How to Present Your Low Offer to a Seller

How to Present Your Low Offer to a Seller

Many investors are concerned about presenting a “low” offer to a seller. It appears that anything less than what the seller “wants” is considered low and buyers are always fearful of presenting that offer. But remember, the seller has a need, a reason to sell, and they are hopeful you will present a solution.

When negotiating, the most important thing to do is listen. Don’t forget, you are attempting to solve a problem for the seller and you must find out what that problem is. They have a need to sell their property and it is rarely about the property itself. Some reasons sellers need to sell include:

  • job transfer
  • divorce
  • illness
  • no longer able to make the payments
  • etc.

Its the perfect situation – they need to sell, you buy properties. If the two of you can come to an equitable agreement, you have a contract and you both win.

Some things to keep in mind during your negotiation include:

  1. As an investor, you are not an end user so you cannot offer as much as someone planning to live in the property.
  2. You must offer based on your real business numbers, not on emotion. This is, after all, a business transaction.
  3. You must know how to calculate the property’s after repaired value (ARV) as well as the repair costs it will take to bring the property to that value in order to make a true offer.

Anytime you talk with a seller, you should spend most of your time listening. Your goal is to find out their situation, why they need to sell the property and make an offer that can, hopefully, solve their problem. I always explain to our clients, “I may not have your best solution, but I am ‘a’ solution.”

Once you’ve completed your due diligence and calculated your offer, present your real numbers to the seller in a way that they understand what you can offer and why. Never simply throw out a low number and expect them to understand without being offended. Offering less than the seller is hoping for takes explanation.

It’s easy:

  1. Determine what you can offer and write out the process you used to come to that number. That process becomes your presentation to the seller. For example, start by writing down their asking price. Next, deduct anywhere from three to seven percent (depending upon where you live) as that’s typically how much any retail buyer will deduct from their offer. Very few buyers offer full price and your seller knows that.
  2. Deduct real estate commission because either they will have to pay that amount to sell or you will have to pay it later when you sell. Remember, these are the calculations of your true costs and how you determine your numbers.
  3. Deduct all additional expenses you may incur – holding costs, pest inspection, repair/renovation costs, closing costs, etc. – any costs you may realize later when trying to sell the property.
  4. You may also want to throw in a “reasonable” amount of profit. At the bottom of the page is your final figure, your offer, and you have completely explained how you came up with that number and why.

These points make clear to the seller that you have done your due diligence and have a true reason for these real numbers. Many investors simply throw out low numbers and the seller, understandably, thinks they’re being taken advantage of.

Some of these number are negotiable, but it is imperative to know the maximum you can pay and still make profit. This is truly about your numbers, not the seller’s, if you want to stay in business. If you become overly concerned with the situation the seller is in – a situation by the way, that you did not create – your emotions get in the way and cause you to pay too much for the property. This is why you MUST know the maximum amount you can offer before you begin the negotiations.

If the offer works for both of you, great. If it doesn’t, that’s fine and you walk away as friends but you’ve offered a solution and they understand why you offered that amount. Often, you are the first person to educate the seller as to the true costs of selling their home. They may be disappointed with the offer but, when presented correctly, they understand it.

If you don’t end up buying the house, it’s very likely that the seller will eventually refer you to others because you have shown yourself to be both helpful and trustworthy.

Will this help with your presentations?

This post has 11 Comments | Would you like to leave a comment?

11 Comments

  1. Hi Jana:

    Holding costs are just that – what it costs you to hold a property – insurance, taxes, homeowners association dues, mortgage, utilities, yard maintenance, etc. – true expenses you incur monthly by owning a property.

    And reasonable profit is how much you want to make for your efforts in solving the seller’s problem and taking those problems on yourself. If you’re an investor rather than someone planning to buy and move into the property to live, then you need to make a profit or you won’t be in business for long.

    Thanks for asking and good luck to you!

  2. In #3 you mention holding costs. Could you please explain what you mean by this term? Also, in #4, you mention reasonable amount of profit. Could you also explain this as well.

  3. Thanks, Dina, for taking the time to comment.

    Unfortunately, I think it’s “normal” for sellers to be shocked at closing. I bet that most sellers expect more than they end up with. And, whose fault is it? Why don’t lenders, attorneys, real estate agents, all responsible parties communicate the numbers? I guess no one wants to be the bad guy.

    So sorry you were also caught in this trap. Knowing you have lots of company doesn’t make the pain any less, I’m sure.

  4. This is a great article. I recently sold a house for the first time and am still reeling from sticker shock of the $12000+ in closing costs I had to pay on a property I owned free and clear. When I bought the house in 2014 I only paid about $3000 in closing and I guess I failed to do my due diligence on sellers closing costs. Lesson learned.

  5. Thanks, Kevin.

    I hope this helps!

  6. Very well done Karen!

  7. I like your idea “problem solver”. That what we do for sure. Know your numbers but better yet know how to communicate with any type of personality so you can get to the pain of the problem so you can solve it! Thanks Karen. This was hard to understand in the beginning of my career. Because we do want to help them but not at your own expense or else you won’t be around long!

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