The Psychology of Making Offers

28

When you are just getting started investing in real estate, it can be tough making your first offers. I’m not talking about just any offer, but the actual offer you should be making on a fixer upper property. Most of you have probably heard the saying, “If you are not embarrassed by your offer, you have just offered too much”. I have found this to be true over and over again. It can be hard to look the seller in the eye and tell them what you must get the property for when you know they are expecting a much higher number. So what’s the answer?

Change Your Thinking When Making Offers

One of the most important aspects of making offers is finding a way to get over the idea that you are taking advantage of these sellers. But before you can begin to change the seller’s expectations, you must first change your thinking. I want you to be clear that I’m not saying that it is OK to take advantage of anyone. But, you have to buy these properties at the right price to build a successful business.

Presenting an offer to a motivated seller that makes you feel uncomfortable is just part of the business. It’s a fact that you make your money the day you buy the property. If you pay too much initially it’s going to be very hard to make that up somewhere else. Rehabbers will have to cut expenses on their project somewhere. If you are a wholesaler, you will surely take a hit on your wholesale fee. If your strategy is buy and hold, you might be able to make up the difference simply holding the property long term.

But if for any reason you find yourself in the position where you must sell the property quickly soon after you purchased it, you run the risk of losing money on the deal.

6 Steps to Change Your Thinking

  1. First and foremost, make peace with the fact that you will almost always be offering less than the seller wants. In most cases, they will know on some level that their asking price is too high, but you can’t fault them for trying.
  2. It is all about the numbers. Get very good at crunching the numbers. This part isn’t optional. You might say it’s a matter of life and death; it will be ultimately determine whether or not your business lives or dies. If you don’t master this part, you will always have problems.
  3. Once you have figured out what your MAO or maximum allowable offer is, offer just a little bit lower. Some sellers have the need to negotiate to justify taking a lower price. It makes them feel good about process, so leave yourself a little room in the MAO for some negotiation. When you do that the seller will feel like they have won, and you will feel good about your offer if the seller is satisfied.
  4. You will get a lot of “no’s”. Get used to it and move on. You have to change your mindset; this is a numbers game. Don’t make the mistake of trying to make a deal work. Always go by the numbers and leave emotion out of the equation.
  5. If you are getting a lot of accepted offers as a newbie, you are paying too much. Remember that you should always feel a little bit uncomfortable with the amount of your offer.
  6. Find out what that “something else” is that your seller wants or needs. This is your leverage in the deal. Once you have this bit of information, you can add this to the deal which will make the seller happy. It will also make you feel like you have added value to the low price you are offering.

Real estate investors provide a valuable service to people that need a quick solution to their problem. Don’t sell yourself short by feeling bad about your offers.

Changing the Seller’s Expectations When Making Offers

The second part of the psychology of making offers is “changing the seller’s expectations”. I wrote an article here on BiggerPockets a while back about that. You can find that article here if you missed it last time:

Do you struggle with making low offers? What have you done to overcome it? Let me know in the comments below!
Photo: Ruth L

Subscribe to our mailing list

* indicates required Email Address * First Name Last Name

About Author

Sharon has been investing in real estate since 1998. She owned and operated a successful home inspection company for 17 years. In January of 2008 she took the leap of closing her business to become a full time real estate investor.

28 Comments

  1. Great blog post Sharon as usual.

    Seems a bit discouraging connecting the dots for your blog posts. In one of your previous blogs you talk about direct mail response rate and how it can take several contacts throughout the year before your response rates pick up. Initially might be as low as 2%, and many of the people who call in from that 2% will be not be motivated enough to work with a wholesaler. So as the months go buy and the momentum picks up now maybe your getting some better calls, and going on more appointments, but out of those few good calls you get many of the offers you make even still will be “No.”

    When do you catch a break? Seems like the momentum needs to build over a period of about 6 months before you can hope to do deals regularly.

    Would be curious on your thoughts, again great post!

    • Sharon Vornholt

      Samantha –

      It does sometimes take a while to get the momentum going. But because it takes a while, that doesn’t mean you won’t get some deals along the way. You will.

      But, you need multiple methods of getting leads. You can’t just have one lead source.

      -I’m not a fan of bandit signs and the are illegal in some areas, but they do work.
      -You can network at your REIA meetings and let them know what you do.
      -Set up a basic WordPress website to collect leads
      -Write some articles about your business

      There are many things you can do. No one thing is a magic button. But over time with consistent action, direct mail is consistently my best source of leads.

      Sharon

      • Hey Thanks for writing me back Sharon, yes I have multiple sources of leads.

        -Probate
        -Absentee owner
        -Over 65+
        -Tax delinquent
        -ads on craigslist

        I am on month 3 so far. Had a few good calls, but either they are not ready to sell yet, or a few days before our scheduled appointment something came up and had to cancel. For instance had a absentee lead where owner that had a death in the family and is taking care of that.

        In the meantime, im going to dig my heels in and continue mailing.

  2. Great post, I will definitely be utilizing these steps the next time I am making an offer, these are things that I would not have even thought of. Thanks for the very valuable information!

  3. Keith Schneider on

    I think this is a savvy philosophy for negotiation. You cannot wear your heart on your sleeve when making offers on properties. Now that there is an upswing in the real estate market there is money to be made. Maybe consider hiring a lawyer just to deliver the offer, and don’t worry any compassion they have is usually drained out by the time they leave law school.
    Just kidding around somewhat. I know attorneys are easy targets for being labeled heartless!
    It might be better to pay an attorney several hundred just to deliver an offer rather than to have to see the look on their face, or upon the face of their realtor. A wise man once said to me son, in negotiation never begin at your bottom line, start lower than low and maybe you’ll hit a winfall, and if not the blogger is correct in appreciating that it is nice to allow the seller to think they moved the buyer up so they don’t feel so bad handing over the keys to your real estate success.

    • Sharon Vornholt

      Larry –

      You don’t need an attorney to deliver the offer. In fact you should never do that. It would turn most sellers off. The thing that will set you apart in fact, is that you are a regular person that just happens to be in this business of buying houses.

      Just treat this as the business transaction that it is; nothing more, nothing less. You always have to let the numbers determine your offer.

      If you are going to succeed in this business, you also have to learn to look the seller in the eye and deliver your offer with confidence to them; tell them that this is what you can offer due the the amount of repairs needed on the property. It’s OK to be filled with doubt on the inside, but your seller should never know this. There is a way to talk to the seller so that your low offer is less offensive to them. It does get easier with time.

      I always treat the seller with kindness and respect. I tell them that I understand this is not the offer they were wishing for. No matter what, we part friends. I always wish them luck if they turn down my offer, and I leave the door open to come back at a later date. In fact, you should say, “Is it OK to keep you on my mailing list? If plan A doesn’t work out for you, then maybe I can be plan”B”. Make sure they have your business card and keep mailing to them.

      Just so you know, most of us really hated making low ball offers for a very long time.

      Sharon

      • Sharon Vornholt

        That’s a good number. You never know when AO’s will get motivated. Yoiu will need to check probates periodically to see if the house has been sold.

        On the over 65, they may or may not be old enough. Do you have a parameter in there that the house must be free and clear? I am thinking of adding some free and clear folks to my list, but they will be more like 75. I am looking more for nursing home type of folks. It’s pretty normal for people to be working at 65-70 these days.

        • Thanks Sharon,

          What yes the 65+ people I am mailing have been researched and are free and clear. I check the probates every month to see if they have been sold or not.

          Beyond that, just continue to hang in there? I am only at month 3, but its a little discouraging when your spending quite a bit every month with no return so far. I budgeted for it, but still I would like to get a deal or two under my belt. But im going to keep at it!

        • Sharon Vornholt

          Just keep mailing and doing the other things you are doing. Do you belong to your local REIA? I bought and sold my first few deals there. You can find some solid cash buyers there too.

          If you get any calls, check back with those folks. Keep those leads in a list. The money is in the follow up. If and when you look at a house, send a handwritten note as soon as have looked at the house, and include your business card. That seller that said no today, may call you back next week, next month or even next year. As long as this is a house you would be intereseted in, keep them on your list even if they deciine your offer.

  4. Keith Schneider on

    I guess it is a matter of personal preference whether you want to sit at the sellers dining room table discussing the details about your low ball offer and seeing the sorrow in their eyes. To me that’s not how I would do it if I was serious about inquiry. I do not want to be involved in the personal side of the transaction. If the people do not want to field the offer let them reject it and maybe I’ll send my attorney with another offer. It’s just cleaner way to approach it. I do not particularly care why a person accepts or rejects and really I’m just trying to do commercial business, not get involved with or have to listen to sob stories meant to circumvent my negotiating posture. But thats just me, its worth the cost of an attorney phone call or letter.

  5. Sharon Vornholt

    Keith –

    I guess I don’t understand your reluctance to make offers. That is the business of real estate investing; making offers. You need to move past that fear.

    I don’t see sorrow in anyone’s eyes; I only see a problem that needs my help to correct. Almost always, it is a house they need to sell quickly for cash. They are grateful that I am there. If I am not their best option; if they would be better off to list the house, I tell them exactly that. I am not your best option. Many times, they just want to be done; to be free of whatever the problem is quickly so they take my offer and run.

    One of the most successful real estate investors I know personally, has a solid mix of residential and commercial properties. He has over 200 houses. In addition he has apartment buildings, commercial buildings, combination office space warehouse space, etc. He has negitioated every one of those deals face to face. Sellers identify with regular folks like you and me.

    I don’t think you won’t get very far with individual sellers having an attorney negotiate for you, not to mention that you will have to offer even less to pay the attorney. Using an attorney could work on million dollar + commercial buildings though.

    • Hi Sharon,
      Great Article, I printed it and will refer to it regularly when I get a lead…since I’m a newbie I think it will really help.

      It is hard at first to accept the embarassment of a low-ball offer, though I can see the logic. If the seller seems upset, put-out, or depressed I like to find out what their story is, this way I can perhaps find another way to help such as no closing cost to them, fast closing, finding a cheap moving company, finding them a place to rent (from a buy and hold investor) or if they really need more money than my MAO I explain what my job as a wholesaler is, and tell them if they want more they should list with a realtor (and I refer them to one of my RE agent friends). I am here to help people out of a real estate situation fast. Not everyone needs tons of money from selling the property, they just plain want/need OUT, now. It is a win/win.

      I can see how a lawyer could help with commercial or high-end residential, but in my opinion they would get in the way of finding out the sellers’ true needs, which I may be able to meet from another direction than raisning the MAO.

      • Melinda-

        Those are my thoughts exactly. Real estate is a people business. There are many ways to help a seller. Sometimes the best way you can help them is to tell them they need to list the property. For folks that just can’t be comfortable in this residential arena, commercial properties may be the way to go. There is a lot less emotion for sure in commercial properties.

        I still believe that whatever direction you go, you have to get comfortable making offers. People do business with people they know, like and trust. It’s not easy for anyone to deliver a low ball offer. But as you said, I try to figure out what that “something else” is that they need. There is always something. In the end, sometimes you can’t agree and that’s OK too.

        Thanks for your comments.
        Sharon

  6. Keith Schneider on

    I meant no offense in any manner. I was simply saying that I do not want to listen to the sellers heart felt stories that make me feel sad about what I would be doing. It is a business transaction and it may be a matter of preference but I do not want to see the anguished look when they hear an offer over fifty percent lower or more than they were expecting. Its just to me a business transaction, no personalities please. I do not want to hear about hardships that would make me come up on my numbers, and as I drink their coffee and eat their cookies be guilty and take some of the meat out of the deal, which in these uncertain times could be the difference between profit and loss. I want them to just say yes or render a counter-offer and if it works, let’s do the dance! No hard feelings I hope. I guess I do not have the stomach for that.

  7. Sharon,
    Great article. I’ve heard the exact quote that you should feel embarrassed with your offers. Thanks for giving some actionable tips on how to overcome those fears and also for reminding us newbies that folks like you once felt the same way. Good news is that it gets better with time.

    • RC –

      I would like to tell you that feeling goes away completely. But at least for me, it hasn’t. It does get easier over time because it is the right offer. You know this; the numbers always do the talking. It is what it is.

      Thanks RC for your comments.

  8. Hi Sharon

    This is another great article from you – Always insightful.

    I am looking to get started with buy and hold and someone mentioned “mailing have been researched and are free and clear. I check the probates every month to see if they have been sold or not” …… what is the best way to research free and clear properties and probates? Sorry if this is going off on a tangent.

    Lorcan

    • Lorcan-

      You say you are checking every month to see if the probates are sold.

      Are you saying you have put the leads into your database (there are new ones every month), are mailing to them monthly, and as a final step you are checking to see if they have been sold?

      This is the procedure to follow. I have over a thousand names in my database, so there is no way I can check them monthly. I try to check them every few months and get everything updated.

      As far as free and clear properties go, I have only done a few test mailings. To date, I have not had a lot of luck with these. I think you have to have very targeted parameters. You can get a list of free and clear properties from someone like listsource.com.

      Sharon

  9. Bailey Blasdel on

    Sharon,

    Thank you for all of the awesome posts and information you have shared! I have read your posts where you talk about using a white letter for probates – do you also use a white envelope, or do you use one that is colored to stand out in the mail more? Do you write “Administrator”, or “Executor/Executrix” on the outside of the envelope, too?

    Also, regarding sending postcards to absentee owners, do you keep sending the exact same postcard, or do you vary it with subsequent mailings? I’m working designing my own postcard, and would appreciate any tips or good copy you could share. I have 2800 leads coming from a list broker that comes highly recommended by other investors I know.

    Thank you for all that you do!

  10. Sharon Vornholt

    Bailey- Yes, I only use a business like white hand addressed envelope. Just put the exectutor’s name on it (no need to write Executor or Administrator on it).

    You should use the same postcard every time for branding reasons. The color yellow works well. I am trying out a brand new postcard this week.

    Re: your list – did you only do out of STATE absentee owners? I recommend you do this unless you are in a big state like CA or Texas.

    Also, be sure to have parameters in there for your list like at least 50% equity, exclude zip codes for bad areas, and have value parameters. Here I only ask for houses between with values $50k and $225k. Our median price is about $140K give or take.

    You don’t want to get a bunch of houses you won’t be able to do anything with. If I got a $400-500K house here, I would have a very hard time selling that to another investor. Put those parmeters in there so that you get a very select list of potential motivated sellers.

    Sharon

Leave A Reply

css.php