Playing a Rigged Game?

Question

I'm mostly writing this post to vent to people who will likely understand my frustration.  I'd also like to get advice or perspective from those who have strategies to swing the odds in their favor, when negotiating a purchase.

I'm a relatively small-time investor (currently 13 units).  Most of my properties are very close to home.  I'm also a realtor, and I've set auto alerts to notify me immediately when new houses are listed in my target area.

Yesterday, I got a notification of a 2/1 for $50k.  Knowing the area, this property's ARV would be $135k, with about $15-20k invested.  My plan, however would be to buy and hold, because rent would be around $1,100/mo.

As soon as I got the notification (within 2 min of listing), I called the agent.  She agreed to meet me at the property.  The owner was also there, and we chatted some.  He said he needed to move quickly bc of a family health issue, so he wanted a quick, painless, cash sale.  We had a great chat, and I said I needed my wife's approval for the purchase, and I would let them know within an hour.

Wife approved, and I called the agent with the full price offer within 30min.  I also offered to help the seller move items out of the house.  Her tune had changed, and she said they would be waiting until tomorrow to choose an offer.

She called me today at 4pm and said they had gotten 5 offers, all cash.  She asked for my best offer, and I offered an escalator up to $57,500, in $50 increments.  She called back 30min later to say they accepted another offer of $57,550.

It seems to me that she gave my final offer to another buyer, who simply tagged $50 on and took the house.  This is extremely frustrating.  I would have loved to get that same opportunity to outbid their offer for a final acceptance.  Losing this house over $50 is maddening, and it makes me wonder what I could do differently in the future.

Thoughts or advice?

Matt Devincenzo · Answer

Isn't this exactly what you hoped to win this house by? Your escalator was a $50 increment meaning you planned for someone else to be losing by $50! Another thing this also implies $57,500 wasn't your max...$57,600 was...or is it $57,700....800...900....you get the point, that either was or wasn't your max.

My suggestion is 1) make your escalator more substantial like $250-500 increments, its a more tangible increase to the seller, and also you're less likely to feel like you lost over a small balance. 2) be better prepared to offer on the spot whether being pre-authorized to offer by your wife, or having a initial convo with her before you go so that you can then call her at the property and 'confirm' her approval.

Theresa Harris · Answer

Do you know if the accepted offer did the same as you, but set the max at $60K, for example?

Talk to your wife prior to viewing and see if you can get her to approve up to a certain about without her needing to see it...in rare cases like this.

Jay Hinrichs · Answer

escalators should be done in 1k increments that beats out the guy bidding 50 bucks.. also if it was that hot of deal you should have had your contract written your deposit say at least 5k and no contingencies and tried to get them to sign it on the spot. you opened yourself up to competitive bidding..

few things that work for us.

1. no contingencies especially a partner or wife or whatever if your not going to live in it.

2. LARGE meaningful EM deposits 5 to 10k minimum.

3. of course quick close or close that accommodates sellers.. and sometimes a free rent back so they have time to move their junk if we do that we simply withhold 2 to 5k until they are out.

4. escalator terms that are meaningful 50 bucks is not meaningful..  I can see someone taking a better offer for less than your over bid of 50 dollars just is they like the contract better..

So to summarize have your contract already written and present it on the spot and go for a signature.. all they can do is say NO.. this is how one of my bid west coast vendors does it.. He gets a hit on his direct mail and he is at the house as soon as he can meet the seller with a contract in hand already written out..

Jesse Smith · Answer

100% accurate.  At this point, I'm very selective, and this house was a few blocks from my house.  Was an ideal opportunity.  Sad to miss it, but I am working to increase my funnel as a result.

Wayne Brooks · Answer

If you want to rig the game in your favor, forego your buyer commission.  Not saying it’s right on the listing agent part, but they probably wouldn’t have revealed your top offer.

Jesse Smith · Answer

To follow this one up.  I actually got a call back from the agent today.  When I saw her name on the caller ID, I got excited.  Unfortunately, she wasn't calling to offer me the house.  Apparently, the seller wanted to know if I was interested in any of the woodworking equipment he had in the basement, before he threw it out.  (On our initial walkthru, my brother bought a chainsaw from him).

I agreed to take a look.  When I arrived at the house, the seller greeted me with a big smile and this was the exchange:

Seller - I really thought you were going to be the guy to buy my house.  I was sad when it ended up being someone else.

Me - I hadn't planned to bring it up, but since you did... If you wanted me to buy it, why didn't you ask your agent to call me back for a final offer?

Seller - She told me she did and you didn't want to go any higher.  Seemed kinda like she knew the person buying it, so they got the deal.

This is EXACTLY what I suspected had happened, and the seller confirmed it for me.  Ugh.

Jesse Smith · Answer

It definitely was a screaming deal.  I'm confident in my numbers, because I have 6 more units in the neighborhood, and they always go within a day of listing for rent.  Most houses sell between $85k (rough) and $150k (fully renovated).  This one was an outlier, because the seller needed to move by the end of next week.

You're right about the seller's agent's fiduciary duty.  She did her part, but honestly should have listed at $80k, and it still would have sold in a day.  There's a small pool of folks actively scouting this area, but I was the first in the door on this one.  If I had pulled the trigger while standing in the living room, the house was mine for $50k.  I balked because I told my wife I wouldn't buy anymore until the latest duplex acquisition was fully stabilized.  This one was such an outlier, that it was too good to pass up.  By the time she agreed with me, it was too late.

Jay Hinrichs · Answer

well you did what you could.. many agents these days list low and expect a bidding war.. so there may have been no way to avoid it.

George Pauley · Answer

This was a screaming hot deal, if your numbers were correct.  With $1100 rent, and $20k rehab, you could have taken the offer to $90k and still likely cash-flowed.  I'm kind of surprised that the property only went for $57,550, though apparently the seller was in a hurry.  That extra $50 does smell a little bit like the realtor was rubbing it in a bit.  :)Remember that the seller's realtor has a fiduciary responsibility to attempt to maximize the seller's profit.  Likely the house went up for sale at $50k and the realtor's phone starting ringing off the hook.  Realtor then realized they had put the house on the market for too low and starting slowing things down a bit to see how much the price could escalate.  I don't think the realtor did anything wrong (other than putting the house up too low in the first place.)It also feels to me like you put the realtor in a difficult position with your escalator bid offer.  In making such an offer you've let the realtor know what your bid price is.  And, again, the realtor has a responsibility to get best price for the seller.  Accepting anything less than max offer value feels like the realtor is no longer acting in the seller's best interest.  But I'm not a realtor, so I likely don't know what I'm talking about.Remember that real estate is a relationship business.  Every deal should be win-win lest the other players stop wanting to do deals with you.

Mike Dymski · Answer

If you are getting frustrated over one property, your deal funnel is too small.

Nice work on 13 units...that is not small-time.

Playing a Rigged Game?

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