Keeping Sanity in a Frenzied Market

Jennifer says the real estate market where she lives is frenzied. She doesn't want to overpay or get caught up in the frenzy. What's the best way to navigate this kind of real estate market?

QUESTION: Jennifer in San Francisco says the real estate market where she lives is frenzied. She doesn’t want to overpay or get caught up in the frenzy. What’s the best way to navigate this kind of real estate market?

ANSWER: One is you have to steel yourself against the frustration of finding something you want and then missing it because somebody goes crazy. If somebody goes crazy, you just have to let them go crazy. You can’t participate in crazy. What that creates is frustration and disappointment on your part, and you’ve got to steel yourself against that because that’s the only way you don’t jump in and participate in crazy. You become one of them.

From a practical standpoint, what we do when we’re buying almost any property—whether in that environment or any other environment because what we’re aiming to do as an investor is we’re trying to buy something well below market, and we don’t want other people involved in the transaction to go tell their friend who gets it at $5,000 more than we offered because we’re getting a deal—we put a fuse on the offer. The offer is good for only 24 hours, until 5:30 Tuesday night, or 6:30 PM on Wednesday—whatever. If they don’t get back to us, we just tell them the offer is no good. We tell the real estate agent on the other side this is a limited, one-time deal, and if you don’t take it, we’re going to move on.

What happens sometimes is you get shopped, meaning that three people looked at the house that day, so the seller’s all excited and the listing agent is all excited, and then you put in an offer. They kind of want to stand around on one foot and on the other to see if another offer comes in that’s better than yours. That’s called shopping your offer. Or worse than that, they do something unethical like saying, “These people have this offer at this price,” and they start calling the other agent that did the other showing saying, “Hey, I got an offer of $X, so if you’re getting in an offer, you need to put in one today because they’re right here, and I’ve got to take that offer over there.” They start playing, using your offer to get the seller a better price. I don’t want to be used as a tool that way. Instead, I want them to take my offer or not, so I put a short enough fuse on it that it doesn’t give them a lot of time to do that.

Just because people are going crazy does not mean you need to. You’ll find something. It’s not like you’re not ever going to buy a house because of this environment. That’s just not the case. It’s going to take you a while, and you’ve just got to find a situation that has some peace about it, some sanity about it, instead of you going in and paying 120% of value.