Hi all, I could use some advice from those who have been in this situation.
I am trying to get a particular parcel under contract with an out of town seller. My goal with it is to wholesale it to a developer in the same town who I already know.
I find myself in a bidding contest with one other entity, and I have good reason to strongly suspect it's the developer I want to wholesale to! I am sure the seller doesn't know we know each other, and I don't think the developer knows I'm the competition. Everyone is acting in good faith so far, as best I can tell.
So - what would you do in this situation? My thoughts are that I can:
1. Keep bidding and hope to be the last person standing, then wholesale to someone else since I will have beaten my client out of the deal;
2. Contact the developer (who I want to work with in the future) and clarify if it's him, and if so negotiate a finder's fee to get out of the way so he can get the lot before the price gets higher;
Wow my initial advice is yes definitely find out if the person you are bidding against is your end target buyer. If not find out what he would pay for the property or even see if he will give you a bird dog fee and let him bid to find it.
If it is the person who you intend to sell to, you need to consider first if you can still make money by out bidding him. He will know his market and at what point a reasonable profit can be made.The Buyer is entitled to a fair price as well. I WOULD NOT ASK FOR A FEE TO STOP BIDDING AGAINST HIM. I know it may sound fair to you now, but it sounds like fraud and blackmail to me. You are asking for money to help artificially keep a buyer from receiving a fair price. That is entirely different from getting a good deal. Price fixing is illegal in many states, and it may run afoul of some federal regulations.
I know your intentions are meant well or you would not have posted, and I am sure after thinking about it you would have reached the same conclusion, but I thought I should point this out to you. Good luck on this.
If you are trying to put it under contract offer the seller $2500 cash to let you put it under contract.
@Jerry W. Jerry I appreciate your comment about fraud etc. It felt that way to me which is why I posted in the first place. Your other point noted - if I outbid him, will I have outbid everyone in my market and then have a dud on my hands? Don't want to do that. I'd much rather create a win-win for all at a lower but still reasonable price.
Also, not sure what you mean by "or even see if he will give you a bird dog fee and let him bid to find it."
Part 1 of the sentence - I know what he would pay from previous discussions with him, and his current offer is close to the top of his range. It is also is close to the top of the range for other developers working in this town so I think the seller will be getting a good deal even as the price stands now, certainly if it goes up.
Part 2 is what I'm not clear on - "let him bid to find it." ?
@Joe Gore - How does this work? Not familiar with offering cash in order to get the contract. Is that like a non-refundable EMD?
Also, non-refundable EMD or no, I don't think this seller would pick my contract if someone else is bidding higher than I am.
@Alison M. sorry about not being clear. If the developer is NOT the one you are bidding against you might be able to get a bird dog fee to let him know about the property being for sale and let him bid directly against the 3rd party. If he is the one making bids against the 3rd party instead of you making bids he will know his limits. If you bid and buy it from the 3rd party and you go too high he may not be interested.
It will give you an idea what that developer is willing to pay and maybe find out his criteria for what he wants in a property. Use the process to get to know your end buyer.
@Alison M. You are basically bidding against yourself. Bid on the merits of the lot, period. You don't know if that developer is going to buy the lot if you get it. If not, then what? If there is only one other person that is interested in the lot, is it really a chance you want to take?
You can ask him if he's bidding on it, but don't expect any compensation if you quit bidding, as it will be stopping you from buying a property that is unmarketable (if he's your only buyer) so will save you money, not make him money! You didn't take him the lot and he owes you nothing
Originally posted by @Jerry W. :
I WOULD NOT ASK FOR A FEE TO STOP BIDDING AGAINST HIM. I know it may sound fair to you now, but it sounds like fraud and blackmail to me. You are asking for money to help artificially keep a buyer from receiving a fair price. That is entirely different from getting a good deal. Price fixing is illegal in many states, and it may run afoul of some federal regulations.
Exactly what I was thinking!
Thanks all for your speedy feedback, it's helping. A couple more clarifying points on this particular situation:
--it is a very hot tear-down market and there are at least 5-6 other developers working on new construction homes within a .25 radius, all paying in the same general price range for similar lots.
--there is a bit of room for me to bid up over the competition's bid and still have a good shot a wholesaling the deal.
@Karen Margrave I appreciate your feedback because I know you are a developer and can wear that hat, and because OC is probably not too different in price points and competition than suburban DC.
Any other suggestions?
My thoughts are, in an area where there is a hot market, builders scour the area for lots, and know every piece of ground in their area. If the lot is for sale, they know it. Bidding against a pack of builders hungry for a lot may get expensive. Whatever you decide to do, do your homework. Know values. Try to get an understanding of what it will take to develop the lot (even most agents have no clue), then decide whether or not it's worth it to you. If you aren't knowledgeable on lot values, and you don't have the time to get the information needed to make an educated decision, pass.
@Alison M. - I would imagine it's a pretty tight market for buildable lots in your part of the world. I did my masters work in urban planning & design studying Falls Church...great area. You've gotten great advice here....contact your developer and ask him if he would be interested in buying a lot from you that you are about to go to contract on. If you have the relationship with him or her, most would disclose that they are bidding on it. You can't get a free if he's already on it but he might offer you something for being honest and getting out of the way. Either way, you will further your relationship with the developer. As others said, I would be very careful about being the highest bidder especially if this is a listed lot....everyone in the know already knows about it. off-market, that can be a different deal for you. Happy Investing!
I agree with your thoughts about ending up with a dud... I did this once in a bidding war with a next door neighbor figuring they would want to buy the lot at some point.. Well that was 8 years ago and I still own the lot :)
Jay Hinrichs, TurnKey-Reviews.com | Podcast Guest on Show #222
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