5 Things To Consider Before Making Your Next Offer
By Paul Esajian on April 12, 2019
The goal isn’t to simply submit offers on as many properties as you find. You need to get your offers accepted and into your pipeline. Most investors only think of themselves when making an offer, instead of getting into the psychology of it. There is much more that should go into an offer, than just the price. Of course, price is always important but for many sellers it may not be the most important factor. Depending on their motivation they may look for a quick sale, rather than the highest offer. Getting into a seller’s psychology is magnified on properties with high demand and in prime areas. If you are not spending time thinking about the seller, the market and the competition you may find yourself disappointed in your results. Here are five items to consider prior to making your next offer.
- Motivation: The starting point when considering any offer is discovering the motivation of the seller. Seller motivation should influence the price, closing date and how your offer is constructed. Without thinking about the seller, you will submit an offer tailored to your desires rather than theirs. Ultimately, they will reject your offer and if it is too tilted in your favor they won’t even counter it. A seller can be motivated by many things. The most obvious is price, but if they are in foreclosure or looking to avoid a short sale they may need a quick closing. Bank owned properties may want to avoid lender financing and give preference to cash closings. A seller may also be in probate or divorce and not want to deal with a traditional listing. Whatever the situation is you need to get to the bottom of it. Doing a little research on the listing, or the property, can often give you all the info you need. You can also learn a lot by simply listening to the seller or the listing agent. Once you discover a seller’s motivation you have a definite advantage over your competition.
- Competition: Price is almost always based on supply and demand. You need to understand how much competition there is for the property. You never want to bid against yourself and inflate the price. On the flip side, you also don’t want to throw in a lowball offer on a property six other people want. The more people that desire the property the higher the price will be. You can figure out demand based on several items. First, consider how you made contact with the seller. If you found the seller through personal marketing the demand may not be that high. If the property is banked owned on the MLS, you can expect people to run to the property. Secondly, you need to evaluate the activity on the property. The more showings and people that view the property, the more likely an offer is coming. The competition for the property must impact your price and how your offer is constructed.
- ROI. Once you understand the motivation and competition you can construct your offer. It is essential to always craft an offer that you are comfortable with. The goal shouldn’t be to secure the property, but rather to make a profit. Run your numbers and evaluation independent of the current list price. The list price is just a starting point and shouldn’t influence your offer either way. If you can justify your offer, and the numbers make sense, don’t be afraid to submit it. Once your offer is accepted it is too late to go back. There will be plenty of occasions where your offer will quickly get rejected and the seller may not even counter, but that is ok. It is when you start being afraid to make offers at your valuation when you run into trouble. If the competition pushes the price too high and the numbers no longer make sense it is ok to walk away. This is easier said than done, but always consider your ROI when making any offer.
- Perks. In most cases it is the little things that can make all the difference. Simply put, why would a seller choose your offer over the others they receive. Instead of going over your price point consider other perks you can offer. The most important is the closing date. Regardless of the seller they all want to close as quickly as possible. Bumping up your closing date a few weeks, or even a few days, can have a huge impact. Next, you should consider the contingencies and how your offer is constructed. You need to find the balance between protecting your downside while still making your offer appealing. You should look to eliminate as many contingencies as possible. The more items you can avoid the easier it will be for a seller to accept your offer.
- Compliance. Between you and your real estate agent you cannot overlook any contract items. You would kick yourself if your offer was rejected because you missed a signature or failed to initial a section. Your first offer must be perfect in every way. This means if you send a copy it must be crystal clear, and the I’s dotted and the T’s crossed. Take a few extra minutes to review the contract prior to sending it over to make sure it looks exactly how you want it to.
Every offer you make is an opportunity to secure a property. By putting a little extra time, and thought, into your offers you will end up getting many more accepted.