With an FHA 203(k): How I beat 17 other Offers in Los Angeles

[Rick Albert]

I heard on one of the latest BP podcasts that if you have an FHA 203(k) loan, then forget multiple offers. I'm here to say that's not always the case! We had to get creative. So how did we beat out 17 offers? Here's how:

We didn’t ask for the Seller to pay for a home warranty and we offered a free 30-day rent back: The home was a fixer, so we knew that the home warranty wouldn’t have value anyways because it only covers the home as-is. That saved the Seller $600 right off the bat. In addition, the Seller wanted to rent back for a month of $1,650. During that 30 days, we can prepare for permits, get design ideas, and best of all, our first mortgage payment wouldn’t be for another month so there was no cash event for us. Therefore, we offered a free rent back (with money held back just in case he didn’t move out). This means in total, no matter what, we beat out other Buyers by $2,250, and we didn’t spend a dime.

Personal Letter: People like connecting with other people. We wrote a personal letter stating not only how much we like the home and its potential, but how we have friends and family living in the area. We had done research on the Seller and knew that he raised his family there, so we wanted to touch on those emotional points. Because the Seller had a real estate background, we also touched on how well qualified we were to purchase the home, showing two direct lender pre-approvals from large mortgage institutions.

We did an escalation clause on the price: Most real estate agents and buyers think that you must put in a specific price with your offer. That’s not the case. We put in an escalation clause. For example, the offer stated that we would pay more than any bona fide offer by $1,500. This means that no matter what anyone else offered, we automatically beat them on price. If it came back at a price we didn’t feel comfortable continuing, then we could cancel. We also knew that once under contract, we are protected by an appraisal from the bank and had a chance to review and potentially negotiate a price reduction based on inspections . We had a few layers of protection going in. The strategy worked perfectly and we successfully received a significant reduced price in line with what we really want to pay for the home (resulting in a price reduction of over $40,000).

With this structure, this guaranteed that we beat out any other offer by as much as $3,750, even though $2,250 of it is money we didn’t spend. Now these strategies don’t work for everyone, so check with your real estate agent, and assess your risk tolerances, to see what works best for you.

Happy to answer any questions you have.