by Mike Hanna, Investmark Mortgage & Lynn Dee Murrow, Lifestyles Unlimited®
- When selling a property, making that first offer work is fundamental to maximizing your profit. Before you put your property up for sale, make sure you have a solid plan to make the first offer on your property work.
- Consider the following scenario:
- You have decided it is time to sell your rental property. Your tenant moves out, and your contractor finishes the make ready and does an amazing job. Your property is ready to market!
You get a feel for the value of your property using Lifestyles Discovery, with rental values provided by Rentrange, for properties across the US.
- Now, you are ready to work with a Realtor to sell your property. A good realtor will:
- – confirm a selling price for your property that is:
- appropriate for the sub-market,
- accurately reflects the condition of the property,
- attracts several interested buyers, and
- results in a full price offer or higher.
- – negotiate on your behalf with the buyer or buyer’s agent.
– keep the deal on track for a quick close.
- You list your property with a Realtor who posts the listing on MLS (the Multiple Listing Service) Thursday afternoon to attract the most buyers for the coming weekend. You get 3 showings on Friday and 4 on Saturday. You realize this number of showings, a key indicator of correct pricing, indicates you have priced your property correctly.
On Sunday, your Realtor informs you that you have 2 offers. One is a low-ball investor offer that you reject. The other offer, however, is a full price offer for $200,000 with no concessions! Your Realtor verifies that the buyer is approved for financing, is putting 20% down with 1% earnest money and a $200 option fee for 7 days. You accept the offer, and you are now officially under contract!
The option period starts, and the inspection is completed in a couple of days. Your Realtor receives a copy of the inspection report along with a list of requested repairs from the buyer or the buyer’s Realtor. You discover that the electrical panel is faulty and the inspector has flagged it as a known fire hazard. In addition, the hot water heater needs an overflow pan, the roof has hail damage, and there are several other small items listed that were not part of the code requirements when the house was built. The buyer is scared. This is their first home, and they are requesting that everything be repaired or replaced.
- What will you do?
We know what you are thinking, we have been in this position many times ourselves, “There is no way I am going to agree to this! I just spent $45,000 on this house two years ago, and another $500 on the make ready. I’m not spending another dime on this property because it’s worth my asking price.” We understand, and we do not necessarily disagree. The issue, however, is one of selling strategy and maximizing your profits.
This scenario is just one example of the value an experienced Realtor provides. Your Realtor will negotiate with the Buyer or Buyer’s agent on your behalf. This keeps emotions in check, and focuses everyone on a solution that will work for both you and the buyer. If you were representing yourself in this transaction, you run the risk of getting emotionally involved in the sale, becoming defensive, and losing your composure. You may lose your temper or get frustrated with this first-time buyer, or their agent, and say something detrimental to the sale or refuse to negotiate thinking, “Who cares about this offer? There are more buyers out there and this is a hot market! I’m telling them NO to everything!” This approach is a BIG mistake, albeit one of many, if not most, investors make when selling a property on their own (For Sale By Owner – FSBO). Why?
- Statistically, your first offer is the best offer you are going to get. You have given the property maximum market exposure, had several showings, and have 1 or more offers from qualified buyers.
- This is a negotiation. Just because the buyer asked you to repair or replace these inspection items doesn’t mean they are being difficult. This is a normal part of the negotiating process.
- If the big items on the buyers list (like a faulty electrical panel and a hail damaged roof) are not addressed, you are going to have a similar response from the next buyer.
- Once your property is under contract, the status changes in MLS and this history is part of the property listing record. If you don’t close, the status will change back to Active. This status change makes buyers and their agents wonder why the property is back on the market, and often results in lower offers. If this happens more than once, you can be certain there will be questions about the condition of the property, further reducing both showings and offers.
- Days on Market (DOM) in MLS listings affect offers. The longer the days on market, the lower the offer price tends to be. As days on market increase, your Realtor will encourage you to lower your selling price. This can stimulate a new round of showings and offers, but they are almost always lower than the initial offer you received.
- Time is money. Holding costs represent a dollar for dollar reduction in your profit. You are paying mortgage interest, insurance, utilities, yard maintenance, and property taxes every day you hold the property with no rental income.
Remember, the buyer is the only one that can legally terminate the contract, and they must do so during the option period. If you cannot come to terms with the buyer on repairs, and the buyer decides to exercise their option to terminate the contract, it may be a while before you get another offer. Depending on market conditions, your property may look tainted and showings will slow down or even come to a halt. Now can you see why you need to do your best to make that first offer work?
- In our example, we would agree to:
- replace the electrical panel,
- install a new roof, through an insurance claim, and
- negotiate the other items off the list through our Realtor.
This is a reasonable approach and, based on our experience, a common outcome. You are not giving in to everything the buyer requested. Instead, you are focused on those items that every buyer will request. It is better to repair or replace those items now, and close with your current buyer.
- When selling a property, making that first offer work is fundamental to maximizing your profit. Before you put your property up for sale, make sure you have a solid plan to make the first offer on your property work:
- Make your property ready for sale. Repair or replace items that will come up on an inspection report and be of concern to all buyers.
- Offer your property at the right price for the sub-market and current property condition.
- Consider working with a Realtor. This will help you keep your emotions in check and adds an experienced negotiator to your team.
- Focus on your main objective, getting the property sold at top dollar, and moving on to the next deal.
- Be prepared to negotiate with your buyer on items you may have missed that will be of concern to all buyers.
No two situations are the same, but these guidelines will help you maximize your profits when selling your own home or an investment property. Whether this is your 1st deal or your 51st deal, we encourage you to use an experienced Realtor to negotiate on your behalf and shepherd your deal to a quick and profitable close.
If you are a new or experienced real estate investor who would like to learn more about the education and mentoring programs offered by Lifestyles Unlimited® please visit our website at www.lifestylesunlimited.com or call 866-945-6565 to register for a FREE and informative real estate investing workshop near you!
For more information on Private Lending that can maximize your cash on cash return contact Investmark Mortgage at 214-738-4664 (Dallas/Fort Worth), 210-303-2425 (San Antonio), 512-423-5220 (Austin), or visit our website at www.investmarkmortgage.com.