What does lock in the price mean in real estate? Locking in the price, or value, of your property means that the buyer and seller make an agreement wherein both parties establish a minimum price and associated terms for the purchase of a property and its mortgage, if applicable. This is usually for a purchase in the future, perhaps within a certain period of time.
Doing so has significant advantages for the seller, namely protected value for the property and an ensuing peace of mind. If you and a buyer lock in the price, you will then have a guaranteed value for the property even if the market declines.
So, if for example, your property is worth $700,000 and the value drops to $600,000 due to a decline in the market, you can still sell it for the predetermined price of $700,000.
Both parties should sign a letter of intent so the both of you are locked into buying the property for a certain price. Within this contract, the buyer will list contingencies based upon their due diligence, reducing or adjusting the offer based upon what they discover in their walkthrough, analysis, and research of the property. If the numbers are correct and your gut tells you this is a good deal, sign the contract.
REVIEW: The numbers are the key baseline to follow in choosing which property to buy, but timing is also important. For instance, maybe you should ask a property owner if you can buy before he even thinks about selling. Yes, if you really like a property you can see if the owner would be interested in selling even if there's no for sale listing.
For more real estate investing ideas, check out An Eye for Investment Opportunities.
As you probably know, the property investment arena is a mercurial one. Market conditions can create a frenzy, or a hot property can cause an influx of competing bids.
There’s a lot of temptation here, and a lot is going on so quickly that you might feel compelled to act fast on buying a property. But just step back, hold your evaluation, and don’t make an emotional bid. That's why the idea of locking in the price with a seller is ideal. This is the price you have as your bottom line.
Get some feedback from a friend or expert who has done a lot of investing in real estate, who is not involved in the deal. There are always other properties to buy, so don’t increase your bid unless you know you can operate the property and hit your cash flow goals.
However, if you feel confident about the property, then it just might be the right time to sign a contract to ensure that you've got the price for the property locked in. Remember, it's all about knowing how to negotiate.