How to Sell That Flip!

8

Ok, through marketing and networking you found a motivated seller, negotiated a stellar deal, spent hard earned cash and sweat equity turning a dump into a dream house, and now your ready for the real fun…

Selling your flip on the open market.

In our family business this is where my work begins.  Having my license makes me the one in charge of listing all properties and the one on the front line during the negotiating.  We strive to achieve that elusive balance between selling the property quickly and maximizing profit.  Over the past several years we’ve discovered some things that have made achieving this balance a little easier.

Setting the Right Price:

This should be a no-brainer, right?  If you’ve bought the property right you should be able to list at a price that guarantees it will move.  I’m sure no one reading this has EVER over-priced their property! <sarcasm>

Everyone knows that the first 14 days are the most crucial on the market, so resisting the urge to push the list price too far over the cliff to “test” the market is important.  If you over-price your property and it continues to sit for days, weeks, and even months, you (the seller) lose the upper hand when the negotiations finally start.  How many times has any of us said, “Let’s send them a low-ball offer.  That house has been on the market forever!”  When your buyer does finally come along, it can be an uphill battle to regain important negotiating ground.  So make sure you have a good feel for the market value of your neighborhood before even starting your remodel.  Try to price the property to bring an offer within the first 2-3 weeks.  If there are buyers looking in that area, you should have it priced to sell to one that is already waiting!

Leave Some Things Undone:

I know this sounds a little crazy but hear me out.  It’s ok to leave something on the table for the buyer to ask for.  During the 3rd party inspection your great property is going to get torn apart on paper.  It’s the inspectors job.  No matter how hard you try and prep for it, the buyers are more than likely going to come back with an amendment.  It’s part of the dance.  So, let’s say there was an outdated light fixture you didn’t quite get to or even an older hot water heater that probably could be replaced.  Leave them!  This way when the buyers come back with their laundry list, you, in all your generosity, can agree to do some of those items which you were already aware of and willing to do anyway.  So, the buyer feels good that they are getting something more out of the deal and you aren’t pulling your hair out because the items you just agreed to were probably part of your budget anyway.  So it’s a win-win, everyone feels good situation.  If you’re not sure what those items might be, ask this question, “If I don’t fix or replace that, will it cause a buyer to not make an offer on the house?”  If the answer is “No”, then you might just leave it undone!

Head Off Conflict Before It Comes

Each transaction we do, we learn something new.  When I first started in this business I just wanted everyone to like me, like our property, and feel good about every aspect of the transaction.  What a fairy tale!  So, several years later I’m happy to say that I am much more realistic, and prepared.  We’ve come up with an instruction sheet to agents that now accompanies every one of our listings.  This helps to qualify the buyer’s that may potentially make an offer on your flip and head-off any deal breakers.  It contains the following information:

  1. The correct seller name (We are an LLC and agents constantly ask us whose name it should be in).
  2. Instructions on seller’s disclosure and what box to check on the contract.
  3. Instructions on submitting a pre-approval letter (NOT a pre-qualification).  Additionally, here is where I warn agents that this property is a flip and that their lender may have seasoning requirements that this property does not meet.
  4. Title company information goes here along with instructions if they choose another title company then the buyer needs to be prepared to pay for the title insurance.
  5. Option period/Fee:  In Texas the buyer pays the seller a certain amount to have the property taken off the market.   The buyer then has the unrestricted right to have an inspection and complete their due diligence.  Agents will always try and get 10 days for $100.  Guess what?  $100 doesn’t even pay your carrying costs for those 10 days, and 10 days is entirely too much time.  So we line out a schedule for them, basically telling them to put their money where their mouth is.      It is as follows:
    5 days @ $250                                                                 6 days @ $300
    7 days @ $350                                                                 8 days @ $400
    9 days @ $450                                                              10 days @ $500
  6. Our response time goes here.  We choose not to work on Sundays.  This is clearly stated so that amendments are not sent over on Saturday night with an expectation of a response Sunday morning.
  7. Where and how to submit offers.   My contact information goes here.

So there you have it.  From pricing to spelling out expectations of the transaction,  it’s a sure fire way to make your deal run smoothly.  I realize everyone has strategies that work for them.  This is just what keeps our business humming along in the market and area we are in.

I’d love to hear some things that work for you!

Happy investing!
Photo: FreeDigitalPhotos.net

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About Author

Katherine Grote, co-founder of I Buy Austin Houses.com, (Google+) has been involved in real estate for 7 years. Through her experience, Katherine has gained the expertise to sell a home fast. With experience in short sales, REO's, multi-family, and rentals, Katherine is a well-rounded licensed Realtor as well as an avid investor in residential properties.

8 Comments

  1. “Leave Some Things Undone”? I am rookie but this sounds wrong, leaving things undone that you think/know should be done purposely isn’t it waiste of everyone’s time? and some what cruel?

    • Hi Allan,
      It may sound worse than it is but re-habbing a flip is not new construction. Additionally I am not talking about leaving items that are safety or major repairs. For example, if the water heater is not working, of course we replace it. But if it’s just older but still operating correctly we will usually leave it knowing that the 3rd party inspector will hit us on it because of it’s age. Another example is if there is only R12 insulation in the attic we will not bring it up to R38 like new home builders but leave it as a point of negotiation. If you try and fix/bring up to code everything in a re-hab you will greatly reduce your profits.

        • This is a great strategy and I do the same thing with my flips. I almost always do not install GFI outlets in the kitchen or one of the bathrooms. Inspectors LOVE to make a big deal about it and I for one LOVE it when they spend their time focusing on something as small as GFI outlets.

          Not to say that you should hide things, but just make it easier for the inspector to feel good about themselves when they find the obvious things. Better that then to have them nitpick everything just because they couldnt find something. I’m very confident in my products and the last thing I want is an overzealous inspector who makes something up because they couldn’t find anything.

          Another one that I do is “forget” to install smoke detectors. Cheap, easy fixes that I was planning on doing anyways.

  2. HI Katherine,
    Great article. I am curious about the option fee. I am in CA and have never heard of this before. Could this be a deal breaker?

    I have just lost a buyer on a flip – buyers remorse – (realized they were in over their head, and although they were approved for a loan, they had not counted all the other costs of home ownership – like insurance, PMI etc, etc.) So I would have LOVED to have had some sort of penalty!
    I would be interested in knowing if anyone in CA has tried this.

    • Hi Corinne….thanks. I have a Realtor friend in California who I’ve had discussions regarding option fees with before. All states do something different. So in Texas, the buyers pay a fee to have the seller take the property off the market. If they back out of the dealwithin the time agreed on the seller keeps the option fee and the buyer get’s their earnest money back. If they proceed with the deal then that option money gets credited back to the buyer at closing. We got tired of the $100 fee for 10 days and having buyers back out at the zero hour leaving us with time lost and a measly $100 bucks to cover our costs. That’s why we got a little radical. Thanks for reading!

  3. Orlando Cestona on

    Hi Katherine,
    I just have a question about flips and title seasoning. How do you deal with this issue because it seems to me that it limits your buyer’s pool. I would greatly appreciate your feedback. Thank you.

    • Orlando,
      Great question! We ran into the seasoning issue ourselves a few times before we got educated. Not all lenders have seasoning requirements and those that do are also different. Some 30, some 60, some 90. One of the things we did was to add to our above information to agents submitting an offer that the property is a flip and that they must check with their lender to see what, if any, seasoning requirements there were. Many times the lender will ask for the previous HUD of when the property was purchased (by you). We stipulate that we will not provide this. Sometimes just a list of improvements provided to the underwriter will allow the buyer to get around the seasoning/HUD requirements. Sometimes it won’t. That’s why we stress to the agent to do their homework and make sure the lender understands that it’s a flip and head off any potential issues. Additionally, we’ve found that for buyers who put down at least 20% the seasoning is a non issue. Hope that makes sense!!

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