Draft article:
Contract Bonuses
Buyers should always negotiate contract bonuses when making offers to sellers. Even a small bonus written in an offer will increase chances of re-selling or assigning the property for a profit, often before settlement. Creative engineered contract bonuses increase the ease of re-marketing the property, and receiving an early pay-day.
A bonus is a perk for the buyer, some candy to sweeten the offer, an edge to accelerate a quick turn-around of the transaction.
Negotiations play a major roll in having your way with the seller. When entering into negotiations for real estate, buyers should be patience and listen carefully to the seller. Every word should be weighed and mentally dissected to determine the seller’s true motivation.
A buyer’s objective should be to engineer an offer that will put them in a position to create a cash or equity profit from their offers. Buyers should calculate their potential profit margin, their exit strategy and the time frame to realize their profit from the transaction.
Sample Bonuses:
• Seller financing
Always ask for some seller financing. Present the request as an annuity secured by the real estate. Show the seller the amount of interest they will be receiving over the period of the financing, compare it to other investment. Sellers typically want all cash and are concerned that the buyer may default, or they want to invest in other properties with their proceeds. The great thing about seller financing is that they usually do not ask for a loan application, you do not have to qualify; there are no points or high loan fees.
Always make it clear in your offer that any clause you that is accepted is fully assignable and that upon assignment the buyer is release from obligation of the contract and the assignee will take full responsibility.
The important thing to remember is that owner financing is what the buyer is offering in their contract, they should negotiate it to their favor. There are ways to answer objections to owner financing. 1. Offer additional collateral. 2. Offer to give the seller 12 post dated checks for the payments. 3. Offer split notes for the seller; if the seller is taking back a $100,000 mortgage, offer to give seller four $25,000 notes. This gives the seller leverage to use them as down payments on other properties, to discount some or to use another in a trade or to liquidate a debt. 4. Let the seller know that short term financing is needed to make this transaction work.
• Contribution toward settlement:
Ask the seller to contribute $5,000 toward settlement, or to pay all of the settlement cost.
• Cash back at settlement
Ask the seller for cash back at settlement to cover certain repairs.
• All the furniture
Make your offer subject to keeping all of the furniture in the house, the lawn or pool furniture.
• The car in the garage
Ask for the car or boat the seller owns
• Post sale warranties
Ask the seller to warrant the roof, furnace and appliances for one year after settlement
• Delayed settlement
Ask for a delayed settlement. Clause…“Settlement to take place within 120 banking days.”
• Right of possession
Having possession of the property before settlement gives the buyer an opportunity to renovate, do cosmetic work, and replace carpet and to show to prospective buyers or assignees. Clause…. “Buyer shall have possession of the property upon ratification of this agreement perform light renovation, for appraisal and to show to contractors and potential assignees.”
• Interest only mortgage
Clause……Seller agrees to take back a first subordinated mortgage in the amount of $50,000 with payments of interest only starting 30 days after settlement with a balloon payment within 48 months.”
• Principal only mortgage
Clause…Seller agrees to take back a principal only mortgage of $50,000 having payments of $600.00 paid monthly until balance is paid in full.” This is a great bonus if you can get it.
• No payment owner financing
Clause….The seller agrees to take back a mortgage of $50,000 with interest of 7%, having deferred payments until maturity of the mortgage in 2015.”
• Hybrid offer agreement
A “Hybrid Offer” is structured so that the seller will make a percentage over the offered price. Clause…”Buyer agrees to increase the sales price by 20% of any amount above $150,000 upon sale and settlement.”
• Right to market before settlement
“The buyer shall have the right to market this property by private treaty or public auction any time before settlement.” This is a great clause that gives the seller the right to flip the property before settlement.
This is basic draft of an article on investing in real estate and negotiating contract bonuses.
Your comments will be appreciated and the finished article will be sent to you upon request.
Charles Parrish