreck, but all 3 are the recent vehicles that have saved the housing industry. Nick writes: "Nearly nine in 10 mortgages are now being backed by Fannie Mae and Freddie Mac, the mortgage-finance giants taken over by the government, or government agencies such as the Federal Housing Administration. The future of Fannie and Freddie remains nearly as uncertain now as it was one year ago, but the White House has said it will offer its recommendations on how to remake the U.S. housing-finance infrastructure early this year. The FHA, meanwhile, has suffered from heavy losses that could lead to a taxpayer bailout, and it is set to announce a series of measures in the next few weeks to tighten its standards. The New Deal-era agency, which offers loans with minimum 3.5% down payments, backed half of all sales to first time home buyers during the peak April-June buying period.”

You do not need an MBA in economics to understand the upheaval that is coming.

Intown Atlanta Buyers – now is the time!

3. Loan Modifications – Nick states that “The Obama administration launched the most ambitious government effort to date in February to modify loans for troubled borrowers. That program, however, has been off to an underwhelming start because loan servicers, which collect loan payments, have had to rapidly build staff and systems to administer the program.”

Serious delinquencies are surfacing, month by month. White collar unemployment is a sickness. Intown Atlantans are in a much more stable market than some cities, but this problem can be a cancer on any given street…

4. More Loan Resets – as my friend and fellow Trulia Voice, Hank Miller would say – BOHICA (click on this link to look up this military acronym). Neighborhoods with $400,000 plus properties are going to feel the effect of loan resets in a bad way over the next 3-4 years. More loan failures are coming and sellers in Intown Atlanta’s more expensive neighborhoods will compete with distressed properties.

I ask this question often when I’m confronted with a potential listing client who is stuck on the “wrong” price.

“If you knew beyond the shadow of a doubt that the market would be down an additional 10% in 6 months, then how would this impact your sales stance today?”

I sometimes don’t get hired because other agents will list overpriced properties. Overpriced properties are addressed in this recent Intown Insider POV.

Nick remarks that there will be “more pain for mid-to-upper end housing markets that began to show more signs of stress in 2009.”

5. Tax credit and home sales – Nick writes: “The tax credit led first-time buyers to compete with investors on lower-priced homes, and prices posted six straight months of modest gains through October, according to the Case-Shiller index, which measures home prices in 20 cities. While it wouldn’t be surprising to see prices tick down again during the winter, when home sales are normally cooler, there’s still a good deal of debate between housing economists and analysts over whether a “double-dip” could lead home prices to fall below the bottom that was set last April. Meanwhile, housing analysts expect to see an uptick in short sales, where lenders allow homeowners to sell for less than they owe on the mortgage.”

Short sales are in season, and sellers must confront their bottom line goals if they want to sell in the hyper-competitive Intown Atlanta market. Short sales can work for many, many sellers. Yes, your credit will be affected. If you want some perspective, talk to your accountant.

If you want your Intown Atlanta property sold, short or not short, call me.

In the next few months, the time is now for sellers. Hesitation could lead to more frustration.

In the next few months, the time is now for buyers. Hesitation could lead to missing out on the absolute best purchasing terms and conditions, and the absolute best prices that we will likely see in the next 50-100 years.

Please call me if I can help you with your next real estate steps!

I just answered this Trulia Voices question.

The question is about how a mortgage-funded buyer who got beat by a cash buyer on a Suntrust REO purchase and sale, was wondering if they might be “paranoid.”

Suntrust REO: We bid 25K over the asking price on a property. They asked for our highest and best twice, and we gave it. Last week, we found out we had the highest bid, but the next highest bid was a cash bid for 10K less. We waited another whole week, even telling Suntrust we would take out a mortgage with them. Today, the property was relisted on MLS for $10k less than it was listed for when we bid. Tonight we got a fax saying it was sold. Is something going on, or am I just being paranoid?

Part of my answer included this advice:

“Highest” and “best” are distinct and subjective to every “arms length” real estate transaction.

If you encounter Suntrust again, don’t sweat the technique, whiner.”

The Trulia Voices web reference includes a 90+ page Scribd article that I found that offers one of the most  tremendous amounts of information, references and knowhow regarding “Distressed Property Investing” that I have ever read.

Seek first to understand, then to be understood – this article goes a long way towards understanding REO purchasing technique.

And, don’t forget what I told this Trulia Voice:

“Banks pay people to evaluate their collateral and they make informed loss mitigation decisions, everyday.

Cash is winning about 40% or so of all real estate transactions right now, I believe.”

This is what Eric B. and Rakim would advise:

…Classical too intelligent to be radical
Masterful, never  irrelevant: mathematical…

It’s cool when you freak to the beat
But don’t sweat the technique…”

James Kunstler, a remarkable writer, blogs at the somewhat controversial but always on point “Clusterfuck Nation.”

If you have a tolerance for language peppered with words like “clusterfuck” then add James to your regular reading – he is prolific, he is verbose and he is always passionate.

If not, then wait on Katie Couric or Anderson Cooper to say the exact same thing, but to process it more palatably for your tender brain.

Mr. Kunstler has written about the “mutilation of American cities,” post-World War II suburban blight and sprawl, and the general economic, political and sociological “problems” of these United States, since the early 1970’s during his days as a writer for Rolling Stone and since 1975 when he dropped out and began writing books.

Today’s article, “Original Sin” details how the banking industry became propped up by suburban sprawl and how the unsustainable growth of “consumer culture” has broken down into a heap of chipboard and vinyl.

If you are a child of suburbia like I am, then I think that you’ll find some stability, and some structure to keep things as sturdy and as counterbalanced as possible in your life, by reading the works of James Kunstler.

If you live in Intown Atlanta, then you should feel better about the roots of our city in September 2009, even if you look through the somewhat jaded lens of James Kunstler.

In spite of a crime problem – don’t miss this article from today’s AJC for a blow by blow of Atlanta’s recent slide – in spite of some white collar jobs going away, in spite of some overbuilding and in spite of some zombie neighborhoods and zombie neighbors right here inside our city limits, I suggest that you should feel better about being Intown, than in being “out of town.”

Maybe Mr. Kunstler can set this expectation for you better than I can – here’s a clip from the article entitled “Original Sin:”

“…The evacuation of the cities to the new outlands proceeded as relentlessly as the landings at Normandy. It wasn’t until the program was well underway that the self-destructive essence of it became obvious — that every new housing subdivision killed the original rural character of the land, with the result that suburban life quickly became a cartoon of country living in a cartoon of a country house in a cartoon of the country. With additional layer-on-layer of, first, the shopping in the form of highway strips, then malls, along with the office “parks,” these places elaborated themselves into a kind of cancer-of-the-landscape, a chronic and expensive condition that Americans had no choice but to live with, because of the monumental investments they had already made in it. The discontents it produced lent it to psychological depression and dark humor, just as chronic illness does. But we were stuck with it…”

Read the full article here and rest assured, your Intown Atlanta and Decatur real estate holdings are in a fundamentally better submarket than many of the other major American cities that have been hurt by the worldwide economic crisis.

Read the full article here and feel good about being hyperlocal, being Intown and not being so “sub-urban…”

A very wealthy man asked me if there is anything good about the real estate market right now – he owns and operates over 2000 restaurants, so he has a wise perspective.

I told him that the good news is that CASH is helping to stabilize the market for properties priced under $200,000, and particularly under $100,000.

The “funny money” that fueled the real estate speculation bubble from 1999-2007 is gone and real cash collateral is the NEW basis for the value of real properties.

I wrote about this house that I sold back in 2000 for $39,000 in Lakewood in a post written earlier this year, and included a video of the nasty recent condition of the property – when Lakewood values fall by 75%, the “butterfly effect” that I discussed, is evident.

The good news is that cash buyers are stabilizing our lowest priced submarkets with cold, hard cash and that’s a great thing.

I wrote about the relentless, gravitational pull of foreclosures in this article in May, and that “pull” is shrinking in the lower price ranges…lets look at the recent second quarter statistics to see this point.

Segmenting sales by price range shows that sales decreased in all price ranges except the lowest range (<$200K), which increased slightly (+12.2%)

Sales of foreclosed properties were strongest in the lower price ranges  – that’s a pure function of inventory. There are a lot of foreclosures because there are a lot of people and corporations who lost their residential properties in the lower price ranges in recent years.

Be on the lookout for the next foreclosure wave, which will be seen prominently with houses in the $300’s and up – that wave just started and will continue for about 3 more years…the good news is that by 2012, we can expect the Intown Atlanta submarkets to slowly gain some counterbalance.

By 2023, things will start to get much, much better – easy for me to say, right?

So, back to present reality – sales are down overall -15.7% from 2Q 2008, but with the under $200k price range up +12.2% in 2Q 2009, I contend that prices are stabilizing … but only in the lower price ranges. That will help to slow the “relentless gravitational pull” downward on the rest of the market.

Foreclosures as a percentage of total sales is still high at 27.3% of 2Q sales, down from 35.2% in 1Q 2009, but foreclosures make up 47.7% of sales in the <$200K price range. That’s compelling.

The good news is in the lower price ranges  – that’s what’s good in Intown Atlanta right now.

Stay tuned in September, and I’ll show you some details on what’s bad and what you can do to as the owner of a primary residence in Intown Atlanta to mitigate your risk in the next decade or two.