One of the most difficult things for new house flippers to master is how to make an offer on a house. Often times newbie investors will locate a great property with profit-earning potential. However they lose the property to more experienced house flippers, because they did not craft their offer in the most effective and attractive manner.
Structuring your offer for success is becoming increasingly important, because it seems like the best deals are being swept up much quicker today than just a few months ago. The market out there is highly competitive, with many investors bidding on the same properties.
The key then is to submit an offer that is more appealing than your competitors. If you craft an offer that works better for the seller, than you will be the one who gets the property. Of course learning how to make offers on houses is a skill that isn’t acquired overnight.
As with any business, the more you do something, the more skilled you will become. This is especially true for submitting offers. Nothing beats action and real life practice. However, through the years I have noticed a few things that help me consistently beat out other investors for the best properties to flip.
The next time you get ready to place an offer, consider incorporating the following strategies. On some deals all 5 of strategies will make sense to use, while on others, none of the strategies will apply. The important concept to grasp is to learn as much as you can about a specific deal, and then apply the best course of action possible – to ultimately create an offer that is in align with what the seller is looking for.
1) Consider making an offer that is above the seller’s asking price
This may seem a little backwards, but let me explain. Let’s say you are watching a particular property over the course of a few months, but are hesitant to make an offer on the house because you believe the asking price is too high. Eventually the seller drops the asking price to a very competitive number – a number that interests you as well as just about every other house flipper in your area.
This happened to me not too long ago. I spent a few months keeping an eye on a specific Massachusetts property, until the asking price dropped by nearly forty thousand dollars. After the price drop I decided that I had to make a move, because this was too good of a deal to not take action on.
In my opinion, the new asking price was below the true value of the property, so I went ahead and submitted an offer on the house that was twenty percent above the new asking price. Doing this would help position my offer at the forefront of all the other offers submitted by competing investors. Of course I had crunched my numbers and accurately estimated the cost of repairs, which ensured that I would still make a healthy profit on the property – despite the fact that my offer was twenty percent above the asking price.
Low and behold my offer was accepted. My team and I flipped the house, and I walked away with a nice profit to boot.
2) Place a cash offer on a house whenever possible
If you can, definitely place a cash offer whenever possible. Banks prefer dealing with cash because there is no financing to rumble through.
A couple of months ago I came across a property that was receiving a lot of action. Only thing was the offers that were being placed did not satisfy the bank’s expectations. On top of that, all the offers coming through the door required financing. Said another way, the bank’s employees were sick and tired of scrimmaging through difficult financing situations.
I think my cash offer on this property was like a breath of fresh air for the bank. Because they had been dealing with only offers that required financing, my cash offer appeared that much cleaner and simpler. The bank viewed me as not subject to financing, and my offer was ultimately accepted.
3) Even though it appears scary, consider waving inspections
When I first began flipping houses I did not consider waving inspections. I was new to the business and still slightly unsure about what I was getting myself into. Don’t get me wrong I always did my math and worked with exceptional people to ensure that I would not dig myself into a bad deal. However the thought of waving inspections was not all that appealing to me at the time.
Now in 2013 I wave inspections all the time. My past few offers have all involved this clause. As a general rule, I wave inspections unless I know for a fact that no other investors are placing offers on the property. A good real estate broker can help you determine how much activity a specific property is receiving.
Just recently I placed an offer on a home that was receiving a ton of action. This was a highly desirable piece of property that many investors in my area were interested in. To help make my offer stand out among the crowd, I submitted a cash offer and waved inspections.
I believe that by waving inspections, I provided the seller with a little extra incentive to accept my offer over all the other investors’ offers.
4) Communicate to the seller that you can close quickly
This is a strategy that I have used on a few deals so far in 2013. On these particular deals I knew that I had the ability to close within 2 weeks, so I made sure to let the seller know.
Now if you have been involved in real estate for any time, you probably understand that there is no way that a bank is going to close in 2 weeks. Yet if you as the investor have the ability to close in a short amount of time, be sure to communicate this to the seller.
This will make your offer stand out among the crowd, especially when dealing with banks. Of course I do not recommend faking it. Only communicate this to the seller if you can actually close in such a short period of time.
5) Understand the deal, inside and out
This is by far the most important thing you can do when learning how to make an offer on a house. Knowing the situation inside and out will help you to structure an offer that the seller cannot say no to. Always do your due diligence, and research as much information as possible about the property you plan on making an offer on.
Some questions to ask include:
- Is this a short sale?
- Am I dealing with a wholesaler?
- Is this a bank owned property?
- Is this property for sale by the owner?
Try to understand the situation from the seller’s point of view. Put yourself in their shoes. If you can do this, you’ll start to pick up on small details that will have a big impact. Remember that every home is for sale for a specific reason. Discover that reason, and structure your offer in a way that takes advantage of it.
Completely covering the art of structuring offers requires much more than a 1200 word blog post – which is why I will be covering this important step in the house flipping process in great detail when the new House Flipping School is launched in just a matter of weeks.
So definitely stay tuned for that.
In the meantime, remember that each deal is different. Do what you can to make your offer stand out among the crowd, while ensuring that your numbers still make sense. You can’t make money on a deal if you don’t get it, but you also don’t want to get too aggressive and put yourself behind the eight ball from the very start.
If you have experiences (good and bad) placing offers, I would love to hear about in a comment below.
Take care and see you at the top,