How to Get Comfortable With the Uncomfortable Task of Making Offers on Homes
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It can be nerve-racking making offers when you are new to real estate, but let me tell you: If I go more than a few weeks without going on an appointment or making an offer on a house, I still feel nervous to this day. It comes with the territory. Buying houses at a discount at the kitchen table or over the hood of your car, or trying to help someone’s mom downsize and move out of a home that hasn’t seen any updates since the 1960s can be a hard thing to do.
Analyze the Situation
To master making offers, you need to take good notes and pay attention. This all starts with the first phone call. From the get-go you need to be keeping notes. Still, this shouldn’t take priority so much that you sound like a robot or come off as trying to interrogate someone. Building rapport and establishing a relationship should always come first. What sort of situation is the seller facing? Is the house vacant? How close are they to the subject property? Are they in state or out of state? How many heirs? The answers to all these questions collectively start to build a mental model for me that helps me gauge their motivation to sell the house and what sort of offer may be best suited for their situation.
Just a quick example. If I notice there is a certain amount of heirs, I always try and make my offer sum total a multiple of that number. It’s a subtle thing that allows them to do the math in their head when you put out your offer, and they can quickly think to themselves what split of the money will be theirs. If you are new to real estate, there are two ways that I usually make offers, and I will go over the pro and cons of each.
The On-the-Spot Offer
This is a bit more difficult to do, but it is what I always recommend if you can build up the courage, and courage just comes with experience. It is never easy, but it does get easier the more you practice. The reason I recommend this is because it can allow you to get a house under contract before the next guy does. Typically you are not going to be the only person out of the pile of mail they decide to call. Sometimes it happens, but in my experience it is fairly rare.
Another big advantage is that it allows you to educate the seller in person. One thing I like to do is bring a stack of comps with me before I arrive at the subject property. I drive all my comps, take a look at the pictures, and compare finish out levels to make sure that I get a good idea of what the house will be worth after rehab. Armed with that knowledge, it always makes me much more confident about making an offer on the spot.
After I walk them through the comps, I itemize and list out what needs to be repaired, along with their cost. I then compare two sets of numbers, with one showing how much they will make if they want to do all the repairs themselves, put the house on the market, and sell it with a real estate agent. The other shows how much they can make TODAY, selling me their house at a discount for cash. After seeing the process and the list of items that need to be fixed, they usually go with me.
Spelling it out like this really helps convert some people because you can see the gears in their mind turning when you explain it like this.
The Send-an-Email-and-Wait Offer
For people who are new to real estate investing or haven’t done much buying at the “kitchen table,” this is what I would recommend you start out with. This helps you get the ball rolling, gives you additional time to double check your numbers, and allows you to focus on building the relationship at the appointment instead of trying to stall and dreading the end of the appointment when you should be making your offer.
One of the big benefits of this method is you can really look professional by either sending in a letter or email what I call the “letter of intent” (to purchase). In the email you can talk to the individual(s) you met with directly. I usually like to reference a few jokes or things we talked about at the appointment that we formed some sort of connection on. The rest of the contents of the letter just shows the repair items and what they could sell retail if they put in all the work or what they could make in cash from me today. At the bottom I put all of my contact information, the information for escrow, etc.
What to Do When You Hear “No”
Whether you make the offer on the spot or send an email, you will undoubtedly receive a “no” or two. Some people will even get angry with you because they will either have an unrealistic expectation on what the house will really cost to repair or what the house is worth–or sometimes a mix of both. Sometimes it’s just about changing the seller’s expectations, assuming you are giving them a fair offer to begin with.
Tailor the Offer to the Seller’s Needs
It's important to tailor the offer to the seller's needs. Sometimes the seller needs to close in five days; sometimes they have nearly unlimited time. This is where your mental notes come in. What was the red flag event that caused your seller to contact you in the first place? What problems are they facing? Does the house have a lien on it? Do they have a house without a will and a bunch of heirs? Offer a solution to their problem and a deal tailored to them, and you will get more houses in return. It doesn't always have to be more money.
Don’t get discouraged when you hear the word “no.” I am not a big sales guy; I hate the word sales, but when I hear “no,” I have trained myself to hear “not yet” instead. Now, this doesn’t mean I pester them or try to force them into a sale. Rather, I know with time some of these situations can and will change.
Simply put any of these leads on a follow up list and continue to mail them, or even make a follow up call from time to time. A decent portion of my business comes from leads in this category that initially told me no.
Get Comfortable Being Uncomfortable
Your offer will usually be less than what the seller wants. But the good news is that many of them will want to sell to you anyway because it's convenient for them. What's not convenient is trying to get the top dollar, interviewing real estate agents, listing a house, waiting as the house sits on the MLS, reviewing offers, etc. When you can do all this for them and close the house in a few weeks or less, it really helps many of these people, and many of them are more than happy to take a discount for a fast and clean sell. Many sellers are at their wit's end dealing with the house by the point they contact you and are just ready to unload this headache onto someone else.
What does your offer process look like? What tips would you add to mine?
Share your comments below!