Making an offer is one of the most exciting steps in the home buying process. It’s even more exciting when your offer is accepted – especially when you know it’s a good deal!
I enjoy writing proposals and negotiating purchase contracts. There is something fun and gratifying in taking action to buy your next property!
Writing offers for real estate investment is an art. This is a far more complicated process than the offers made by typical home buyers.
Here are some tips I use to secure awesome deals without emptying the wallet!
do not attach
It’s hard, but you need to remain as emotionally detached as possible. The moment you get attached to a property, it becomes difficult to walk away from it. This means that you become vulnerable to accepting terms that you should not.
It’s hard to make solid, logical decisions when you’re emotionally attached. Humans buy on emotion and justify with logic. This is not a situation you want to find yourself in with a purchase as significant as a real estate investment.
For this reason, it is in your best interest to treat the process as analytically as possible. The numbers should always be the most important part of the deal for you!
tell them their price first
Whatever you do, if you’re lucky enough to negotiate terms on a property you found off-market, don’t be the first one to name the price. Tell the seller what they are hoping to get from the property.
One of the first rules of negotiating is that you never want to be the first to name a price. This is because you may be thinking of very different numbers. Their asking price may even be lower than what you are offering!
I have seen this first hand in many situations. Common places to find it are flea markets and garage sales. Go to a flea market and find something you want to buy. Get a price in your head for what you’re willing to pay, and then ask the salesperson, “How much for X?”
You’d be amazed at how often the seller will name a price well below what you’re willing to pay.
Connected: The Basics: Tips for Finding and Making an Offer on a Home
For example, I’ve been eyeing a printer that I thought would be easy to flip at a garage-sale. I had decided that I would be willing to pay anything under $10. When I asked the salesperson, “How much does this printer cost?”
He said, “Eh, how’s 50 Cent?”
That’s right, I bought this printer for 20 times less than I was willing to pay! Then I sold it for $81—a 16,200 percent return!
Imagine if you made an offer of $100,000 on a house and the seller took $80,000! Or what if you offered $80,000 and the seller is only willing to go down to $100,000? They may end the conversation rather than counter your offer.
There are situations where a seller will not give you a price. They may instead say “state your value” and have no intention of throwing out the first number. In these situations, it’s definitely better to name the price than anger the seller.
However, in an ideal world, you would never have to state your price in the first place!
submit multiple offers
There are many strategies for putting an offer on a home. One of my favorites is to submit multiple offers for the same property. You can do this in many different ways. Here’s an example.
You find a home listed on the MLS for $100,000 and make the following offer:
- Offer 1: $50,000 cash
- Proposition 2: $75,000 with a conventional loan
- Proposition 3: $100,000 with seller financing
The above numbers are only examples; All offers vary based on cash flow opportunities and deal potential.
The reason I like to write multiple offers is because sellers love options. It makes them feel like they are in charge and will be more satisfied with whatever choices they make.
I love it because I can either get a smoke deal in cash or an OK deal with very little (or no) money down! Additionally, it seems to me that sellers are more likely to provide a counter offer as opposed to simply rejecting my offer. This is understandable as they have many options to counter.
Try using this hack. It is a pain for real estate agents to write multiple offers on the same home. If you are in a buyer’s market (more homes for sale than buyers), your agent may be able to call these offers verbally. If the seller feels it has potential, you can frame it as an official offer. I love doing this because my agent can effectively “submit” tons of offers for me in a single day.
Real estate investing is a numbers game, after all. Therefore, the more offers you submit, the more deals you get under contract!
Offer to pay closing costs in the first offer
When I submit an offer for a property on the MLS, I always offer at least $10,000 below the asking price (with the exception of some extremely hot markets). I do this even if I think the property is worth the full asking price.
However, in this initial offer, I will also offer to pay 50 to 100 percent of all closing costs/fees associated with the real estate transaction. That way, if the seller opposes my offer, I can say, “Sure, I’ll buy at full price if you pay 100 percent of the closing costs and fees.”
Doing so should allow you to bring less money to the closing table. This means you will either buy at a discounted price (if they take the first offer) or buy with less money (if they pay closing costs/fees). I love this win-win situation!
It can be summed up like this: “Either I buy at your price and your terms or at your price and my terms.”
This is such a fun and simple trick that you can add an extra negotiating tactic to take advantage of!
Connected: How to Make an Offer That’s (Almost) Guaranteed You Can’t Lose
understand contingencies
Contingencies are a great way to cover your ass. The downside of including too many contingencies in your proposal is that it weakens your overall proposal. Sellers prefer offers with fewer contingencies in them, because it means you’re more likely to close the deal (fewer contingencies cause buyers to walk away).
For this reason, it’s important to thoroughly understand the contingencies so that you can put some important things in the contract without overdoing it. You want to make your offer as strong as possible, and writing 30 contingencies into your offer often hinders your ability to negotiate. It is a balancing act. You should never leave so many contingencies that you are not comfortable with the associated risks.
It will all get easier as you write more offers, buy more properties, and continue to build your real estate empire!
be prepared to walk away
There is no such thing as a perfect deal. But no deal is worth sacrificing your sanity. There are always other qualities.
Don’t let emotions get involved in the buying process. Always be as objective as possible to ensure that you buy the best deals.
I know I already mentioned feelings above, but it’s so important that I had to include it a second time. If you shop logically — based on the numbers — the results will be much better than if you allow emotion to factor into the process. With this in mind, you need to be prepared to walk away from any deal!
Homeowners can tell when you “need” a deal. It’s not easy to hide this needy vibe, and the seller will be able to smell blood in the water. This results in losing negotiating powers, and you are susceptible to agreeing to a deal that may not be very solid. Then again, take the emotion out of the home buying process!
What tips would you add for putting an offer on the home?
comment below!
Note by BiggerPockets: These are the views expressed by the author and do not necessarily represent the views of BigPockets.