Below is a transcript from the book "Trump Strategies for Real Estate" I am quoting the entire transcript because I found it interesting. May be you will too.
BY GEORGE... A STORY OF SMART OVERPAYMENT
Perhaps the best
example of paying a premium price for a piece of real estate occurred in 1962
when I was counsel for Sol Goldman and Alex DiLorenzo Jr., the
multimillionaires I worked for early in my career.
Since they were
considered to be the most aggressive purchasers of real estate, they would get
dozens of listings sent to them every day. Part of my job was to screen the
sale offers and get Sol’s opinion as to which ones were of interest to him. One
day, a disheveled old broker came into my office and handed me a crumpled piece
of paper listing an apartment house in Brooklyn Heights that was for sale by the
family who had built it and owned it for over 40 years. The asking price was
$860,000 which, at that time, was a lot of money. I didn’t know whether the
price was high or low but I did know that Brooklyn Heights was a desirable
neighborhood, so I brought the listing into Goldman. I told him the broker was
a “nobody” and I doubted his ability to bring in anything worthwhile but I
thought it was worth bringing it to Sol’s attention. Goldman took a quick look
at the listing and said, “George, find out how many people the broker has
offered this apartment house to.” I did as I was asked and when I went back into
Sol’s office I said, “He knows you’re the number one buyer of property in
Brooklyn so you are the first person who is aware of this offer.” After
listening to me, Sol said to me, “I know everything about this property, the
type of apartments, the rentals, how well it was built and operated, and I have
been secretly trying to buy it for years without success. If the listing gets
out in the marketplace, a bidding war will take place for the property and I want
to avoid that at all costs. Go out and tell the broker your oddball client will
pay $1 million for the property.” I said, “Sol, they’re only asking $860,000
for the building, so you could probably buy it for $825,000, why offer $1
million?” Sol insisted that I do as he directed. I pleaded, “How can I possibly
get the broker to understand the excessive offer.” Sol said, “Hey, you’re the
lawyer, be creative.”
I went back to
the broker who was still sitting in my office and said, “My client likes the
property but there is a serious problem. The price is too low!” Thinking he
heard wrong the broker said, “You might be able to buy it for $820,000 if you
move quickly.” I replied, “You’re going in the wrong direction, unless you up
the price to $1 million my client isn’t interested.” The broker had a look of
total bewilderment on his face and asked, “Why would anyone pay $1 million for
a piece of property that could be bought for $860,000?” I replied, “My client
is a very eccentric millionaire, he thinks anything that costs less than $1
million is beneath him. So if you come back with a sales contract indicating a
purchase price of $1 million, I’m authorized to sign it and give you a deposit
of $100,000 immediately. But, I suggest you move quickly before my client comes
to his senses.” The broker came back with the contract the next day; I signed
it and gave him the deposit. The amazing thing is that before title had even
passed, Goldman obtained a first mortgage on the property from a bank for $1.4
million—the property was that good. So Sol now owned a building he always
coveted, and had pocketed $400,000. The seemingly exorbitant price in reality
was an incredible bargain. By overpaying, he made sure the property stayed off the
market. There’s an excellent lesson here for the small investor. If your instinct
tells you a piece of real estate has your name on it, and is significantly
undervalued, go for it and forget the price tag!
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