Making Offers to Sellers

Making Offers

Real Estate Offer Strategies: Private Sellers vs. Banks

This report evaluates different strategies for submitting offers to private sellers versus banks/lenders (REOs), focusing on the appropriate posture, content, and follow-up methods for each type of seller.

Offer Submission Strategies Report

Making the offer is the final step after calculating the deal, estimating repairs, and determining the property’s value. The strategy for submission must align with the type of seller (private individual vs. institutional bank).

1. Strategies for Submitting Offers to Private Sellers

When dealing with a private seller, the approach emphasizes solving their unique problem, flexibility in terms, and confidence in presentation.

1. Posture and Attitude
2. Present a Solution:The investor is offering a solution to the seller’s problem, and the offer should never be in a position of needing to be defended or convinced. If the seller is not motivated enough or dislikes the solution, the investor should move on until the seller changes their mind.
3. Require Both Owners Present:If the property is owned by a husband and wife, the investor should arrange to meet both spouses when viewing the property, as the investor should be prepared to present and sign the offer immediately. If both spouses are not present, the deal could be lost, or a second meeting would be required for signing.
4. Tailor Appearance:The investor should dress and act according to the situation and the class level of the seller and property to avoid looking unprofessional or intimidating the seller.
5. The Multiple Offer Strategy (Recommended)

One of the most effective ways to increase the chance of acceptance is to use the “multiple offer strategy”. This involves giving the seller two or three distinct offers to choose from, which dramatically increases the chance of success compared to making only one offer.

The multiple offers should be structured based on the seller’s specific needs, which were gathered during initial discussions:

Note: The seller must be informed upfront that each offer is separate and they cannot mix-and-match terms between the offers.

1. Handling the Decision
2. Give Time, Request Callback:If the seller needs time to decide, the investor should ask how long they will take and request they call back by that time.
3. Follow-Up:If the offer is declined, the investor should move on but establish a follow-up system (e.g., checking back in 30 or 60 days) to revisit the seller if they become more motivated over time.
4. Strategies for Submitting Offers to Banks (REOs)

Submitting offers to banks (Real Estate Owned, or REOs) differs significantly from dealing with private sellers, as banks prioritize liquidation over creative terms.

1. Required Offer Structure
2. All Cash and No Contingencies:The only type of offer banks generally like to see is “all cash” with “no contingencies”. Banks are not interested in creative offers unless they are having trouble getting rid of the property.
3. As-Is Condition:Banks often require special addendums, including an “as is” disclosure stating the buyer accepts the property in its current condition with no warranties.
4. Assignment Restriction (Double Closing):Banks may include an addendum stating the contract cannot be assigned. If planning to flip the property, the investor should use a double closing instead, as this involves two separate purchase agreements rather than assigning the contract.
5. Initial Submission Method:Banks often request that initial offers be submitted verbally or via a brief fax offer letter to avoid paperwork on non-accepted offers. Full written agreements are usually only requested once the highest offer has been determined.
6. Bidding and Pricing Tactics
7. Do Not Price Based on Loan Amount:Investors should not try to estimate the acceptance price by looking at the bank’s original loan amount, as banks routinely sell properties for less than the amount originally loaned. The acceptable price is instead influenced by the property’s current condition and the Broker Price Opinion (BPO).
8. Bid Higher, Not Marketing Prices:When submitting an offer, avoid prices commonly used for marketing (e.g., $49,900). Instead, bid the rounded-up figure (e.g., $50,000) to make the offer appear larger.
9. Bump the Bid:To improve the chance of outbidding a competitor, bump the offer up by a small, specific amount, such as $100 (e.g., $50,100 instead of $50,000). If working in $500 increments (e.g., 50** (e.g., $57,550).
10. Responding to Bank Decisions
11. Rejection/Counter:If the bank totally rejects the offer, or counters at a price too high, the investor should move on and immediately place the property on a follow-up list.
12. Highest and Best:If the bank receives several offers shortly after listing, it may request a “highest and best offer” to avoid countering multiple parties simultaneously. In this case, all interested parties submit a revised, final price.
13. Persistent Follow-Up:Since banks (and their agents) typically do not track rejected offers or call people back, the investor must follow up by making the same offer on a regular basis (e.g., every 30 days) to ensure their offer is in front of the bank when it decides to lower its price.

III. General Offer Success Metrics

Regardless of the seller type, making offers is a numbers game.

• An investor may have to look at ten to twenty propertiesbefore making the first offer.
• It may take up to ten offers before one gets accepted.
• Professional investors achieve a higher acceptance rate, sometimes as high as one out of every two offers, by expertly pre-screening properties.
• If the acceptance rate is below one out of ten, the investor may be dealing with the wrong sellers, looking at the wrong properties, making offers that are too low, or making offers that fail to solve the seller’s problem.

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