The real estate offer process can be one of the most intimidating aspects of the real estate investing trade, especially for those getting started. But as with most things in life, knowledge and preparation can go a long way toward subduing your trepidation and giving you the skills you need to not only make a real estate offer compelling, but also avoid many of the common mistakes that plague newer investors.
Here are five mistakes to avoid during the real estate offer process and strategies for how to turn this anxiety-inducing encounter into a positive and productive one.
Demystifying The Real Estate Offer Process
1. Not Knowing Your Numbers
This mistake is so common, and so important, that it may count as mistakes 1-3 to avoid when learning how to make a real estate offer. That’s because knowing your numbers is the ultimate leverage when it comes to presenting offers and determining exactly what result you want.
This means knowing two key numbers: the after repair value (ARV) and maximum allowable offer (MAO) of a given property. Profits on a real estate investing deal are not most often lost in repair overruns or in failed marketing; they are lost in not providing enough of a cushion between your acquisition price and your eventual price (something no amount of marketing or sizzle features can fix).
2. Not Determining A Seller’s Needs Over The Phone
The moment a potential seller picks up the phone, and becomes a lead in your real estate investing funnel, is the moment that your seller homework should begin — not the moment you step foot on the property.
Too often, many investors (when learning how to make an offer on an investment property) will wait until they walk through the front door before they start probing the seller for vital information. This is too late, as your offer needs to be structured according to the needs of the seller.
When speaking initially to a seller, ask them open-ended questions such as:
What’s your emotional connection to the property?
What’s your timeline for selling?
Will you need relocation assistance?
Why is it important you sell?
Finding out this information will not only improve the effectiveness of your offer, but will demonstrate to the seller you “heard” their concerns, and that your offer represents a real solution to their current problems.
3. Leaving Out Offer Sizzle Features
Once you’ve got the numbers crunched and you know what the seller wants, it’s time to craft your offer. But many investors will spend time on the elements of the offer that interest them, namely how low they can make their offer. But it’s important to remember to add those offer sizzle features that entice and motivate sellers to take your offer, and most of them all have to do with time and/or money.
These offer sizzle features include things like:
Cash offer (or equivalent): This is the number one factor that will entice a seller to your offer. By showing you can pay a seller immediately, you’ll quickly get their attention. (If working with a private investor, walking in with a bank statement can work as well.)
Quick closing: This will depend on your financing situation, as well as your experience as an investor. But the more you can get your closing timeline down well below 30 days, the more favorable your offer will be received.
Generous, earnest money: There is no hard-fast rule about exactly how much your earnest money deposit should be. But whatever the going rate in your local area is for an earnest money deposit, try to bump it. It’s simple: the bigger the deposit, the stronger the offer.
4. Offering Only Dollars And Cents
There’s no question that how much your total cash offer will be is the number one factor in swaying a seller to accept your proposal. But it’s important to remember sellers, like most people, make decisions based on emotion, then back it up with logic. That said, you need to know how to write an offer letter that will sell yourself; not just your services.
And while your offer may help them solve an immediate problem, their attachment to a property — or feeling of failure at not being able to care for it — may prevent them from accepting an offer that may be good for them in the long run.
In such cases, it’s important to look for other non-cash benefits that you can offer the seller if they do accept your offer. This would include things like:
Assisting with the move: Something as simple as offering to help them find appliance boxes or scheduling a moving truck can be little gestures that make a profound impact.
Helping find their next home: Can you use your expertise of a local market to help a seller to find a home/apartment? Probably. If so, offer to lend a hand and help take this huge stress off their plate.
Debt repair: This might be the most powerful, though under-utilized, strategy for persuading a would-be seller to accept your offer. And that is to simply offer to help them get into some kind of credit repair program. (Perhaps even mentor them to create a healthier financial plan to follow.) You can even offer to help them purchase a home once their credit is on more solid footing.
The Biggest Offer Mistake Of All
The real estate offer process is simple when you think about it: present a compelling offer that a seller simply can’t say no to. But many real estate investors believe simply throwing money in front of a would-be seller is the way to crack the code on acquiring properties.
But this disregards the human, emotional side that all of us use to make our decisions. And by doing your due diligence, both in terms of property value and seller needs, and learning how to make an offer in a way that not only solves a seller’s current problem but provides them a path for future prosperity, you’ll find your offers get accepted more often than not.
And you’ll feel the satisfaction of knowing you made a difference in somebody’s life, while (hopefully) making a nice, tidy profit.