What are white elephants in the real estate investing world? Well, they’re things that stick out, and not in a good way. If you see powerlines, busy streets, water towers, commercial buildings, etc very close to the property, you’ve seen a white elephant.
Simply put, these white elephants typically bring down the value of the property. Homeowners don’t want to have a donut shop behind their house and this makes it a harder sell. When it’s a harder sell, the price has to come down.
If you’re about to go on an appointment with a seller and during your driving around the neighborhood you see it backs up to powerlines, you need to note it. This means you have to be very careful on your comps because if you’re pulling comps that aren’t anywhere need the powerlines, their value isn’t affected. Ideally, you compare apples to apples so you can get a good idea of what similar homes have sold for in the past, and how long they’ve been on the market.
When meeting with the seller, let them know that the powerlines will affect the offer you’re able to make because it will take longer to sell and not every buyer will be accepting of them.
So how much do you reduce the cost by?
There isn’t an exact answer to this but it can reduce the value by 10-20%, depending on the severity of the white elephant.
Ask them if they were able to get a discounted price when they purchased the property and if it bothers them at all. Let them share their story so that you can build rapport with them. They know it’s there and that it has and will continue to affect their property value so it isn’t a secret.
Depending on what the negative factor is, you might be able to reduce visibility with trees in the backyard, but you shouldn’t count on this.
It’s best just to be open and honest with the seller and let them know how that white elephant has affected other home prices that face the same problem and how you’re a bit concerned in your ability to sell the property quickly and without a serious discount.
By giving them realistic expectations and letting them know you’d like to be a solution, this can help let their guard down and get on the same page. Provide them with a conservative number with possibly and if you’re able to provide them with any creative opportunities, that might be helpful in these types of situations.
White elephants are not always discussed before the appointment and unless you’re getting out there and driving around the property or have a good idea of the surroundings from Google Maps, you could set yourself up for trouble if you provide an offer without realizing the negative feature. This is why we always recommend driving the neighborhood to see comps before you go on your appointment because not only will you see the appointment’s white elephants, but you can also see white elephants of other comps which you need to be aware of also.