The Second Rule of Thumb – The Key Areas of a Contract!

There are 3 key points in a contract. There is the purchase price, the terms of the offer, and the earnest money amount. These three things need to be altered to meet the needs of your seller so that the sellers are most attracted to your offer.

Every seller wants to get top dollar for their property. Your job is to show them why your offer, no matter what it may be, is top dollar for their property in the condition that it is currently in. Sometimes, that may require outside assistance. We will discuss how to convince a seller to lower their price in the next blog.

Terms can often be more important than the purchase price to a seller. For example, if they have had a prior deal that has fallen apart because of financing, they wouldn’t be interested in taking another offer contingent on financing. However, if you are buying with a group of private buyers, cash, then this would be a huge selling point for your offer. This might give you an advantage if you are the only cash buyer.

Another important term is the number of contingencies. If you say that an offer is contingent on due diligence, that is usually sufficient. On the other hand, some buyers want to make the offer contingent on financing and contingent on inspections and contingent on zoning changes and contingent on partner approval. Each of these things allows you to back out without losing your earnest money. However, they are all part of due diligence. You are simply making the seller more nervous by listing all the different ways that you can back out.

Another term is the length of closing. There are some investors who want to draw the contract out until all of their approvals are done and they have their zoning changes in place. This is something that you want to do, but the important thing to remember is that there has to be something in it for the seller. If you are asking them to wait a year to close, you are probably going to need to give them something up front in order to wait.

Another key area is the earnest money and when that earnest money goes hard. If they think that you can back out for any reason with no penalty, they may not be willing to give you as much time as you need to do your due diligence. However, you don’t want to short yourself on the time that you need to get your feasibility study done and any zoning questions that you may have resolved. Try to find a happy balance between losing your earnest money and getting a seller to give you the time you need.

By finding the perfect combination of price, terms, and earnest money you can often win an offer even if you aren’t the highest priced offer. Keep in mind that you have to find out what your sellers’ key areas are. Then try to give them 2 out of 3 of those wants. You are more likely to get your offer accepted. As always, happy investing.