How to compete with competition offering bogus offers to prospects?

Question

So I've noticed when I get calls from my mailings a lot of times I will meet with a seller and offer them something that is good for me to buy as a rehabber. (Like $240k for a property with an ARV of $400k) The seller will think about it, and when I contact them after they say they've gotten another offer from another investor for $350,000. (Keep in mind the investor that made them that offer is a rehabber like me)

A lot of times people will make up the fact that they have a higher offer just to get you to raise your price, but I know for a fact in my market a lot of investors are making offers that will simply price out any of the competition, and then when it comes to closing time they will drastically reduce the price down to a more realistic price.

They will come up with an excuse such as "I don't have the money anymore" or "The house had unexpected repairs I didn't notice", etc... By the time of closing the seller needs to sell already or maybe doesn't want to go through the hassle again and just goes through with it or will negotiate down enough that the investor is happy.

Is there anyway I can counter this? Just last week I made an offer of $210,000 on a house, ARV was $355,000. Needed about $30,000 in rehab. I called the seller back and she told me another guy offered her $350,000. I told her there's just no way he's going to go through on it, and if he was serious to sign a contract with no contingencies and put down 20%. They still decide to go with the other offer obviously, and I don't blame them, but I feel as if I'm losing deals like this.

Brian Gibbons · Answer

You always have such a cool head, @K. Marie,

ever read Sun TZu  - The Art of War? :)

http://www.amazon.com/The-Art-War-Sun-Tzu/dp/1456572083

Account Closed · Answer

Do you have proof that your competition isn't closing for their contracted price? Bad mouthing other buyers isn't going to get you any referrals.  Even if it's true, it sound like sour grapes.

Be cool, be polite. Keep the communication open.  Tell them to call you if they end up having any questions or problems until it's sold, any questions or problems at all.  Check in on them until they tell you not to or until it's sold.

Ibrahim Hughes · Answer

I'll be a bit more aggressive than Kristine Marie Poe here. IF you have proof that this is indeed happening I would warn my seller if they came back with an unrealistic counter offer from someone else and tell him/her to be on the lookout. Check in on them to make sure the deal is indeed closing with all of the promised terms and price. At least this way your seller won't be completely sold on the other offers and when they fall thru they will realize that you were right and truthful the whole time.  Again that's IF this is indeed happening and you have proof.

Rick Baggenstoss · Answer

@Brian Gibbons Art of War is one of the best books ever.

I agree with the cool-headed technique here.  A good guy approach in case things blow up or get squirrely is a good approach.

@Anthoy James There's good news here too.   You might want to put the high bidder on your buyers list.  Bring him/her some more deals (wholesale).  You'd make a killing! LOL

Really, you may not have this competitor for long if they're making bad purchasing decisions.

Account Closed · Answer

Yeah, I'm so cool headed.  Easy to do when it's not my deal. Easy to be cool with sellers for me most of the time actually. But I'm pretty sure that was me crying myself to sleep last night because a BK trustee was mean to me.

Manny Cirino · Answer

@K.Marie Poe

I just think that because of what gurus teach everyone assumes they can come in this business and jump in to $100k in profit per deal per month. Is it impossible? no, over coarse not. but you can only do as much as your market & experience allows you to do. If you are entering a hot market where you are being out bid. Then I only see 3 solutions as an investor;

1. Bid More Agressively- make better offers, offers that are more appealing and accept a lower profit. $25k - $50k made in 3-6 months is still more then most make in 1 years salary. Do this ever 3 months and your looking at about $200k profit.

2. Change Property Demographic- maybe farm in a new market, of raise price point to increase profits. In most cases high end real estate allows to buy at lower prices which provides more room for high profits.(im sure someone will disagree but this is just to get the brain flowing)

3. Talk to the other investors- talk to the investors who are out bidding you, work a deal with them, let them know that they are out bidding you at a price that well below what they offered and if it wasn't for them it would have been accepted. May be you can bird dog and flip to them? if they are paying $140k over your offers why would they not pay you $40k in profit and save $100k with out the extra negotiating headaches?

As I write I just realized a 4th option and could possibly be what the other are doing that you may not be;

4. Explore thier Purchasing techinics- maybe they are offering more but buying via lease option, seller financing or land contracts?

This would be a better return on investment, were you think they are spending $300,000 + to make $40k in reality they might be paying 10% down over 30 years at 3.25% interest on seller carry back.

For example purposes only lets fill in the blanks(not including exact figures, inspections, commissions, consessions etc..)

$30,000 down payment 
$03,000 closing cost
$30,000 repair cost
$06,000 holding cost over 6 months.

$69,000 total investment

I ask you is the $25k worth it on a $69k investment or on a $300k investment? It is all about the approach you take.

Account Closed · Answer

I don't think it's greed to have a higher profit target than someone else.  That being said, if you are working in areas with many volume rehabbers able to work with incredibly thin margins (as I am), you do have to adjust.  Or work other niches.

I work with some agents who buy for investors at trustee's ale.  They do the buying, manage the rehab and resale, all with the investor's money.  They are able to bid more at sale because their investors (using mostly IRA money) are thrilled to make $10-15K on a $120K investment.  Hard for people making a living doing rehabs to compete with that.

Manny Cirino · Answer

May be its just me but my first impression is greed? to elabarate a bit. Maybe you are looking to make $100,000 profit were another investor is comfortable making $40,000. You offered $210k with $30k in repairs and lets say $260k after closing cost and unexpected issues. You would be looking about $90k in profit(give or take) of coarse you want that profit for the same reason the seller would accept a higher offer.

Why not tweak your business perspective because obviously you are being outrun my most likely what are either veterans with vast rehabbing experience, enough to know how to maximize profits in what appears to be a tight margains. Or they are newbies desperate to make a deal and they are jumping on what ever comes.

Anthoy James · Answer

That's great advice Marie, thanks.

Account Closed · Answer

So, in your example you offered $210K and the seller has an offer for $350K.  What's the target close price for your competition that's using this strategy?  Are they trying to get it for $300K?  $275K? $250K?  That's such a huge spread. Are these buyers really closing for $100K+ less than contract price?

I'd stay in touch with a seller until they closed if I knew that strategy was being used in my farms.  I watch and track the properties I make offers on where the seller supposedly had a better offer.  If it doesn't close in 30-45 days I assume there's problem. And I write and follow up with checking-in letter. Most I'm never going to hear from.  But I've heard from enough, usually because the cash isn't in escrow or there's a lender problem, to know that following up and staying in touch pays off.

How to compete with competition offering bogus offers to prospects?

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