Putting in an offer is one of the most exciting steps in the home buying process. It is even more exciting when your offer gets accepted—especially when you know it’s a good deal!
I love writing offers and negotiating the purchase contract. There is something fun and fulfilling about taking action to buy your next property!
Writing offers for real estate investments is an art. It is a much more intricate process than the offers made by normal home buyers.
Here are some tips I have used to secure awesome deals without draining the wallet!
Don’t Get Attached
This is difficult, but you need to remain as emotionally uninvolved as possible. The moment you get attached to a property, it becomes hard to walk away. That means you become vulnerable to accepting terms you shouldn’t.
When you’re emotionally attached, it is harder to make sound, logical decisions. Humans buy on emotion and justify with logic. That is not a situation you want to find yourself in with a purchase as important as a real estate investment.
For this reason, it is in your best interest to treat this process as analytically as possible. The numbers should always be the most important piece of the deal for you!
Make Them Name Their Price First
Whatever you do, if you are lucky enough to be negotiating the terms on a property you found off-market, don’t be the first to name a price. Make the seller tell you what they are hoping to get out of the property.
One of the first rules of negotiating is that you never want to be the first to name a price. That is because you may be thinking of very different numbers. Their desired price could even be lower than what you would offer!
I have seen this firsthand in many situations. Common places to see this come to fruition are flea markets and garage sales. Go to a flea market and find something you want to purchase. Get a price in your head for what you would be willing to pay, and then ask the vendor, “How much for the X?”
You’ll be amazed at how many times the vendor will name a price way under what you are willing to pay.
For example, I was eyeballing a printer that I thought would be an easy garage-sale flip. I had decided that I would be willing to pay anything under $10. When I asked the vendor, “How much for this printer?”
He said, “Eh, how about 50 cents?”
That’s right, I bought this printer for 20 times less than I was willing to pay! I then sold it for $81—a 16,200 percent return!
Imagine if you offered $100,000 for a house and the seller would have taken $80,000! Or what if you offered $80,000 and the seller is only willing to go down to $100,000? They might end the negotiation rather than countering your offer.
There are situations where a seller won’t give you a price. They may say “name your price” instead and have no intention of throwing out a number first. In these situations, it is most certainly better to name a price rather than piss off the seller.
However, in a perfect world, you would never have to name your price first!
Submit Multiple Offers
There are many strategies for putting an offer on a house. One of my favorites is to submit multiple offers for the same property. You can do this in many different ways. Here’s one example.
You find a house listed for $100,000 on the MLS and make the following offers:
- Offer 1: $50,000 cash
- Offer 2: $75,000 with a conventional loan
- Offer 3: $100,000 with seller financing
The above numbers are just examples; all offers vary based on the cash flow opportunities and the potential of the deal.
The reason I like to write multiple offers is that sellers love to have options. It makes them feel like they’re in charge and will make them more satisfied with whichever option they choose.
I like it because I can either get a smoking deal in cash or an OK deal with little (or no) money down! Additionally, I feel like sellers have been more likely to provide a counteroffer as opposed to just denying my offer. This makes sense because they have several options to counter.
Try using this hack. It is a pain for real estate agents to write multiple offers on the same house. If you are in a buyers’ market (more houses for sale than buyers), your agent may be able to get away with calling these offers in verbally. If the seller thinks it has potential, THEN you can draft it into 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 will get under contract!
Offer to Pay Closing Costs in First Offer
When I submit an offer for a property on the MLS, I ALWAYS offer at least $10,000 less than the asking price (with the exception of some extremely hot markets). I do this even if I think the property is worth full asking price.
In this initial offer, however, 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 counters my offer, I can say, “Sure, I’ll purchase at the full asking price if you pay 100 percent of the closing costs and fees.”
Doing this should allow you to bring less money to the closing table. That means you’ll either purchase at a discounted price (if they take the first offer) or purchase with less money down (if they pay the closing costs/fees). I love this win-win situation!
It can be summed up like this: “Either I buy on my price and your terms or your price and my terms.”
This is a fun and simple trick to add an extra negotiating tactic for you to leverage!
Contingencies are a great way to cover your ass. The downside to putting a ton of contingencies in your offer is that your overall offer is weakened. Sellers prefer offers with fewer contingencies in them, because it means you are more likely to close the deal (due to fewer loopholes allowing the buyer to walk away).
For this reason, it is important to understand contingencies well enough that you can put a few important ones in the contract without overdoing it. You want to make your offer as strong as possible, and writing 30 contingencies into your offer will often hinder your ability to negotiate. It is a balancing act. You should never leave out so many contingencies that you’re not comfortable with the associated risks.
This will all get easier as you write more offers, buy more properties, and continue building your real estate empire!
Be Willing to Walk Away
There is no such thing as a perfect deal. But no deal is worth forfeiting your sanity. There are always other properties out there.
Do not let emotion get involved in the purchasing process. Always remain as objective as possible in order to ensure you buy the best deals possible.
I know I already mentioned emotions above, but it is SO important that I had to include it a second time. If you purchase logically—based on numbers—the outcomes will be much better than if you allow emotions to get involved in the process. With that in mind, you need to be willing to walk away from ANY deal!
Homeowners can tell when you “need” a deal. This needy vibe is not easy to conceal, and the seller will be able to smell blood in the water. This results in lost negotiation powers, and you are more susceptible to agree to a deal that may not be very solid. So again, leave emotion out of the home buying process!
What tips would you add for putting an offer on a house?
Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.