Thinking about changing my offer strategy for MLS deals

4 Replies

So, I imagine I'm having a similar problem I'm finally getting over that a lot of rookies face. That is overcoming the notion that I need to see a piece of property to put an offer in on it. I'm pretty much there, and on board with the idea, seems popular amongst many I've read/talked to. I just wanted some thoughts from the group mind on a couple points.

1. What are the "gotchas" of doing this. And by the same token, advantages?

2. Since these are on-market deals I'm talking about, and will likely involve my buyers agent, what are some points to make with her I can use to overcome what I'm sure will be seen as some kind of cognitave dissonance, since typically it would be unheard of to offer a house sight unseen (in normal circumstances, with a standard buyer).

(At this point I feel compelled to ask that you don't point out that I need to be shopping "off-market" deals. I know, and I am, but that topic is a whole 'nother Oprah.)

3. If you do this, how do you handle (i.e., what do you write into the offer) for Due Diligence and Earnest ($ and time). Also, what extra contingencies may be good ideas to include.

Thanks in advance! 

SDH

@Scott Hughes I've purchased most of my smaller residential multifamily portfolio sight unseen; however, I did have trustworthy agents or property managers walk the properties and take photos or video for me.  I still have properties I've never seen. You have to make sure to be clear on your standards and what they should be looking for.

I will always have a due diligence contingency to ensure I can look over rent rolls, financials, and conduct inspections.  The inspections will depend on the type of property and location.  Earnest money is standard but give yourself a couple extra days in case you have to mail the check vs wiring the funds. Also stipulate that the due diligence contingency period should not start until you receive all due diligence items to review.

Best of luck!

@Scott Hughes Hi Scott! 

So this is going to be what sounds like an out of state investment for you, and you're nervous about not seeing it with your own eyes. To be clear one one thing from the start- you're not alone! 

It really comes down to who you're working with and your 'boots on the ground'. If you trust your agent/person/team in your remote location- you should be pull the trigger ready. Why?

Deals (depending on the area) can go quickly and this makes a difference when you need/want to get an offer in for sellers to consider.

I would suggest that you to consider your agent here and how well they know you and your needs and wants in a deal.  Here's what I mean; 

When we work with an investor in or out of state, we have a complete investor profile we go over with them. We discuss short term goals, long term goals, how they are financing, how much they are putting down (it's all relevant - like if they are putting x amount down, and I know they then have x amount to cover each month in a mortgage payment, I'm not going to show them deals that fall short- so it's not just being nosey stuff!) why they are doing this (investing), we take SO much time and energy into getting to know our investors from the start to figure out two main things;

1. Are we a good fit to work together? If not, who can we connect them with that is?

2. Is this someone that we can see working with and making friends with at least 10 years in mind and we reverse engineer it from there to help as best as we can (i.e. if long term goal is to have a dozen buy and hold properties, lets work it in reverse from a dozen to just one deal and figure out how to financially meet the other 11 deals quicker)

After spending this much time and building a superior relationship (connecting them with PM's, contractors, real estate attorneys, lenders, etc- whatever they need) it's pull the trigger time, and when there's a deal presented, they trust it's with them and only them in mind and it's a 'fit'. 

Now as for seeing the property- that's where we've gotten creative (we knew people in NY that were doing drone showings at the height of COVID outbreak) but really, at minimum having a virtual tour in agent (or wholesaler if you're working with one) taken pics /videos can help (above/diff from MLS pics/videos- different POV). If this doesn't suit you enough maybe a Zoom meeting.

I say that as you could be as curious as you wanted to be, "Hey agent Jim, what's behind that door to your left? Can you open it up?" type thing. Your 'virtual eyes'.

If you've got the right person/team, even off market deals can be in the same boat really (remember, they would have at minimum gotten you in contact with a contractor who met them at the property to walk it as well and you're getting an idea of rehab costs in real time) 

As for earnest money down, usually it's 1% - and can be adjusted, but your agent should (and I'm sure they will) put in all of the necessary contingency clauses with your offer. Title/escrow isn't something you deal with/figure out as the buyer- that's between the agents. 

Please be aware if you're using financing for a deal that (you likely are already aware)

1. Your lender knows (from your preapproval) that this is for a non owner occupied, out of state loan and they know the state you're working in (if not, a great place for your agent to help you get connected)

2. Your earnest money is a cashable check- it's going to be cashed, even if later returned to you for contingency clause(s) reasons

Having said that, and in hopes your agent will (again, they should as it's very standard) puts in the right contingency clauses- choose your inspection wisely. Most investors use a 4 or 5 point inspection, however if you're very uneasy a full inspection might be what you want (usually for more of a buy and hold, minimal rehab/cosmetic investor purchase)

If it comes back (and wait for full report!) that there's simply too much that needs fixed, this is where your agent goes to bat for you and 'asks for the moon'  in the buyers' response to inspection, to either get the issues resolved (usually submitted with a subsequent inspection period post professional repairs and for all repair receipts to be submitted to buyer 7 days prior to closing)

This either will give sellers a chance to make repairs (not on an 'as is' obviously) or it's your opportunity to exit the transaction AND get your earnest money back. 

I would suggest getting in touch with your agent about at least the possibility of a video/pic/Zoom walkthrough, asking for contractor contacts, as well as speaking with a couple of home inspectors now and tell them what you are looking for in an inspection- see what they offer in terms of investor preferred inspections (some have an investor 'menu' to choose from and offer as standard practice things that you might not even know to ask for, or assume will cost more)

Hope this helps Scott! 

You need to have a good team. Just because you didn't see it, doesn't mean no one on your team didn't.

You cannot see the quality of work from pictures. If the photographer did a good job, it's just near impossible to tell the finishes.

If I was a seller's agent, and in the normal market, I wouldn't take a sight-unseen offer as serious as one who saw it, and I'd inform the seller of the downsides of accepting an offer like this to ensure they are informed.

Now, with that said, it really depends on what class of property you're talking about. I'm currently shopping for a SFH in the Chicago area, and the market is not slow by any means, so to win an offer sight-unseen you're offering over market value otherwise why would the seller choose your offer

If you're talking investments in smaller towns (sub 100k population), with a good supply of housing and lower demand, it would be much easier to pull this off. 

Originally posted by @Scott Hughes :

So, I imagine I'm having a similar problem I'm finally getting over that a lot of rookies face. That is overcoming the notion that I need to see a piece of property to put an offer in on it. I'm pretty much there, and on board with the idea, seems popular amongst many I've read/talked to. I just wanted some thoughts from the group mind on a couple points.

1. What are the "gotchas" of doing this. And by the same token, advantages?

2. Since these are on-market deals I'm talking about, and will likely involve my buyers agent, what are some points to make with her I can use to overcome what I'm sure will be seen as some kind of cognitave dissonance, since typically it would be unheard of to offer a house sight unseen (in normal circumstances, with a standard buyer).

(At this point I feel compelled to ask that you don't point out that I need to be shopping "off-market" deals. I know, and I am, but that topic is a whole 'nother Oprah.)

3. If you do this, how do you handle (i.e., what do you write into the offer) for Due Diligence and Earnest ($ and time). Also, what extra contingencies may be good ideas to include.

Thanks in advance! 

SDH

The gotcha of bidding on a property sight unseen is if you close on it sight unseen & get caught with a real lemon. The advantage of bidding on a property sight unseen is saving yourself a lot of time looking at properties until you control them. Control meaning - Have the property under contract and then complete your due diligence; i.e. See the property before you close. With that said there are many MLS deals where the agents won't accept offers sight unseen.

Regarding your agent- Ask your agent if there is any language in the private broker notes on not accepting sight-unseen offers. If not then the agent should be able to submit an offer.  If the agent still will not submit the offer sight-unseen well.... Your agent will most likely be using a standard contract with an inspection period. Let the agent know that you intend to see the property during the inspection.

For our sight-unseen offers, we request a 5-day inspection & attorney review period. What we put down for EMD depends on the size of the deal but usually nothing less than $3 to 5K. Unless there's something unique about the deal we avoid contingencies.