/, Real Estate Investing/How To Make An Offer On A House

How To Make An Offer On A House

By | 2017-12-05T10:18:07+00:00 December 5th, 2017|Categories: Canadian Real Estate, Real Estate Investing|Tags: , , |Comments Off on How To Make An Offer On A House

Now today I’m going to talk to you a little about making an offer on a house wisely. For some people, for the average person, making an offer on a house is a huge deal because the average person only buys three or four properties, three or four homes in their lifetime. If you’re a guy like me, I’m buying properties almost every week. And we’ve got to be really smart with our offers. And the question is, when you’re a real estate investor, how many offers should you be writing, how much of a discount should you be asking for?

And you know, it’s funny. We have a bit of a tug of war or a struggle when we get into real estate. Because on one end we have our realtor over here. And then on the other side, we have our real estate investor. Okay? Now here’s the problem, we have a tug of war with adverse interests here. And adverse means opposite interests. As a real estate investor what you want is you want the lowest price possible. And on the other end of the spectrum, the realtor wants a transaction. So when people get into real estate as an investment, as a business, they start working with a realtor. And the realtor wants them to make a transaction and what they want is they want the lowest price possible.

And what ends up happening is the novice real estate investor ends up getting dominated by their realtor and they end up just making a transaction, they end up paying too much. They end up getting bad terms, bad closing, all this stuff because the realtor has the experience and they come in and dominate the real estate investor.

Now, if you’re dealing with a guy like me, very rarely does that happen where the realtor dominates me. I just fire the realtor. If they start wanting a transaction that’s not in my best interest. What I want is the lowest price possible when I buy a property. So let’s get some numbers up. If we have a property on the market for $100,000, the question is what is an acceptable offer to write on this kind of property? Now realistically, guys, that’s an abstract question. We can’t even really give you a proper number. If they’re asking $100, we don’t know. Do we come in at 70? Do we come in at 80? Do we come in at 90? What price is going to be acceptable to offer on this $100,000 property?

Now I sold a property on the weekend and I negotiated pretty good on this deal. It was listed at $99,000. I called the agent, the listing agent and I said what is this seller going to take? He said I think they’ll take $85,000. Then I had the girl in my office, Stephanie, she went out and tied up the offer for $82,500. Then I went out and saw the property and I said $82,500 isn’t gonna work, we’ve got to buy it at 72. So we ended up closing this property. It went from 99 right down to $72,000. Now we just sold it at $150,000. We put in about $30,000-ish and there’s quite a nice profit there. You guys can do the math at home. But this property was a pure negotiation deal.

Now here’s the question. There’s two ways to get a discount on property when you’re negotiating. One way, on one side of the spectrum, we can do a low ball. And the low ball has it’s own pros and cons. Low ball over here and then on the other end we can do, I’m gonna write a reasonable offer. Now the low ball’s nice because you can come in and slice off 25-35% of the asking price. You come in with a low ball and what’s gonna happen, one of two things is gonna happen. There’s three things when you’re writing offers. We’ve got three possible scenarios.

Scenario one, the offer is accepted. Now, when you are writing offers and accepting offers, a worst case scenario offer it means you offered too much. The second base case scenario, or second worse case scenario is they say no. If they say no and you’re doing a low ball all you’ve got to do is increase the price. Try again, go up a little bit, try again. And then the third one, is the best case scenario, is a counter. Okay? You can come in, property’s at $100,000. You can low ball them at 70. They might accept that. If they accept that you’ve got a huge problem because they would have taken less. If they say no, you can increase to 75 and come back. We can come back a week later, you can come back two weeks later. If they counter, that’s how you know you got them.

You offer 70, they say we’ll do 85. Now you’ve got a $15,000 gap to close. So the low ball strategy, when you do low ball, guys, you’ve got to do a high volume of offers. You’ve got to do lots of numbers. You’ve got to do a lot of offers per day, offers per week. You know? You might have, on this strategy, a 1-3% success rate with this strategy. So if you want to get a deal, you’re going to have to write 30-100 offers to be successful.

Now if you come to the other end of the spectrum, you write a reasonable offer, that same property that’s worth $100,000 you can offer them, let’s say 90. Now, upon further inspection this offer will likely become accepted right away. They’ll say $90,000, that sounds not too bad. Maybe they take 90. Now what happens is you might go into the property and realize that you have to get it for $72,000. So now what you have to do is you’re going to have to enter a negotiation with these people. Now this tactic is just as good as the low ball. But what you do is you accept it, you put a condition on it, you make it a conditional offer. There’s many ways to make it a conditional offer subject to, I like to do, subject to partner’s approval. Very vague clause. Subject to partner’s approval. And you can say, you know what? My partner’s not gonna approve this 90 because we have a couple of issues.

Your roof is broken, the furnace is dead and you know what? It needs new windows. So that’s why we need $72,000 for this property. At the end of the day, you’re closing a number between these numbers in either tactic. But there’s two ways to do it. Now, you’ve got to consider, if you do a high volume of low ball numbers, you’ve got to consider your reputation because you might get known as the low ball guy in the market. That might not be the best thing. The other thing is you’re gonna burn out your realtors. You’re gonna burn these guys out, they’re gonna burn. Your realtors aren’t crazy, they’re gonna fire you. You have to find a very tough, smart realtor who will do that for you.

On the other end of the spectrum, if you started doing a lot of reasonable offers, this takes a lot of time. You have to see a lot of properties, you have to do a lot of research. So I like to do a little bit of both. I’ll do some low balls, some high volume stuff. I’ll also do some reasonable and educated offers on the other side. And between all that, I can get the deal I need to make my business run. So that’s how we make an offer wisely. You can choose one of these two strategies or maybe something right in the middle. I’m Stefan Aarnio, I want to hear your comments. I want you to like, share, subscribe this channel. Put your comments below, tell me which strategy you like to see on your offers. I’m Stefan Aarnio, respect the grind and we’ll see you on the next video.