By now you know that I invest in real estate. And that I recommend it to everyone. And that I think this is a fabulous time to be buying. Oh that’s right, I think it’s always a fabulous time to be buying!
So, what are some of the steps we take to buy? As investors, we don’t pay full retail, so how do we present an offer to the seller so s/he understands how we came to the number we’re presenting?
At a recent real estate investment meeting, our main topic was how to do just that. Presenting an offer is the most important part of the entire buying process and, done right, it takes time. Never simply give a low offer, but rather take the necessary time to sit and explain, in depth, how you came up with your price. Buying is where you truly make your money, and presenting your offer is the most important time you spend with the seller. Never rush this step.
Before meeting with any seller do your homework to determine, first, that you want the property, the property’s fair market value, and the maximum you can pay for it. Finally, make sure that you can resell for a profit if you plan to resell, or cash flow it every month if you plan to hold it as a rental.
Armed with your research, you’re now prepared to sit down and talk with the seller. There are a number of things you will want to have with you when you do:
- Business cards – so they know who you are and that you’re a professional. Leave your cards with the seller so they have all your contact information when you’re gone.
- Testimonials – from people you’ve done business with in the past. Always have testimonials on your website and on all your marketing materials, but be sure to print some out to leave with the seller so s/he can look them over later.
- Comparables – from the area showing the market value of their home. Many online sites offer this information and you’ll need it to help come to an agreement with the seller about what their home is truly worth.
- Seller Worksheet – showing how you determined your offer.
This seller worksheet is the most important piece of information you will carry and share with the seller. It is also the most important piece you will work on for yourself.
- Begin with the approximate market value that you and the seller have agreed to for their home. Next, you begin subtracting selling costs from that number.
- Explain to the seller that buyers expect a discount from the asking price. A three to five percent discount is the average nationwide. Some areas show as much as a seven percent discount as normal off asking price.
- Subtract real estate commission. Six percent is the national average.
- Subtract closing costs. Today, sellers are paying most of the closing costs to make the purchase of their home attractive to buyers. FHA allows for the seller to pay up to six percent in closing costs when they buyer is using an FHA loan. It is still a buyers market so sellers are taking large discounts and picking up many of the back end costs.
- Subtract any other costs that will occur with the sale: home inspection, pest inspection, vacancy insurance, transfer tax, repairs, utilities, yard maintenance, home warranty, mortgage payments while it’s vacant, etc.
- Repairs. Do you know what the repair costs will be? It is vital that you have an accurate idea when making an offer. If you are not able to determine needed repairs on your own, it is well worth paying a professional inspector go through the property before making your final offer.
The above numbers will subtract out to your bottom line, your maximum offer. These are real numbers that you discuss with the seller to show that you haven’t randomly picked your offer amount, rather that it’s a true and fair number. When you take the time to go over this worksheet with the seller, you have educated them on the true costs they will run into when selling their house and, even if they don’t like the final number, they understand it and see that it’s real.
This worksheet and the time spent with the seller is vital. The best transactions are a win for everyone and, even when your offer is lower than what the seller was hoping for, once you’ve shown them why, they can agree that you took the time to help them out and presented an honest solution that will allow them to move on with their life.
How do you present your offers? Is this information helpful?