REISkill - When Buying - Submitting Offers

Submitting The Offer

After inspecting the property, estimating how much the repairs would cost, estimating the property's value, and calculating the deal, it is then time to make the actual offer. Let's now take a look at making offers with private sellers and how to submit your offers on bank owned properties.

Submitting Offers To Private Sellers

In Unit C of this module we already discussed some of the key points of pre-qualifying sellers and the importance of making sure your offer solves the seller's problem.

Your Posture And Attitude

When it comes time to actually submit your offer to the seller, you are going to present

it to them and let them decide if they want to take it. You should never be in the position of having to convince the seller they must take the offer, nor should you ever be in a position of having to defend your offer.

You are the person offering a solution. If the seller is not motivated enough to sell or does not like your solution, then the two of you should not do business until such time they change their mind.

The Multiple Offer Strategy

One of the best ways to increase the chances of the seller accepting your offer is to use the "multiple offer strategy". By giving the seller two or three offers to choose from, you have a better chance of the seller accepting one of them than if you had made only one offer. Giving the seller a choice increases your chances of success tremendously. Sometimes, sellers will even get so focused on deciding which offer to take that they don't realize they don't have to take any of them.

Usually, you will want to make the seller two or three offers, each based around what the seller's needs are that you were able to get from your discussions with them.

One offer could be

an all cash offer,
another could be where you give the seller some money now and some money later, and
a third offer could be where you give them all of their money later.
You could also offer to buy the property under various forms of seller financing such as

taking over the property "Subject To",
doing an Agreement For Deed or
Lease Option, or
you could offer to arrange for the seller to create a note and

then sell some of the payments.

Once you give the seller your offers, if the seller says they need time to make a decision, ask the seller how long they think it will take and can they call you back by the end of that time to let you know what they have decided. If the seller has not called you back by the time they gave you, then you'll want to call them.

To make multiple offers to a seller,

you don't need to fill out several purchase and sale agreements.
All you need to do is simply jot them down on a notepad and then go over the offers with the seller.
It is important for you to let the seller know upfront that

each offer is separate and that they cannot mix-and-match the terms of one offer with another.
And, don't try to decide ahead of time if a seller will or will not accept a particular offer over another, you just can never know what a seller might decide to do.

Answering Seller's Objections

Sometimes, sellers will have questions regarding your offers or objections resulting in them not wanting to do the deal. Most of the time, the objections you get will be in regards to creative seller financing techniques such as "Subject To", Agreement For Deeds, and Lease Options. In order to successfully get your offers accepted, you must get good at answering any questions or objections they may have.

Follow-Up Declined Offers

If after reviewing your offers the seller still doesn't want to sell their property, then move on to the next deal. As time goes by, if the seller doesn't get their house sold, they will become more and more motivated. You can always check back with the seller in 30 or 60 days to see if they have changed their mind.

Submitting Offers To Banks

Submitting offers to banks is a little different than when you submit an offer to a private seller.

Offer All Cash With No Contingencies

The biggest difference is that you won't be submitting a bank multiple offers at one time or even offering something creative for that matter. The only thing banks like to see is "all cash" with "no contingencies".

As we discussed before, banks are interested in getting the property liquidated and liquidated completely. Therefore, most banks aren't interested in anything creative unless they are having a problem getting rid of the property. As a result, your offers should always be for cash and to stay competitive, there should be no contingencies that would give you a way out of the agreement if the bank accepted your offer.

Estimating What The Bank Might Accept

Another important issue when submitting an offer on a bank owned property is that you shouldn't try to estimate how much a bank might accept by looking at how much they originally loaned on the property. This has absolutely nothing to do with what they will sell the property for.

Banks routinely sell properties for less than they originally loaned out. They aren't concerned with how much they get for the property verses how much they originally lent out. They are concerned with the liability of the property and the fact that having the property on their books reduces the amount the federal government will allow them to lend on new loans until it is gone.

The current condition of the property, combined with a real estate agent's BOP appraisal, have a dramatic effect on the asking price and what the bank will ultimately accept for the property.

Banks know that they will take a loss when the property needs a lot of work or is in a bad area.

Banks and real estate agents also know that a regular home buyer cannot qualify for a conventional bank loan on a property that needs repairs and that the only people that will be looking at the property are investors.

How To Bid More Effectively

There are some other simple strategies to keep in mind when bidding that can give your offer a better chance of getting accepted and give you a higher chance of outbidding other investors.

First, don't offer a price such as $49,900. The marketing principle behind that dollar amount is to make the price look like it is in the $40,000 price range. This is something you do when selling! When making an offer, you want your offer to look as large as possible; therefore, you'll want to bid $50,000 which gets your offer into the $50,000 price range. This may seem like a very simple concept to understand; however, some investors still get it backwards.

Secondly, to give you a higher chance of outbidding another offer, you should bump the offer up by $100. In the example we just gave, this would make your offer $50,100. This way if the bank gets an offer from another investor for $50,000, your offer will be $100 higher and should get accepted. If you are bidding at a five hundred dollar increment such as $57,500, bump your bid an extra fifty dollars to $57,550.

For more information on how to properly structure an offer on a bank owned property, contact us at Team@REISkills.com

Making Verbal And Fax Offers

To start off the offer process, many banks request that your initial offer be done either verbally or by submitting a brief offer letter by fax. This is so the real estate agent and the bank, don't have to deal with a bunch of paperwork and binder deposits on offers they won't accept. Once the bank knows who has the highest offer, they will then ask for everything in writing. To assist you in submitting an offer by fax, please email us at Team@REISkills.com

Required Bank Addendums

In addition to a standard Purchase And Sale Agreement, many banks and lending institutions have their own special addendums that must be signed and submitted as part of the offer. The bank (or their agent) will provide them to you.

The addendums usually consist of an "as is" disclosure stating that you are buying the property in "as is" condition with no warrantees. One other addendum the lender might throw your way is one that states you can not assign your contract. If you're planning to flip the property, don't worry.

All you have to do is a double closing.

Remember, by doing a double closing you are not assigning the contract, but rather, you are purchasing the property as agreed and then immediately reselling the property to your buyer. The sales agreement is not getting assigned.

Once your offer has been made to the bank, there are three things that can happen with your offer. .. it can be rejected, countered, or accepted.

What If The Bank Rejects My Offer?

If the bank totally rejects your offer, don't get discouraged. Just remember that making offers is a numbers game.

If you're not willing to go up on your offer, then simply put the property on your list of properties to follow-up on. You'll be surprised how many banks (and even private sellers) will accept offers several months down the road that are lower than offers they had initially rejected when the property first went on the market.

The key to success is to make the same offer on a regular basis until the property is sold (usually every 30 days). You can never know when the bank will decide to go down on their price; as a result, you want your offer to be in front of them when they do.

You must follow-up with the bank because the bank will not follow-up with you.
Most banks do not keep track of offers or call people back once they have decided they will take a lower price.
The same is true for most real estate agents.

What If The Bank Counters My Offer?

The other .thing the bank can do is counter your offer. Sometimes, the bank will counter your offer directly with either the original asking price or a price somewhere in between the asking price and your offer. You can either counter with your same offer or you can go up slightly, which will send the message that you are not going to make any drastic price changes in your offer. The bank will realize that they either need to come down to your price or continue waiting. If they turn down your counter offer, you can still counter again at a higher price if you wish; however, if the bank's counter offer is just way above what you are willing to pay, then don't waste your time (or your real estate agent's time) and simply put the property on your follow-up list.

Sometimes, if a bank has several offers on a property shortly after it goes on the market, the bank will do a "highest and best offer" request. In this situation, the bank doesn't want to take the time to counter several offers at one time. Instead, the bank tells everyone to make a revised offer for the highest amount you are willing to pay and who ever makes the highest offer is the one who gets the property.

Anytime you or a seller wants to make a counter offer, all either of you have to do is cross-out any terms of the agreement you wish to change (such as the price) and write in the counter offer next to it and initial it. There is no need for either of you to fill out a whole new agreement.

What If My Offer Gets Accepted?

The final thing the bank can do is accept your offer.

Believe it or not, some new investors worry about their offer actually getting accepted. If their offer were to get accepted, they might actually have to make money and this is sometimes a great fear for many people who are new to the business. If you happen to be one of those new investors, don't worry. By studying this material, you now know how to get all your ducks in a row so you'll be able to execute the deal once a bank accepts your offer.

It's A Numbers Game

As we said before, making offers is a numbers game and it is one of the most important steps you're going to take, because you're never going to purchase anything if you don't make the offer to begin with.

You may have to look at ten to twenty properties before you even make your first offer and you may have to make as many as ten offers before one gets accepted.

Do the math on that and you'll find you'll probably have to look at over a hundred houses before you get your first deal. With that in mind, if you contact ten or more sellers a week, you should have your first deal within just a couple of months at the most.

If you're not getting at least one out of every ten offers you make accepted, then you -are probably doing something wrong.

You're either dealing with the wrong sellers,
looking at the wrong properties,
making your offers too low, or
making offers that don't solve the seller's problem.

Once you get the hang of making offers, you should actually do better than one in ten. In fact, many professional investors get as high as one out of two offers accepted because they are doing a very good job of pre-screening properties.

Don't Sit Around Waiting

After making an offer, don't quit everything you are doing so you can sit around to see if the offer will get accepted. Always keep looking for more deals and don't stop working on the other three Action Quadrants even if you get an offer accepted.

Have A Follow-Up System

And finally, as we said before ... have a follow-up system. It is important to keep a log of your offers that are turned down and then call the seller back 30 or 60 days down the road to see if either their property has sold or if they are interested in reconsidering your offer. Having a good follow-up system is the key to success because a seller who is not motivated enough today, may become more motivated later.