I was very busy this past weekend. I finally submitted my first four offers… :O) I went to see all four properties on Saturday afternoon and submitted the offers on Sunday night. All properties have been on the market for over 180 days, some over 1 year. One short sale and the rest REOs. I calculated their ARV and my offers were less than 50% of ARV. I even had one offer for $17k… I was really ashamed of that one… but someone said here before if you are not ashamed of your offers you are probably offering to low… :O)
In all but 1 of the offers I will have some wiggle room to increase my offers a little bit in case they counter. I still have a gut feeling that my repair estimates are probably too high (I am probably being too conservative). But I rather start that way and as I learn more I will feel more confident about considering lower repair costs… I would love to be able to do a kitchen rehab for $3.7k as fdjake did… :O) Right now my kitchen rehabs are averaging $5k… :O)
I am feeling good about the fact that I submitted those offers. I am looking forward to hearing from them.
thank you guys for the comments… Dave thank you for the correction on the quote…
I called all four agents today to confirm they received the offers last night. It is interesting that nowadays everybody is working with emails instead of fax. When I bought my home few years ago, we did the whole transaction through fax. Now I submitted all four offers through email. I printed them, signed, scanned into a PDF file and sent them over. I am now considering buying a better scanner that allows me to scan all the pages automatically, instead of having to put each page in the scanner and pressing the scan button… I will do it with after I complete the first transaction… :O)
Funny thing is that none of the agents picked up the phone when I called this morning… I guess Monday morning is not a good day to talk with agents… :O) Anyway I left voice mails and one of them called me back…
She said there is another offer on the property which is higher than mine. She asked if I wanted to submit a higher offer… I blinked… :O( I told her that I was going to check my numbers and get back to her tonight… I know I should have told her that that was my best offer and that the bank could counter it if they wanted. Anyway, I am going to check my numbers and probably send her a note stating that that was my best offer…
It is good to feel that I am moving forward…
My wife had a question last night when we were reviewing the offers - what if the banks accept all four offers? I guess if that happens I will be in the wholesale business with three of them… :O)
I know Realtors are supposed to be bound by a code of ethics, but I have questions about this. I know this other Realtor isn’t going to tell you outright what the dollar amount of that supposed higher offer is, but what would happen if you actually were able to somehow catch her in a lie if there was no other offer (but she fabricated the story anyway)?
Is there any way to really know if the offer exists or not?
Would she permanently lose her license if she lied?
Justin - those are good questions. However it would be very difficult to prove. She can always say that she was expecting another offer because someone else called but she never did receive the offer. In the end of the day… this is part of the negotiation. Even if there is no other offer, she is only trying to get the best she can for her client. I am fine with this. I would say that she is doing her job.
The question is… Should I raise my offer? Probably not… If the bank counters, than I can reconsider.
When I submitted my offer, I attached my financial analysis showing:
ARV (I attached a CMA to support the ARV);
-10% discount because I want to sell the property quick;
-20% for my profit margin;
-cost of repairs (I attached a spreadsheet with my estimate for repairs);
-closing costs - purchase;
-closing costs - sale;
-hoding costs;
=offer price.
So I basically supported my offer with the above analysis. If I go back now and change my numbers, she will know I am not confident on my analysis and then I will lose some of my leverage.
If she does have another offer for more money, it will all come down to the bank’s confidence on the ability of the other person to close. My offer has no contingency, all cash, and I even attached copy of my bank statement to demonstrate my ability to close.
I am sending her an email stating that I am not changing my offer and that she should be presenting it to the bank. Let’s see what happens.
I guess it gets down to the semantics of what she considers an offer. I would hope most people would only consider a valid offer to be a written offer signed by the potential buyer with a copy of an earnest money check. I understand what you mean, but feel this is where the ethics should come in. Sounds like these properties have been on the market for awhile. The house we’re buying for our family has been on the market on and off over the past year and a half or so. If the sellers’ Realtor would’ve acted like there were multiple offers along with ours, it would’ve seemed pretty fishy.
Good luck with all of them. I hope you’ll be telling us soon about your new acquisitions!
I think it is a mistake to show your hand. By “justifying” your offer, you told the bank that you believe the value of the property is a lot higher than your offer. You corroborated the bank’s opinion of the value of the property and confirmed for them that an owner-occupant buyer will be willing to beat your offer by more than 30%.
If the bank even bothers to counter, don’t be too surprised if they only come down a few dollars from the list price.
It is a waste of time for your agent to submit your offer if there is a higher offer pending. It is an insult to the agent to tell her that you don’t believe her. This is a good way to get blackballed and noone will work with you.
Sales are slow enough and the agents are hungry enough for any sale that they have no incentive to lie to bait you into making a higher offer.
Ask the agent if she recommends submitting your offer as a backup offer. If she says no, then your best response is to tell the agent to hold your offer until she finds out what happens with the higher offer. If the higher offer is rejected or is accepted but falls through, then the agent should submit your offer shortly afterward.
If your other offers are rejected, tell your agent to hold your offers and resubmit them if the list price is adjusted downward. If there has been no activity after two or three weeks, tell the agent to resubmit your offers. Keep resubmitting every month or so or as soon as there is a price reduction.
Dave - this is an interesting topic for me. I work for a Fortune 100 Company and I am responsible for negotiating technology contracts. In my experience you save a lot of time and money when you share your expectations with the other party and justify them upfront. For example, whenever we go into a negotiation moment with a vendor, we tell them what we want and how much we are willing to pay. This sounds counter-intuitive. Why would I tell them how much I am willing to pay? Shouldn’t I ask them to give me a price? What we learned over the years is that if we don’t tell them how much we are willing to pay they will always start from a different number and we will end up wasting a lot of time to get to a deal. If I share with them my numbers and the support for those numbers, I can get to the final deal much faster. The point though is that I need to do a lot of analysis to reach the price I am willing to pay - we gather market data to determine that (benchmarking).
When I share the numbers upfront three things may happen: (1) the vendor feels my numbers are solid and reasonable, but they can’t deliver - they tell me that and I move on to another provider; (2) the vendor finds flaws in my analysis/numbers, in this case they tell me where I missed and then I can review my numbers accordingly and we continue negotiating; (3) the vendor feels my numbers are good and they can deliver on them - we sign the deal.
This approach has been very successful in my day job. I am only trying to adapt it to my real estate deals. I am very curious to see if this approach works also for real estate… :O)
I agree with Dave. It is pointless to try to justify your offer to a bank. Banks are hands-down the hardest sellers to work with and are absolutely unscrupulous in their dealings with buyers. The price that they are willing to accept will not be influenced by your analysis. They’ve already had at least one analysis of their own done (a BPO) and the price they will accept depends on a variety of factors; including how many bad loans they have; where they are in their fiscal calenday; how long the specific property has been on the market, etc. Many of them reduce the price on a fixed schedule.
My wife had a question last night when we were reviewing the offers - what if the banks accept all four offers? I guess if that happens I will be in the wholesale business with three of them... :O)
Then you’ll have to buy all four or risk ruining your reputation. Reputation is absolutely critical in this business. A reputation of being able to close on deals will greatly increase the deals you get. A reputation of backing out of deals will quickly get around and no-one will want to deal with you. Banks usually don’t allow double closings or assigning their contracts, so you want to be sure that you can close on whatever deals you make offers on. I have had as many as 5 deals be accepted at once, so it does happen (yes, I closed on all 5).
Mike,
What do you think of adding the clause; “Buyer has the right to cancel offer any time before its acceptance” to the offer?
I’m considering putting this in my next offer to a bank. They can take a long time to make a decision. I wouldn’t want to miss out on other opportunities because of that. Your thoughts?
Real estate negotiation in America introduced the offer-counteroffer process when Peter Minuet bought Manhattan in 1626 for $24 worth of beads.
The bank has already stated their price and it appears in the MLS for all to see. A buyer makes an offer, most likely at a lower price. The bank either accepts, rejects, or makes a counteroffer. The offer-counteroffer process in repeated until the parties reach mutual agreement or an impass.
My concern with j1dias’ approach is that he is telling the seller that his lowball offer has more than 30% negotiating room. It is fine to point out the property defects that need to be repaired and use that to help justify a low offer.
But to tell the seller that his offer is at least 30% lower than his own opinion of the property value because he will resell the property for profit just tells the seller that there is someone else out there that will buy as an owner occupant and be willing to pay at least 30% more because that buyer won’t have a profit motive.
Dave - thank you for taking the time to share our experience/thoughts. I do see your point. It is not my intent to seem like a know-it-all… because I don’t. I was just trying to leverage my own experience. I guess I will need to try different approaches until I find the one that works for me and get me to close deals… :O) Thank you!
Mike - if the banks take my offers I will be in a very good position to wholesale 3 of the deals and keep one for myself. Or worst case scenario, I will do all 4… scary but doable… I think :O)
but I believe that more than likely they will not take my first offer. If they counter I can chose the one I feel better about and negotiate that one. And walk away for the other 3…
I understand that reputation is important in this business. I will keep that in mind.
Thank you.
jp - I don’t need to put language in my contracts to that effect. I can always withdraw the offer before it is accepted. In my estate the offer is not binding until it is accepted. If I backout before it is accepted I am good.
This is true in all states/all deals. You can revoke an offer until it is accepted or (under some contracts) acceptance is communicated to you by their agent. Also most RE contracts put a time limit on your offer, so that your offer is technically (legally) dead after the time limit, regardless of whether you withdraw it or not. Many banks will “accept” offers that were expired, anyway, but they are legally making another counter-offer, which you are free to accept or reject.
I also fully agree that the bank doesn’t care about your analysis. I also agree that actually hurts you b/c they don’t care that you are an investor hoping to make a profit. I talk with listing agents (for banks) all the time. The banks are very careful to try to sell for market value (that’s why they get the first BPO, then often get additional BPOs once they receive an offer to make sure they aren’t selling too cheap). Your explanation definitely hurts your posture. I would just give your number in the future, possibly with any comps that justify your price as market price, but that will be hard to do if you don’t want to pay market price. I would just send your number. And pick REOs that have been listed for a long time.
Tina - where were you Sunday afternoon/evening when I was writing my offers? :O)
I haven’t heard back. Late this afternoon I am going to see 5 more properties - I will try to squeeze them all this afternoon as I have a team building that ends at 4pm… :O) I will not include my analysis in my next offer. :O)
So, I got my first response this afternoon. I called the listing agent for the short sale. He said that he was going to call me. He thought my offer was confusing - he basically said that the home owner did not accept it. He didn’t even bother to counter… :O(
In the end of the day all the agent and the home owner saw in my offer was that his property was worth $90k and I was offering around $40k for it… He did not care about my costs and my expected profit…
I learned a very valuable lesson - keep it simple. Who cares about my analysis. All they care is how much money they are going to make… And this is not wrong. I was under the impression that both the agent and the home owner would appreciate the fact that I was being upfront by sharing my numbers. All I did was confuse them… I guess if I had the chance to present my offer in person I could had explained it.
I am accostumed to negotiate multi-year services contracts - I guess a basic difference is that for the service contracts both parties have a vested interest in ensuring that each is getting what they want (otherwise the contract will not last long). In real estate transactions, there is no long term relationship. All the parties want is to make sure they get the most out of that single interaction… Big difference…
Let’s see what happens with the other 3 offers. Wish me luck.
By the way I will monitor this property and see what happens. I may decide to re-submit an offer later on.
You got a couple of valuable lessons today. Despite what we have already told you or what Tina might have told you on Sunday, you needed to get this lesson first hand.
Take aways
The confused mind always says no.
Don’t show your hole cards. Presenting your offer in person would not have helped because you told the homeowner that his home is worth much more than you are willing to pay.
One thing that has me confused. If this was a short sale, and the homeowner is not going to get any money at the settlement table, why wasn’t your offer presented to the lender for approval. The seller can’t accept your offer unless the lender approves, and has nothing to gain by rejecting your offer without presenting it to the lender for approval.
Maybe you can get with your buyer’s agent and write a short sale offer. A short sale offer is more detailed than the offer you present to a seller, and often does include a “justification” for the offer price. Hint, none of the justification includes your own profit.
One final lesson from this experience. I assume that you are not working with your own agent. You really should consider working with a good buyer’s agent. Even the most successful investors often work with their own agent. By going it alone, you have noone representing your interests.