Rookie Reply: How to Make an Offer on a House (Even If It’s Off-Market)

Ashley:
This is Real Estate Rookie, episode 108. Hi, my name is Ashley Kehr and we are back with another Rookie Reply. I have my co-host Tony Robinson here with me today, as always. Tony, I hope that I never have to have a substitute, that we get to be co-hosts every single time.

Tony:
Fingers crossed, you’ve slowly become up my most favorite person in the state of New York, and the bar is really high. Spike Lee is in New York, I think Adam Sandler’s from New York and you’ve just slowly overtaken, a lot of those other native, New York folks.

Ashley:
Tony and I just got back from Denver last week. We got to spend some time together while I guess, when this was recorded, it was last week so probably a month ago, but it’s always fun getting to hang out with Tony and his wife, Sarah, and getting to know each other better. So yeah, it was a lot of fun and we created some great content for you guys too. If you guys missed it, do you know what episode it was? Where we did the live in-person?

Tony:
I don’t actually.

Ashley:
It was a Rookie Reply one, yeah. So maybe, 98, I think.

Tony:
Yeah, somewhere around there.

Ashley:
[inaudible 00:01:09], so you can watch that on YouTube and watch us in-person doing our recording together in the studio. But today Tony, we pulled the question from Facebook in what is the question?

Tony:
So today’s question comes from Stephen Cobb and Steven’s question is, “I’m about to try to make an offer on a house, but the property is on market, it’s listed on the MLS, so I’m working with the agent when I make the offer. Is there any official document that I need to submit or do I just give them the price that I want to offer?” So, Steven, this is a great question that I’m sure a lot of other rookie real estate investors are wondering. If the property is listed on the MLS and there’s an agent, the seller has an agent that’s representing them and you don’t have an agent yourself. You can really easily just call it that listing agent and say, “Hey, my name’s Steven. I really like this property. My offer number is X, Y, Z. Would you mind representing me in this transaction?”
I think it varies by state, or honestly, I’m not an agent, so I don’t really know what the rules are, but some agents are okay with double representation, some of them aren’t. So even if the listing agent doesn’t want to represent you, they maybe know someone in their office that will represent you. But once you tell the agent what your offer is, they pretty much handle it from there. They’ll write up whatever contracts are needed if the offer is agreed upon, and you just sit back and wait for things to happen. So that would be my recommendation, call the agent, let them know that the number is and let them take it from there.

Ashley:
I think one thing to watch out for too is when you are approaching an agent who is the listing agent who is representing the seller, is to make sure that they give you a disclosure agreement to sign saying that you are fully aware that they are representing both the buyer and the seller. So, I have done this before on both sides where I purchased a property and shared an agent with the seller. Then I’ve also had a buyer where I was the seller and we shared an agent and both times it was a very easy process. A lot of times I felt that it was actually more beneficial because instead of two middlemen, you only have one middleman, so I did like that, but there are some agents and they call it a dual agent.
There are some agents who will not do that for you, where they will refer you to another agent in the office. That downside could be that the agent is looking to make the highest commission in some cases, so they’re going to go help maybe the other person more because they want the higher commission. But I think that it’s very beneficial to have an agent, whether it’s a dual agent or somebody else, put the offer together for you first, before it’s actually submitted to the seller. So, they’ll actually draw up a contract for you and have you sign it with what is your purchase price, are you doing inspection? Things like that. There can also be a letter of intent and you’ll see this a lot of times on the commercial side, where it’s just a simple letter stating that you would like to purchase this property, this is the offer. This is the purchase price. These are the contingencies and it’s just written in the letter format. If you google letter of intent online, you’d be able to find a copy of this and you can fill in the blanks.
Then that just holds the offer for you until somebody draws up the actual contract for you. In the letter of intent, you’ll want to put that it is contingent on attorney approval too, before it’s actually finalized. Then what else Tony? Or you think should we go into maybe off-market deals, if somebody isn’t even making an offer on market on the MLS?

Tony:
Yeah, so we’ve purchased a couple of properties off market recently and when we buy anything off market, you’re talking directly to the seller at that point. It’s pretty much the same process. So like for us, when we buy something off market, we have a verbal or face-to-face conversation with the seller. We agree on the number verbally and then we send them a purchase contract or a purchase agreement that has the purchase amounts, as well as the other stipulations that Ashley mentioned, like is there an inspection period? Is there a due diligence period? Is there a appraisal contingency, I guess all of the details of that deal are included in that purchase agreement.
Then once the buyer and the seller both sign that purchase agreement, for us here in California, we send it over to an escrow company and then they kick off the whole process with escrow and title and then runs from there. But that’s how we do it. Pretty straight forward process, also off market.

Ashley:
Yeah, I do usually a letter of intent and then once that letter of intent is signed by the seller, then I take it to my attorney who draws up the contract. Then they send it to the attorney. In New York State, you have to use attorneys for closing, so that’s why it goes to the attorneys next. But another thing is too, is when you are doing an off-market deal, you get to negotiate the seller. So don’t be confined and constrained into what your initial offer is, be able to work with the seller and listen to why they’re selling and what they really want on the deal and be flexible with changing your offer and your terms, even on the spot when you’re negotiating with them.
So, I think that’s a really great thing as to not having an agent involved. But if you are doing an on-market deal where you have an agent, you’re going through the MLS, it can be beneficial to have the agent too, because they probably know the market, hopefully where you’re buying, and they can tell you, nobody is getting an offer accepted if they’re doing an inspection. So having little insights like that from these people who are closing on houses every single day, and watching these transactions happen, they’ll be able to give you insight as to what the market is doing. There’s also, Tony, what is this called? I can’t think of the name for it and I haven’t done it or seen it done, but I think it’s the escalation clause, where if you put in an … You can probably explain it better than me.

Tony:
Yeah, we did this, I think on one property that we submitted on in Tennessee, but basically we’re talking about the same thing, say that there’s multiple offers going in on a property, but say that your first offer is for $400,000 but you can put an escalation clause in there that says you’re willing to bid $1,000 above anyone else’s asking price up to $500,000. So that means if someone comes in, your initial offer was $400,000, say someone comes in and offers $420,000 your offer immediately escalates to $421,000. But say that you have a cap up there of $500,000. If someone comes in and offers $500,000 then your escalation clause is over because $501,000 would be over your top price. So you see that in a lot of competitive markets, we’ve played around with it, but haven’t gotten any deals with it.

Ashley:
And that’s just one of the examples of something that a realtor could let you know is going on in that market and a benefit to that. So, Tony, just if you had a choice, would you pick a dual agent that is representing the buyer and the seller, or do you prefer to have your own agent?

Tony:
I think where I’m at in my investing career today, I’m fine having dual representation. The first deal we bought in Joshua Tree was that way, I’m actually going to call an agent for one of their listings, as soon as we hang up, that we’re trying to buy here as a flip here in SoCal. So I’m comfortable with it. I think if you’re a super rookie investor, you haven’t done your first deal yet, I think maybe spending a little bit more time to make sure that the agent is the agent that suits you and your specific needs is probably more important, but I don’t really need my agents anymore to educate me as much on whether or not this is a good market to invest in, or what the comps are looking like.
I feel comfortable enough in doing a lot of that research on my own, so it’s not as valuable to me. So again, if you’re a rookie, maybe spend a little bit more time really building that relationship and choosing the right person. If you’re a bit more experienced, then I think the dual agent works fine. What about you, Ashley? What are your thoughts?

Ashley:
Well, I think you brought up a great point, is you need to figure out what you need an agent for. Is it just to write up your offer and submit it? Is it to take you to showings? Is it to help you analyze the market, analyze the deal, tell you how good the school district is. So you need to figure that out first and then find your agent based on that. Like Tony said, and I agree with this, if you just need someone to show you the property, then I’m fine with using a dual agent and just, “I know what my offer is, and I know exactly what I’m going to offer on it. I don’t need their advice on what the current market is doing,” then a dual agent is fine, but do remember that when you go to look at a property, if it is the listing agent, they’re going to know more than just a realtor that’s coming into the property and is not the listing agent.
So, that is one advantage, is that you’re probably going to find out more information talking directly to the listing agent and they can probably call the seller right away. “Hey, I didn’t know the answer to this question, what is it?” And get you an answer right away. So that’s another benefit, but also going back to using your own agent as the buyer, it’s free to you. So that either way there’s pros and cons, you’ve got to look at what opportunity you need from the agent, but either way it’s free.

Tony:
I guess one downside to maybe going with like the dual agent piece, so for example, this happened to us two weeks ago, we’re looking at a property to flip. It was listed on the MLS, it was way overpriced, they were asking way too much money for it in the condition that it was in. So we submitted an offer that we felt worked with our numbers and we presented directly to the listing agent and she wouldn’t even present it to the seller. She refused to present such a low number to the seller. Whereas if we had our own buyer’s agents, maybe they could have done a little bit more negotiating on our side tax to get that number in front of the seller. So, sometimes they’re incentivized to maybe sell the property for a little bit more than if you had an agent representing you just as the buyer. So there is a potential downside there as well.

Ashley:
Well, I think that summarizes that question. I was worried that we’d be too quick, giving a short answer, but hopefully you expanded on to a little bit extra there. So, thank you guys so much for listening to this week’s Rookie Reply. Leave us questions on the Real Estate Rookie Facebook group. If you haven’t joined, just search Real Estate Rookie Facebook group, super excited to see you guys at the BiggerPockets Conference coming up and check out the YouTube channel Real Estate Rookie too, we put out new weekly videos, including recordings of each episode. Thank you guys very much. I’m Ashley @wealthfromrentals and he’s Tony @tonyjrobinson on Instagram and we will be back on Wednesday.