I’m currently working with a buying client who is looking to increase his portfolio of 3 condos to include some small multi-units like a duplex, triplex or four-plex.
This move to small multi-unit properties is well within his context (his thinking of what’s possible for him) and he’s been looking at many properties.
However, he has been unable to find just the right property until just recently.
11-Unit Stretches His Thinking
I watch the MLS regularly for new listings and one day an eleven unit apartment building came up for sale. I knew the property and even though the asking price was on the high end, I thought this would be perfect for my client.
I sent the listing to my client on a Thursday and his initial comment was it was too big and he didn’t have enough cash for the down payment.
I never push a client to buy something unless I feel it is a good fit and this property was definitely a great fit for him.
He said he would think about it.
Friday evening he let me know that he was now interested but he needs to figure out how to come up with the cash.
Ready To Make An Offer
Monday evening comes and he says he is ready to make an offer.
So I draft up the paperwork and submit an offer with a 24-hour irrevocable which means the Seller has 24 hours to accept the offer and or respond, failing which the offer becomes null and void.
Then I get a call that all real estate agents and buyers hate…
The listing agent calling to say there is another offer
Not only was there another offer but there were actually 4 offers in total.
And despite us improving our offer with a higher offer price and larger deposit we still lost out on the deal.
A Big Mistake
I thought it would be a good exercise to share with you so you can decide when to make an offer and how you can increase the odds of having your offer accepted.
In this article, I’ll talk about getting the offer accepted and in a future article, I’ll discuss the negotiating process and how to get the price you want.
The biggest mistake I see most investors make (new and experienced) is…
Wanting to view the property
and do the financial research about the property
before they even have it under contract
There are many investors out there looking for properties similar to the one mentioned above, and if the property is decent and priced well then it will sell very quickly (competition for good deals is very high).
I knew this property would sell quickly and this is why I encouraged my client to act quickly.
Make An Offer Sight Unseen, Without Risk
Now in his mind, making an offer within 4 or 5 days without even seeing the property was quick. My client now understands that he should have made the offer immediately to get it tied up at whatever price ASAP and avoid the chance of multiple offers.
Making an offer sight unseen is a very big step for many investors to accept.
However, if written properly you can simply have a clause inserted stating that the offer is subject to a satisfactory viewing by the buyer within 3 days of acceptance of the offer.
If upon viewing, the buyer doesn’t like the property, then the deal is dead and there is no risk to the buyer. The upside is that the buyer is able to prevent other potential buyers from getting the property before him.
Getting A Lower Price
Now one of the biggest responses I hear from a client is,
“Okay I understand about getting it under contract asap without seeing it, but what if I don’t want to pay his asking price?”
Let`s assume there is a property listed for $699,000 and you believe it is really only worth $599,000, and the maximum amount you will pay is $600,000.
That is 14% below the asking price and the chances of making an initial offer for $600,000 that will be accepted are slim to none.
Most Sellers will have a price in mind that they are prepared to accept so what you need to do is discover what that price is as quickly as possible and get the property under contract for that price.
The acceptable sale price for the Seller may be around 5% less than asking so you agree to purchase for the price of $664,000.
Does this mean this is the price you will end up paying?
Definitely not, this is just the initial accepted priced subject to change upon the completion of your diligence.
Move Fast To Be In The Game
Needless to say, if my client had made the offer when he was initially given the chance, then he likely would have achieved success in getting his offer accepted and we would be working our way through the diligence period verifying facts and figures now.
Next time, I’ll continue with this process and explain how we can renegotiate the deal to be able to get closer to the price you initially wanted to pay.
- How Much Is An Apartment Building Really Worth? - August 18, 2017
- 2 Things That Stop You From Investing In Real Estate - January 24, 2017
- How To Make An Offer On Property And Avoid Competing Bids - September 28, 2016