Interview: A Realtor’s Insider Secrets for Selling a Fix and Flip FAST

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Hey there BP! Any smart entrepreneur will tell you that they don’t have to be an expert at everything; they just have to surround themselves with people that are experts in their area. This applies to real estate investing of course, and today we are going to do an “interview” with one of my experts, a Realtor named Drew.

We have done many transactions with Drew for fix and flips. I have used him over and over again because he is an expert in his field and really understands what investors are looking for. He also knows the market and has sold our homes at or above asking with multiple offers, even in a down market. I have invited Drew here today because he has a unique background in data analysis that has enabled him to integrate data analytics into his real estate practice.

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The Interview

Me: Welcome, Drew!

Drew: Hi, Matt. Thanks for the invitation!

Me: So let’s get to it. You have represented us on several sales of fix and flips. How does a house flipper add value?

Drew: In my opinion, it’s about convenience to the buyer and enabling them to finance the purchase. You start with a property that would typically require a cash buyer because the property could not get a Certificate of Occupancy, hence no lender would write a loan. You take a property like that and through repairs and repositioning are turning it into a mortgage ready home for an “A1” buyer.

Matt: What are some of the biggest mistakes that you see house flippers make?

Drew: I see them make two major mistakes: over-improving a property and pricing high to leave room for negotiation.

Matt: So let’s talk about over-improvements first. As a flipper we all want to create something that pops, but when is it too much?

Drew: Well, there is a law of diminishing returns in real estate. The more you improve a house, the less the odds you will recoup the cost of those improvements. There is an art to knowing if you will get your money back on an improvement. No matter what you do to a house, it’s not going to sell for $500,000 if all the houses around it are selling for $300,000.

I think many house flippers can get away with doing less to the house. If something is not working or is old, remove it, don’t replace it. If the cabinets are old, replace them with fewer cabinets. Paint with neutral colors. Go for the money makers — kitchens and baths, but don’t get crazy; just make it nice. Also, house flippers spend lots of money on pretty improvements, but don’t address the things that will trip a Certificate of Occupancy or Homeowner’s Inspection. It’s these types of things that will scare off your buyers, not the type of cabinets you used.

Related: 5 Motivated Sellers Every House Flipper Should Look For

Matt: Ok, got it. So let’s talk about overpricing. When I flip a house, I am very proud of my product and have been known to push the price too high. You have challenged me on this, and since I started listening to you, our product has sold much faster. Tell me more about how you determine the right price for a home.

Drew: Pricing a property is NOT about how much you are going to get for it. Pricing is a tool to get showings. The more showings you get the more you will get for the property. The longer a property sits on the market, the fewer showings you will get. I consistently get over asking price for my listings and have a highest and best offer round within 45 days on market, when my clients trust the system.

For example: A property is actually worth $300K and the owner thinks it’s worth $320K so he lists at $349K to “leave room for negotiations.” After 45 days on market, a typical owner will drop the price to $325K and claim they are giving the house away. Meanwhile, the listing is going stale and losing value, so they are chasing the market down at this point. The market’s interest in the property continues to decline, and it’s time for another price drop to $300K and finally an offer comes in for $250K after 90 days on market.

Matt: So what’s the alternative and the method to get a house sold quickly for the right price?

Drew: First off, you have to price it right from the start. Be the lowest priced house in its subdivision on the market and get all the showings. Market the property for three weeks. At the end of the first three weeks, collect the feedback and count the number of showings. Ask your agent for a listing activity report and make an educated decision at the end of three weeks.

You need at least 11 showings in the first three weeks to get one low ball offer, like the $250K in the example above. You need 21 showings in the first three weeks to have a bidding war and attract an “A1” buyer to get the maximum value for your property. If you don’t get the showings or a reasonable offer, you are overpriced. Make an adjustment during week four and get your house under contract within the first 45 days on market.

Matt: How do you decide how much of a price drop you should make?

Drew: It has been my experience that lower asking prices are met with frantic buyer response, multiple bids and best and final rounds. Consumers are educated and they know a good deal when they see it, but they need to see it and price drives showings, so price it low, get the showings and attract the “A1” buyer that will value your property at its highest.

Don’t get emotional about a price drop. You just need to drop it into a lower price bracket and attract new buyers. If you do an incremental price drop ($5K to $10K), all you are doing is showing the same pool of buyers you are desperate. I have a proprietary formula that uses data analytics to prescribe the “right” price reduction. Keep in mind that with today’s interest rates at ~4%, you need to drop $25K to move down $5K in Gross Income and $50K to affect the result set of major RE search engines. You can price below market value, and the market brings it back up. Trust the market.

And let me make a key point here: Never drop more than once because it’s a signal that something is wrong with the house or the seller’s situation. Drop it once if you must, and make it deep to produce a bidding war and let the market drive the value.

Matt: You talk a lot about value. Can you elaborate on that?

Drew: Yes, I’m not talking about getting the highest selling price. I’m talking about maximizing profit and factoring in the time value of money, which includes carrying costs and repair demands and actually getting to the closing table. All buyers are not created equal, so you need to attract a motivated “A1” buyer. “A1” buyers are happy to have gotten the opportunity to buy your home, so they don’t suffer from buyer’s remorse, and they make only reasonable repair demands and attorney review goes smoothly.

Related: 3 Tips To Sell Your Flips Faster Than You Can Say “Easter Bunny”

Matt: What do you mean by an “A1” buyer, and how can we attract them?

Drew: Ok, so not all buyers are created equal. Some buyers will come along and cause problems for you. These problems will show up as a delayed closing, lots of repair demands, and they may even back out of the deal half way through. “A1” buyers are the opposite. An “A1” buyer is someone who currently owns a home, has it up for sale, and it’s already under contract with a scheduled closing date, typical within “45 days.”

This situation creates two things that benefit you. The first is cash from the sale of their house, typically enough to qualify for the best interest rate in the market, which means more buying power. The second is a tight timeline to close — they have their house under contract and don’t want to be homeless. As you know, in NJ, buyers can back out easily, not sellers.

The way you attract an “A1” buyer is by having a well-priced product with no evident problems. “A1” buyers aren’t picky; they don’t have the time to be picky. They just want a quality house with no problems in move in condition. If you can create a product like that and price it well, you have a good chance of attracting an “A1” buyer.

Matt: Thanks for your time, Drew. To wrap it up, can you give me some key points that the house flippers reading this need to know to be successful?

Drew: It was a pleasure. Here are some things to keep in mind:

  • Showings are controlled by asking price.
  • The actual price a property sells for is controlled by the market, not the asking price.
  • Nobody controls the market.
  • Location is fixed (60% of the value of the property).
  • Size is basically fixed (30% of the value of the property).
  • Seller controls (10% of the value of the property) smell, condition, upgrades, and staging.
  • Most of the financing factors in the buyers equation are fixed, such as their income, credit score and down payment.
  • Attract those “A1” buyers, such as parents with children in the school system who want to get into or stay in the school system are highly motivated, especially if their house is sold.

So BP, I hope that was of value. I’ve learned a lot from Drew and others like him that I rely on to help me in my business!

So what did you learn? Any other tips that you fix and flippers have learned out there?

Let me know what you think!

About Author

Matt Faircloth

In 2005, Matt founded The DeRosa Group along with his wife, Elizabeth. At the time, the two person company owned and managed two assets – a single family home and a duplex. Over the last nine years, they have grown the company to a 12 person team owning and managing over five million dollars in residential and commercial assets throughout the central NJ and Philadelphia area. One of DeRosa’s mantras is “to make money while making a difference.”

36 Comments

  1. Nathan Emmert

    Great article… but interesting end… if flippers only control 10% of the value… how are they buying at 70% of ARV? Would seem location and size (agree, both fairly fixed) are more 50% of the “value” of a home… with the other 50% being condition of the property.

    • Matt Faircloth

      Hey Nathan,
      The way Drew was presenting it was this – 60% of the price a home has to do with the location Remember the old adage, Location, Location Location?!? The next 30% of the price has to do with the home’s size meaning that if it’s a 3000 SF house it’s price will be more than a 2000 SF house in the same location, by the factor of 30%. The final 10% is what a flipper really has control over, which is the home’s condition. If you are comparing a move in ready house to another move in ready house, and house A has granite, new cabinets, tile, new paint, etc… and house B does not, the most the price differential will be according to the market is 10%. Make sense?
      All this has nothing to do with the mortgage amount on a house, or ARV as you were referring to. He was just trying to break down what contributes to the price of a home.
      Take care,
      Matt

    • Drew Cifrodelli

      Hi Nathan,
      I’m glad you brought this point up. It’s important to note that investors are buying a property for less than market value, because they are a cash buyer and in most cases, only a cash buyer will get properties at 70% ARV. One can argue that there is larger number of cash buyers than most investors would like to see competing for projects, so the spreads can get very thin. It’s extremely important for the investor to consult with the listing agent, so they don’t over improve the property. In most cases less improvements, means more profit. A1 buyers have to buy what’s on the market at the time. Move in condition is the key to success.
      Thanks,
      Drew

  2. Excellent advice. I’d love to add that true investors should not get emotional in any aspect of the flip. Keep it all in a business perspective and then it’s much easier to make the correct choices for improvements as well as pricing.

    • Matt Faircloth

      Hey Gabe,

      Great point. For the most part I am able to keep emotion out of it! Decisions in this business can be driven by fear, greed, and ego. Any of these can absolutely sink a project. keeping things pragmatic, on time and on plan has ensured success over and over for us.
      Thanks for the comment!
      Matt

      • Drew Cifrodelli

        Hey Matt,
        Don’t forget Pride! I’d like to think we all take pride in our work. Investor’s typically have an internal conflict, they want to deliver a high quality product and they want to make a lot of money. It takes skill and talent to do both and it’s not easy. Your typical buyer will have a mortgage appraisal to cap out your profit and make sure you’re not too far above other properties in the sub-division.

    • Matt Faircloth

      Hey Marvin,
      Great point. The property is just a vehicle – to take us to our goals. No need to get attached. It’s great when the buyer gets attached though, because they will over look small details and not make them a big deal out of them.
      Thanks for leaving a comment!
      Matt

  3. Orlando Cestona

    Hey Matt,
    Just curious as to who are you able to sell your flips to. What I mean is how long are you holding a flip for title seasoning or are you only able to sell to buyers who are using conventional mortgages with the typical 20% as opposed to FHA buyers?

    • Drew Cifrodelli

      Hi Orlando,
      There is a difference between wholesale flipping and fix and flip. FHA is opposed to wholesale flipping to owner occupants. FHA is not opposed to making improvements that add value and then selling for a profit. I’m not 100% sure where FHA draws the line, because I think the line has moved a few times. You should talk to a lender about FHA requirements, but make sure you are clear about the value added verses wholesale flip, so you get the right answer.
      Thanks,
      Drew

      • Matt Faircloth

        Hey Orlando,
        Good question. When the bottom fell out of the market and the lending regs tightened up in 2009, it was very hard to fix and flip anything and sell inside of 90 days. The banks had gotten so burned that they put the brakes on any deal with complications. That environment has lightened up quite a bit over the last few years and it’s fairly strait forward to buy a property, add value to it, and sell it on the open market for more money, regardless of seasoning. You may have to provide a list of improvements you did but that’s about it.
        As Drew said, you should also check in with a mortgage broker if you want more info!
        Matt

  4. David Semer

    Matt great questions and interview. I really like the point that a lot flippers over rehab the house for the area and believe they deserve extra money for there work. Also how to identify and attract those A1 buyers is crucial for selling retail. Better to price the house to sell and not continue to hold. I was told when i started from lots of other investors and Realtor sometime your first offer tend to be your best offer. I always tend to look at that offer a little harder before I may reject it.

    • Drew Cifrodelli

      Hi David,
      I love you point about the first offer. It’s my opinion that you need to negotiate with the first offer, no matter how low or how bad it is to buy time. Negotiate very slowly when the offer is low. Taking your time is a great motivator, because it shows strength. Drag it out over a weekend and try to hold an open house while the offer is hanging out there. Fear of loss is a huge motivator. Presuming you are priced right, you will have another offer coming in any day. Otherwise, reduce the listing price when you make the counter offer to the buyer at the same time and get some competitive bidding on your property to drive the value up. I’ve become an expert with “best and final” multiple offer rounds and they always cover more than my commission, plus the buyers feel lucky to get the house and we sail through attorney review and inspection.
      Thanks,
      Drew

      • Matt Faircloth

        Hi David,
        Good point. Drew has slowed me down from jumping on the first offer a few times, to my benefit. He brought up a good point here also – drag your feet a bit when working with that first offer to buy some time, make sure you’ve had at least one open house also. Competition is a sure way to make sure you are getting a good number for your deal.
        Take care,
        Matt

  5. Daniel Ryu

    I like the specific numbers that Drew mentioned in relation to showing and also his advice on pricing.

    Question: If you list a house at a lower price to increase showings and expecting the market to bid it up, and then you get an offer at that lower price, are you obligated to sell to that buyer if the buyer is qualified?

    Example: Want $350K. List at $320K expecting a bidding war. Offer comes in at $320K. It’s the only one.

    • J Daniel Werner

      I think Daniel asked a good question. I would like to hear your thoughts also. Not so much if you are obligated to sell to them (you should, I think) but what if you are in a part of the country that generally doesn’t see paying over asking price? Granted, not a house, but I have tried this approach with used electronics, such as cell phones. When people ask if it’s sold, I say someone is interested, but it’s not sold, are they willing to offer more to exclude the other person, or I’ll ask a decent price and do the same thing to try to get offers back up to asking, but people seem to get offended that I would ask for more, even if the item is worth it. They just seem to get blinded by the original bargain, I guess.

      Along those same lines, I have an uncle that lived in California and when I got my real estate license many years ago, we started talking real estate and he found it very weird that most homes in our market sold for 95-97% of asking. He wondered why people didn’t offer/buy for less. All I could say is homes are priced right. Am I all wet or are we different in the Midwest?

      • Matt Faircloth

        Hey guys,
        Not sure if Drew wants to chime on this one, but here’s my take.
        You don’t have to accept the offer but since that’s what you are asking, you are indicating that you would accept an offer from a qualified buyer. Another words (and this applies to your internet sales too), if you drop a price, be prepared to accept it without a bidding war in the worst case scenario.

        If you do get a solo offer, I would suggest slow playing that buyer as Drew suggested in the article. Additionally, make sure that when you did the price drop you do an open house at the same time to try and generate as much activity and interest as possible, potentially avoiding a sole interested party.

        I hope that helps!
        Mattt

      • Drew Cifrodelli

        Hi Daniel,
        I’m so happy you brought this up, but this starts to get very technical and verbose for this interface, so feel free to connect with me directly if you wish. Our market is also 96-97% efficient, (based on last list price). For every $100K we can price ~$3K above asking, if we want to sell, otherwise (on average) it will sit on the market, until the price is lowered. The market is highly efficient and not very elastic.

        This brings me to Original List Price and CMA’s. My opinion is that CMA’s are not an accurate enough way to price a house, because (mathematically/statically) speaking there isn’t enough data. Once the house is on the market we have plenty of data. Trulia and Zillow publish quality of search results, number of detailed views. ML systems track the number of automated searches and open rates. We know how many showings our listing got too. We also have feedback from the showings. It only takes 21 days to fully market and house and know if it’s priced right and collect the feedback from the showings. We don’t have much time before the listing goes stale and our “A1” buyer is under contract with our competition.

        It’s my opinion that we can take all this data and accurately adjust the listing in the 4th week to produce an “A1” buyer. It’s been my experience that within 42 days on market, before the property goes stale, I can produce a bidding war. My objective is to get my client a bidding war and produce a multiple offer situation that produces a buyer that fits my client’s needs.

        As you know, all buyers and not created equal. I’ll admit that I play hard ball with my buyer’s and their agent’s. I give the buyer’s agent all the information that they need to motivate their clients to put forth the best possible offer they can afford.

        I feel that a highest and best round is the only way to be sure you are getting market value for a property. Yes, there are times when the buyer’s get upset and I don’t like it when I’m on the other side and I loose a deal in a bidding war, but this is business.

        I feel good when I produce more value than the cost of my commission on every transaction.
        Thanks,
        Drew

        • Mark Lenox

          Great article! However, I have the same question as Daniel, and I’m not sure that you really answered it.

          With so much profit at stake, I am very reluctant to price below market for the OLP and then expect a bidding war. What do I do in Daniel’s example, where only one person bids at or slightly below OLP, which is below market value? Taking my lumps and moving on is not an option. I love your statement to “trust the market,” but that’s really hard to do with so much profit on the line.

          Is there ever a time in this industry when patience pays?

          Thanks!

        • Johnathon Griggs

          Drew, you’ve made some awesome points that I’ll try to lock away!
          I may have missed it somewhere, but I’m wondering how you determine you’re initial list price. You stated that ” CMA’s are not an accurate enough way to price a house, because (mathematically/statically) speaking there isn’t enough data.”

          Also, would you elaborate on the your use of the Trulia and Zillow “quality of search results, number of detailed views”? Are you saying that you’re gathering information here to help determine the list price? Or is this only for a future adjustment?

          Do you ever adjust the price *up* based on collected information, or only down?

        • Daniel Ryu

          Thanks so much Drew and Matt for the follow up. I’ve clipped this article and the comments and will be using it as reference material for the future. I hope to get my first flip done this year and I know this will come in handy when discussing how to price with a real estate agent.

          Thanks again!

    • Drew Cifrodelli

      You cannot be forced to sell your property. You can decide to take it off the market. You can decide to rent it instead of selling it.

      That said, my contention would be that it’s not priced low, if you only got one offer. Investors are always looking for good deals, so you should have some offers from investors in addition to an owner occupant, if the price is “too low”. Investors will let you know where the floor is on the value of your property. Expired listings are the ceiling. Somewhere in between is the highest and best that an owner occupant will pay.

      Equal Opportunity Housing requires that you do not discriminate, so your decision to sell or not to sell to a particular buyer must be based on the financial terms and conditions of the deal. For Example:
      a) Is the closing date acceptable?
      b) Are the appliances included or excluded?
      c) Is there an inspection contingency?
      d) Is there a mortgage contingency?
      e) Is there a house sale contingency?

      I’ve yet to see an offer from an owner occupant without any terms and conditions. Drag out the negotiation on those terms and conditions and another offer will be coming shortly. On average you need 11 showings in the first 21 days to get a low ball offer. You should be getting 21 showings over the first 21 days, if you are priced correctly. You will also show up in about 600 search results per day on Trulia and Zillow, if you are priced correctly in each site.

      I’ve never seen and under priced property that didn’t have a bidding war. Think about REO properties. The banks typically under price the competition by 10% on purpose, because they know it will sell quickly and for top dollar. Remember, that’s not 10% below market value, that’s 10% below the competition, since everybody is over pricing their listings. You know that banks have all kinds of number crunching asset managers that have figured this out years ago. Think about that last time you saw a great REO opportunity, were you the only buyer/investor that noticed?

  6. Enjoyed the interview. I am lucky enough to have a great real estate agent working with me to flip properties. I trust him and leave the pricing up to him. He’s been great so far, and I’ve noticed he does always price the properties at or bellow what similar properties are selling for in the neighborhood, for a quick sale. I would probably want to be a lot more involved in this process if I didn’t trust my realtor so much, but I’m not a realtor myself and feel that I should probably get my real estate license in order to be able to do that.

  7. Sean Williams

    Fantastic post and really well thought out! I must say my favorite line was ” Pricing a property is NOT about how much you are going to get for it. Pricing is a tool to get showings. ” because it rings so true being a Realtor myself.

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