If you are looking for the best deal possible I will invest in marketing and try to get those properties before they hit MLS.
This really is the truth of the matter.
If we can’t spend the time and money uncovering the motivated sellers that will sell to us for the price we need, we’re gonna be banging our heads on a concrete block after going through the MLS …especially when we need to get creative in our financing after running out of money, credit, or both money and credit.
Except that… the ‘one-off’ buyers/amateurs low-ball listed properties trying to get the wholesale price on ‘pretty properties.’ That’s where the ‘low-ball’ mistake is made, embarrassing or not.
If we just have to go through the MLS because of whatever situation we’re facing, then we’ll need to keep our focus on the properties that need everything. Low-balls in this case, would effectively need to be ‘really low’ here to qualify as low-ball offers.
Most conventional, retail buyers that we would otherwise be competing with on the MLS, cannot afford to both remodel a house, and put up a down payment, regardless of the price. They need it to be more turnkey.
That said, the MLS properties that can be bought for a wholesale price probably can’t be financed conventionally anyway. So, now all cash is required. Well, that still scares away 99.9% of the conventional, retail buyers and leaves the rehabbers, if not the professionals.
Moreover, ‘low-ball offers’ again, are in the eye of the beholder. What may be a low-ball offer to us, may be a god-send to the other party. Or the other way around.
It all depends on the marketability of the property. If it’s attractive to a LOT of people, a low-ball might mean offering only 1% over asking price!!!
If very few buyers want the property, a low-ball might mean “give it to us for the taxes” …which might mean also negotiating the price up to ‘taxes plus $20,000.’ Who knows what’s possible, except the investor that knows his market.
The bottom line for us is that low-balling MLS listings that only need minor work is a waste of time. Low-balling fixers is hard enough on properties that everyone now knows is for sale.
Meantime, most agents can’t negotiate themselves out of a wet paper bag regarding anything much more than carpet replacements. And just for the record, get in the way of anything creative including lease/options, and (especially) sub2’s, and (really) especially, no down, Sub2 offers…! Can we say putting pins through our eyelids is both faster and less painful than trying to lace a no down, sub2 shoe on an agent…
Forget that.
So back to finding our own deal… and rather than low-ball anyone, we want to…
- sit down in front of the seller, by ourselves, and ask questions…
- make a presentation based on what we learn
- get agreement on all the surrounding issues …which leads naturally to our price…which may, or may not include…
- asking for everything in the house, such as…
a. the 1967 Corvette,
b. Swarovski-Bosendorfer grand piano
c. Kieninger grandfather clock
d. …and just for giggles the brand new washing machine, dryer and the portable BBQ island.
Frankly, we don’t get those perks by either low-balling sellers, or buying through agents.
Our friend Richard turned us on to #4 of this negotiating tactic after driving home in an unmolested, 1950 Ford Business Coupe that he got the seller to throw in on a house in Ketchum, OK.
Meantime, low-balling any seller regardless of venue, is really the least sophisticated ‘retail’ method of offer making. It’s seems like a short cut, and is often our only option… but it’s also a hard-sell. It’s no wonder sellers hate talking with investors, or have their guard up so high …and why lots of would-be investors never start making offers. It’s stressful and nearly always puts the buyer on his heels at the get-go of the negotiations.
Barney Zick used to teach us to ask the sellers lots of questions before making an offer, and take cues from the seller on how to tailor an offer. By the time we got done working the seller over, without him knowing the difference, we would know fairly well how/if the deal’s gonna go down, or where we’re gonna be on price or terms. If not, we hadn’t asked enough questions yet.
Of course again, we don’t all have the luxury of getting in front of a seller and loosening the soil. So we do what we’ve gotta do; low-balling or not.
So, back to prospecting for our own deals… We want to pitch sellers that we can negotiate with directly. Direct negotiations can allow us to more elegantly achieve a closing, without
‘framing the offer’ as a blunt-force ‘low-ball’. We also want to limit the negotiations to as few participants as possible, including just the decision makers… The last thing we want is the seller consulting his (higher authority) Uncle Fester afterward, who automatically thinks his nephew is a dim-wit …and won’t trust any decision he makes …thus second-guessing, if not upending, our deal.
Meantime also, without an agent’s interference and costs, we can more likely negotiate from a position of strength. Why?
Because…
- the seller has called us about his house. We didn’t call him. That automatically puts us in a position of strength (or at least a welcome presence, instead of an intruder).
- we’ve removed the agent as a “higher authority” in the negotiations…
- our presentation offer is a qualifying process which means we are creating the conditions where we are disqualifying the seller, before he has a chance to reject any offer we make. All we strive for is agreement around all surrounding issues on our way to closing. If we can’t get it, we walk without losing control.
Meantime again, part of our ‘negotiations’ is asking for things that make the ‘deal work’ for us. How does that work, you ask.
This is an important psychology in negotiating… The seller can’t be allowed to define the value of his property by price alone. We only buy ‘value-added’ deals. So, if the seller is not willing to add value to the sale, then we are less interested in the purchase. This is particularly important when we’re not able to achieve the discounts we want, because the seller owes too much on his property.
We could otherwise write low-balls till our fingers bled on one deal, but the seller might not actually be able to sell to us, regardless, without paying down the loan, or coming out of pocket in some way or another to meet the price we’re offering …even if he wanted to take it.
Well, in these cases, we can still make a profit using Sub2 financing of course …if there’s other things the seller might have of value, if no equity, correct? Of course. And so we ask for these value-adding things …to make the deal work for us. Do we always get the seller’s furniture and cars…? Of course not. But we did get a 1967 Mercury out of a deal and get furniture of some sort nearly every time.
All that said, we’re talking about a different mindset on a low-equity transaction, where the seller has to sell us on his deal, or we won’t buy. In this regard, low-balling is a complete waste of time. We can’t low-ball. So, we just encourage the seller to follow our lead in the negotiations and ‘arrive’ at our price somewhat automatically. This can only be done when we’ve met the seller’s objections, obtained agreement on (our) the comps, shown him proof of what he’ll get selling through an agent, and precisely why the numbers make sense.
Meantime, if we don’t know any details about the seller and cannot meet him face to face, then we’ll have to settle for the ‘low-ball’ deal and then take it from there. Notwithstanding, actual low-ball offers should be focused on the properties where low-balls will be expected if not welcomed for a variety of reasons. Meantime, it’s much easier to deal directly and personally with a seller and not have to frame our offers up front with a low-ball pitch.
Hope this stirs your imagination…
[I edited this post significantly so it would make more sense…]