I was at a real estate investor mastermind meeting last week and was introduced to a simple concept that I think has the potential to revolutionize the way you sell your real estate deals.
It’s an idea most of us intuitively understand, but probably haven’t formalized into an actual strategy that can be used literally anytime you sell a property. In a nutshell, it’s about positioning yourself so that you control the selling side of a transaction. When implemented correctly, this strategy not only makes the sales process smoother and less cumbersome, it also enables you to increase your margins.
Ask a typical real estate investor what his last sale was like and chances are you’ll get a story along these lines:
How to Analyze a Real Estate Deal
Deal analysis is one of the best ways to learn real estate investing and it comes down to fundamental comfort in estimating expenses, rents, and cash flow. This guide will give you the knowledge you need to begin analyzing properties with confidence.
Typical Selling Scenario
After rehabbing the property to the nines, I listed it for sale somewhere near the top of the neighborhood. There were recent sale comps of 189K, 185K and 192K … but none of them were as nice as my property so I listed mine for 199K. The property sat on the market for 45 days and so I took the first offer that came in at 190K. During the due diligence period, the buyer determined that certain items needed to be upgraded in order to meet their expectation of the property. Not wanting to lose the contract, I ended up lowering the price by 5K to satisfy the buyer and allow them to make the upgrades after closing. Instead of selling for 199K as I had hoped, I ended up settling for 185K and got pushed around by the buyer in the process.
Now how many of us can relate to this story? I know I can. For years, I’ve listed retail properties at the high end of the market in hopes of getting somebody to bite at that price. As time goes on, you end up dropping the price to attract more buyers. The problem is, when agents and buyers see that a property has been reduced and is aging on the MLS, they smell blood in the water. You lose all leverage in the deal and end up getting pushed around all the way to the closing table.
Now take that same story above and see how the strategy unfolds when leverage is used.
Scenario 2 Using Leverage
After rehabbing the property to the nines, I knew people would want it once they came to see it. Instead of listing the property at the top of the neighborhood, I actually listed the property below recent comparable properties to create immediate interest. While I thought the property might be worth 199K, I listed it at 180K to generate activity. Sure enough, in the first week of listing the property, I got 8 phone calls from very interested agents. Instead of giving out the lockbox code, I told the agents that the property would be available for viewing on Saturday between the hours of 1pm and 3pm.
On Saturday, there were 7 different couples walking through the house, murmuring about how great the house looked. Later that day we started getting calls from agents asking what it was going to take to get the property. Rather than throwing out numbers, I simply told them that as they had seen earlier that day, there was a lot of interest – and to come in at their highest possible price. We ended up getting 3 over-asking-price offers of 192K, 198K and 201K. After looking at all three offers, we decided the 198K offer was stronger because it was a cash offer with a quick closing and no contingencies. The property closed in 3 weeks and we didn’t end up spending a dollar on inspection items.
Was the house any different in scenario 1 vs. scenario 2? No, it was the exact same property, but the approach was very different … as well as the outcome.
As a seller, you want as much control as you can possibly get. When you can create competition and demand from multiple buyers, you put yourself in the position of leverage. You want the agent to feel lucky that their offer was selected. Do you think that agent is going to try to bully you into concessions if they feel lucky to even get the property? Probably not.
Learning to create this type of selling environment may very well change the way you approach buyers and agents going forward. Not only do you control the outcomes, you create selling scenarios that end with more money in your pocket!
Photo Credit: Jeremy Brooks