How to Make Offers That Sellers Take Over Even Higher Offers
How to Get Started in Real Estate with Making Offers
Getting a seller to sell you a property at less than they are offered by another buyer seems ridiculous, but it isn’t. I have often had the problem with wholesalers making a presentation to a seller that I have been “courting” and made an offer. Usually they will come back after I made the offer and try to buy the house for $1,000 to $5,000 more. Here’s how to keep the seller on track with you.
Once we have agreed on a price, I try to have a contract signed on the spot. I do not get pushy for the immediate close. I have lost a couple of deals this way. Howver, I have had many, many more come back to me just because I wasn’t pushy. I tell the seller that the offer has to work (be a “win-win”) for us both or it won’t work and I mean it. I am laying the groundwork for what I am going to explain to them next.
I start by congratulating them on selling and eliminating their worries. I next re-assure them that I will close. I usually get a reaction of “What?”. I go on to explain that the nature of this business is that many real estate investors don’t have the money to buy a property. They are looking to get it under contract so they can flip it and make a profit. Surprisingly, a good number say they have had that happen to them. More likely though they are shocked to find out that their plans to move could be disrupted if they deal with someone who isn’t buying the property.
If I am dealing with a seller whom I do not intend to close with, I tell them the truth – that I may not close myself. I have a list of 100 qualified buyers that I sell to on a regular basis. If they object, I say “Does it really matter if I buy your home or I find someone else that can?” This usually overcomes that objection, but now you are on a different basis because the negative seed of “Can he sell my home?” is stuck in their mind. To overcome this I reinforce the issue of having a buyers’ list and how I constantly update and maintain it. I always offer to allow them to get on the list as a way to buy another house below market value. If you do lease options, you have the opportunity, especially where foreclosures are involved, to help the seller get into another property and you make money again.
Probably 60% or more of wholesale purchases are lost when the investor lies to the seller and tries to bring in perspective buyers by fooling the seller as to who they really are. What telling the truth does is allow you to bring perspective buyers into the property without lying to the owner that they are “inspectors/handymen/pest control/etc.” The lost deals happen because the seller figures it out. Somewhere in those buyers who came through is one who makes the seller an offer directly.
A common strategy is to “Get the Deed” at the first setting and record it the same or next day. This works until it goes bad when the seller decides not to sell or another buyer offers more money. Most investors believe that the recorded holder owns the property and technically that is correct. But in reality, I have had deeds reversed on a number of occasions where the other investor filed a deed where I had a contract on the property. The old adage “first to file a deed owns the property” is not necessarily true despite what you have heard. Many states are calling this “deed stripping” and are prosecuting investors who record deeds before a formal closing (exchange of money) has taken place, including where Quit Claim deeds are recorded. This is especially true of sellers who are considered elderly (age 65 plus) and are targets of deed stripping.
What I do is to be truthful at all times. To seal the deal I explain that the Purchase and Sale Agreement they are signing is a legally binding contract and the same as a deed.This is true and has been upheld in the courts. I further go on to say that they can expect other investors to come in and make higher offers but that these offers can’t be accepted because they have sold me the property. I go into some small detail that the investor knows that the seller would be committing fraud if they sold the house twice. I ffurther explain that the investor wouldn’t be charged, the homeowner would.
Next I file a “Memorandum of Contract”. I file it the same or following day in the public record, which simply states that I have a legally binding contract to purchase the property. It does not have the price or terms on it. It doesn’t have to be signed by the seller. The purpose of this document is to “cloud the title” if the seller goes ahead and signs another contract. I have almost always released the seller from my contract by having the new buyer pay me a “Doc Prep Fee” of $2,500 – $5,000 to cancel my Memorandum of Contract.
A tell-tale sign that your seller is reneging on your contract is he calls and says he decided not to sell. He may say he is staying in the house, or you just can’t get him on the telephone. You have the option to sue for “breach of contract” or say “OK”, and wait to see what happens when the new buyer’s attorney finds the Memorandum in the public record. I always try and find out what is actually happening. If another investor has made a higher offer, I immediately have my attorney explain the problem the seller has by certified letter to the seller and the other investor.
I recommend that you stay in touch with your buyer at least three to four times a week. Re-assure him that you are going to be a the closing and you are expecting him to be there. Don’t simply call and say “I’ll be there!” Talk about how the inspection, closing docs, and other parts of the closing procedure are coming. If there is any issue with their moving, solve this problem by becoming pro-active. Help them move if necessary. Never give a seller money to do anything to do something that they need to get out of the house. For example, pay the deposit on an apartment directly to the apartment complex or the moving truck charges directly to the rental company. Staying on top of the entire process will save you deal after deal in the long run and requires very little time.
To your limitless success,
Real Estate Mentor Program Founder