It’s like clockwork – something bad happens that could potentially affect the real estate market, and buyers think it’s their time to start snagging up homes for dimes on the dollar. Investors buyers make a good living buying up real estate for wholesale prices and they consistently make up a small segment of purchasers. Unfortunately, that doesn’t mean that YOU, a traditional retail buyer, have what it takes to dabble in the play-space with the investors just because you think you’re in the driver’s seat.
Mind you, this post came about because colleagues were having a discussion about the topic recently as the buyers have all gotten it into their heads that this is the time that the market has fallen apart and real estate is obviously 50% off this summer. What do we need to tell our buyers that they may not be in a position to make such bargains, but if the situation were to present itself, what would they, or YOU, need to do to be ready for the deal of a lifetime.
There is a level of preparation, and knowledge, that is required to successfully negotiate a deal that is a significantly great deal. You will need to already know everything that there is to learn about that particular house. Not just houses in general. Houses in that neighborhood and of the same age. For your particular house you’ll need to know its history, potential problems that will come up, and things that the house will need.
This will not be the normal way you will go out and buy a home on the retail market. How do you know if you are shopping retail and not wholesale? Are you concerned about the results of a home inspection, and maybe you even want the seller to buy you a warranty? Are you getting an FHA, or a VA loan with a low-down-payment? Did you bring your parents, or other family members to come “take a look” at the house you’re thinking of buying? These are all indicators that you’re buying retail.
So what do you need to do to convince a seller that you’re a wholesale buyer that can make their problems go away?
You’re competing with other investors. Remember your seller could select another wholesale offer at the same price as you’ve offered. You’re going to want to make it clear that you have experience owning homes like this before. You know what service issues there are on houses this age, what those kinds of things cost, hidden time bombs, and the like. You know what you’re doing, and you’re the easiest person to sell to.
At the same time, you’re disqualifying everyone else who may NOT know what they’re doing. People who might come back with inspection issues, ask for credits for repairs, or even cancel the deal. Make your seller comfortable that this sort of thing doesn’t come along when doing a deal with you. The only thing that you’re concerned about is the price.
You will want to say “I will pay this much for this house.” Not “I’ll probably…” or “After it all checks out…” or “Well if we can get through all this and eventually…” No. You want to deliver the message with absolute clarity that if you get the price you’ve settled upon, that you are ready to commit and close.
Eliminate your own outs
Once you’ve put it out there that you’re interested in the house for your price, you should be past the time when you need to “take another look,” “bring over another inspector,” “talk to your wife,” or worse “talk to the partners.” This is not to say that you shouldn’t do your due diligence. However you should have learned all that you need to know long before now. Bring your inspector during your first showing or second. You should already know that in the subdivision you’re looking within has cast iron waste lines from the 1960’s and that they’re all going bad right about now. You should already know that the old looking roof is going to cost $12,000 to replace with shingles or $25,000 with new tile.
There is nothing more satisfying, and exciting, than knowing that you have negotiated the deal of a lifetime. You need to have what is necessary to close the deal quickly. Your line of credit should have been arranged long ago, or the cash should already be in your bank. Remember, at this price, if the seller gets wind of a better offer coming, you could get dropped like a hot potato. Eliminate your competition.
Do not complain
You have eliminated your opportunity to keep asking questions. You can carry on friendly conversation, but make it clear that if the seller accepts your offer, they will not hear back from you, or your lawyers, ever again. Anything bad may, and probably will, but you’ve made it explicitly clear that this is the last that we will ever be interacting again.
If you’ve seen those home-made flyers stapled to light-poles all over your neighborhood that start of with “We buy ugly houses…” or “Cash for homes…” these are the guys you are competing with. With a level of preparedness, it’s possible that you too, can work out a wholesale deal of a lifetime.