With residential inventory tightening around the country, it’s become more competitive and difficult to get good, discounted properties under contract. I’ve found that in Atlanta, the high volume of homes being purchased by small and large hedge funds have created a frenzy of offering activity on almost every home that hits our MLS system. We’ve – of course – had to adapt ourselves and have a full-time agent that does nothing but make offers on new properties that hit the market.
While this shotgun approach to getting properties under contract does work to some extent, we’ve also found that there are still listings out there that can be obtained through more strategic means. Just this week we were able to negotiate a property down 20% below list price. Where many investors may have looked at the asking price and determined it was too high to even bother with, our agent dug a little deeper.
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Understanding the Seller
This particular property had been owned by the same person for over 20 years … and from what we could tell, the seller never took out another mortgage over those years (thus, there probably wasn’t much, if any mortgage owed on the property)
Also, when we submitted our lowball offer, the seller countered, but came significantly off of their price. That told us the seller was definitely motivated and negotiable.
Armed with this information, we countered back at our original offer price and not to my surprise, they accepted our offer… at a discount of 20% below their original list price. Now does this mean it’s worth your time to go around making hundreds of offers way below asking price – probably not. But, doing a little due diligence and understanding the nature and behavior of most sellers can help you spend time writing offers and negotiating on properties with the most potential.
Important Data for REO and Short Sales
Granted, this interpretive approach to negotiating probably works better with private sellers rather than REO and short sale listings (based on the assumption that most banks are somewhat detached and formula driven). But even with bank listings, it’s helpful to know things like: how many days has the property been on the market? At what price did the bank buy back the mortgage (for an REO)? Approximately how much of a discount will the bank be taking based on the previous mortgage (for a short sale)?
This kind of information can be extremely helpful when deciding how to approach an offer and negotiation. The bottom line is that a well-informed investor who takes the time to understand the position the seller is in will absolutely increase his or her odds of getting more properties under contract.
How about you? What other types of data do you rely on to make educated offers?