Posted almost 4 years ago

What to tell the property owner when you make an offer

What do you say to the property owner?

Real estate agents and property owners all think the same thing. If you are an investor ready to make an offer on a property, they all think "oh boy here comes the lowball offer". I lump real estate agents in the same category as property owners because many of them quite frankly are dumbasses, I don't have a clue, not professional, and have no interest at working in their craft. Now if you are a realtor and you are offended as you are reading this I'm not apologizing. It is time for the national realtors association to get the fuck ups out of the business. Can I make myself more clear?

It is truly the blind leading the blind

Las Vegas Nevada is not an exception. There are currently just over 12,000 active licensed agents license within the state of Nevada, the last pull I performed on the MLS there are about 6,000 or so with an active listing.

The property owner sets the price

Talk to any homeowner and they all have an opinion of what their property might be worth. How did they arrive at it? There is a multitude of paths. I'm not gonna go into agents taking listings and setting the listing price Even though they know the $220,000 house that the homeowner wants $290,000 for is never going to sell at $290,000 but this is a subject for another blog. In this blog I am just addressing the investors' presentation of their offer to the homeowner.

The price gap

Very often as an investor, you find yourself in a situation where the homeowner wants price $X and you're offering something significantly lower than $X. No only do people get offended including realtors by the way, but it can also hamper communication moving forward. People essentially just shut down, thinking that you're trying to steal the property. I've discovered that if I draw the individual in and make them part of the process of determining the properties value I have a much greater expected probability of ending in success, Or at the very least give the seller an understanding of where I am coming from. They still might not like my number but now that they know how I arrived at it, I'm not the bad guy we just Agree to Disagree.

The Solution

The solution is remarkably simple. I have been a sales and marketing individual my entire life and have developed a multitude of selling systems for large sales organizations so my approach this is exactly the same.

Making the property owner part of the process

When it comes to the training sales people, I've discovered that in order for them to retain information and follow the sales process it's always easier to develop an sales acronym. In this instance; C-U-P-S.

Just remember the acronym and you can make the presentation on a sheet of paper.

There are essentially four components that need to be taken into consideration when we make an offer on your property

C

Number one; is comparable values. What this means is that we look within half a mile of your home and generally speaking what prices are houses like yours in the neighborhood are selling for. This determines the comparable value.

Comparable value may not have anything to do with how much you owe the bank, or, what you think your home is worth, or, even what people are willing to pay for your home.

Quite often people are willing to pay more than the comparable value of your home.

The challenge is that 90% of people need to get financed by the banks or mortgage lender. Banks and Mortgage Lenders will only lend up to 80% of the appraised value of the home. So really, it has nothing to do with how much you owe the bank or what you think your home is worth, but has everything to do with what the appraiser thinks it’s worth.

Because the bank is only going to lend on the appraised value of the property.

So if you think your property is worth $380,000 you might even have someone willing to pay more than that, the challenge is if the appraised value is only $340,000, that is the amount that the bank is willing to lend on.

How does an appraiser establish the value your property?

Well since the mortgage meltdown appraisers have to follow strict rules and guideline, when appraising a property. They look at similar if not identical property sales within your neighborhood typically within a half a mile radius.

So the first thing we look at is comparable sales and values in your neighborhood.

U

Number 2 is the cost of upgrading or giving your home a facelift. Your home may seem perfect to you, but to an outside they may think that the kitchen and bathrooms needs to be upgraded, with new appliances, cabinets and fixtures, that there should be new paint, carpet and flooring. If there is an inspection there may be certain repairs to the home. Of course all of this comes at an expense, typically it can be anywhere from $60 to $80 per square foot based on condition of the property. Typically this expense is called Upgrading, giving property a facelift or repair and renovation. In order to obtain top value this is a must for an investor. To achieve top dollar as a relates to comparable values the property needs to be near perfect.

P

Number three is profit. We are after all a business and we need to make a profit. Don’t get me wrong we’re not greedy we are in business after all to make some money. Generally speaking around $15,000 to $20,000.

S

Final and number four is selling expense. As you know there are expenses involved with selling the property. Real estate agents’ commissions, closing costs & escrow fees, title insurance and don’t forget state transfer tax. Generally speaking, the seller’s selling expenses involved in selling a property amounts to about eight percent of the selling price.

So you can see, when an investor makes an offer on your property, they just don’t come up with a number out of thin air!

The following need to be taken into consideration;

Comparable values

Upgrade expense

Profit

Selling expense

THIS IS HOW I ARRIVE AT MY OFFER FOR YOUR PROPERTY

Now you might not like the offer and that’s OK. I just wanted to let you know how we arrive at the number. We will still part company as friends I just want you to keep an open mind.

Use is this link to download the PDF file from my website.