As real estate investors we make our money when we BUY property, but we don’t REALIZE our profit until the house is sold. So we must buy them right! If we don’t buy the property correctly, we will never make the deal work in the end. One of the most difficult things new people have to get used to doing is making low offers. They might be embarrassed, or even “slimy”, offering someone 50¢ on the dollar or less for a house. Let’s face it, most sellers are very unrealistic with what they feel their home is worth.
They may be emotionally attached and need some time to “tenderize” (a common term in our office), to understand that it’s NOT worth top dollar as they initially thought. Time has a funny way of making us realize what things are really worth and accepting the truth no matter how bad it is.
How We Present a Low Offer, Without Being Insulting
If I am going to punch you in the gut, but I tell you first, at least you’ll have time to prepare and tense up your abs! It may still hurt, but not as much as if you were just lying there taking a nap and I pummeled you! A technique we have used since the beginning is to add a cover letter to our offers when needed. First, nothing beats a good conversation with the seller in which you are a great listener and look for the way you can solve their problem. People WILL sell to people they like for less money simply because they like you. We have dozens of real life examples. Be their friend, solve their problem, start to soften them up to a realistic offer from the first conversation so when you are ready for the main offer, it won’t be like a punch in the gut while napping!
The Strategy We Used
We placed on offer on a home in a great neighborhood. I was contacted by the listing agent, with whom I’ve developed a great relationship with over the years. She let me know that there have been NO offers, and the sellers who are out of state would like to unload the home by winter. It was obviously an estate, and sadly, the family installed a toilet in the kitchen to help the parents.
Yes, you read correct … a TOLIET IN THE KITCHEN!!
I’m not on the board of health, but I’m thinking this may not pass some type of code!! Well, my assumption is that the house will sit for a lot longer due to that and other reasons. I was not able to speak to the sellers directly and our offer was for $100K less than asking.
The Letter We Attached to Our Offer:
I want to thank you for the opportunity to place an offer on your home. As this is an estate, we assume you have lost someone special to you. We want to tell you we are very sorry for your loss. We are a locally family owned and well-recognized real estate investment company here in the Capital Region. I say that because we in no way want this offer to come across as insulting. We wanted to put this letter with the offer to explain why our offer is much lower than your asking price.
First of all, I am sure that in its day, it was a lovely home. It has many unique and charming characteristics. We are the kind of company that can bring back all of those characteristics and create a beautiful new home for another family to build their dreams in. I want to point a few of the homes current shortcomings, only so you can see the incredible amount of work it actually needs:
- Roof is marginal, and upon further inspection will most likely need to be replaced
- The electric is a fuse system, and will never pass any house inspection. A full replacement is needed
- All 2 prong electrical outlets need to be replaced with 3 prong grounded outlets
- All exterior soffits and siding needs to be re-painted, as it is all peeling
- All wallpaper needs to be stripped including challenging ceilings that have wallpaper
- All interior walls need to be re-painted
- Garage door and frame has rot and will need to be replaced
- Front granite steps have settled and patches have been attempted, but will need to be correctly fixed
- All windows need to be replaced
- All hardwood floors need to be refinished
- Many trees in the front need to be removed and all others need a major trimming to show the house
- Landscaping needs a major overhaul, as it is badly over grown
- Toilet in the kitchen needs to be removed and plumbing removed
- Kitchen will need to be gutted and completely remodeled and electrical brought up to code
- Bathrooms are the same as the kitchen, they need to be gutted and completely remodeled
- As we are removing the kitchen toilet, we will need to relocate a new bathroom in the mudroom area
- All new plumbing and electrical that is required for the relocation of the half bath
- The back outside patio is also in rough shape and may need to be repaired to please a new buyer
We are in business to make money. We estimate the house will be listed for $299,000 when fully renovated, and of course we need to spend a lot of money to get it to a condition to demand that price tag. Plus, we have many holding costs, buying and selling costs, and on and on. I am also sure we will uncover other repairs needed as we renovate, but this is a solid list to show you the work needed. Another thing that is very important for us is timing. As you know, winter could be here any minute in this lovely state! I say that sarcastically as we are not fans of winter weather.
We will need to get started on this project immediately as time is totally against us. If it takes a long time for a decision and a closing, the deal will no longer be good for us. So we are hopeful that you will understand that. I am sure you do not wish to hold the home any longer either. I am sure you are well aware that every day you hold the home, it costs you with taxes, insurance, maintenance, etc. We are well aware of these holding costs because we pay them on all of our homes. At the moment we have over 20 houses we are working on. Please feel free to visit our website and look at our “Before and After” page. It will give you a good idea of our work. Many people choose to sell to us because we are very easy to work with. We will not ask for any inspections. We never back out of deals once made, and we make the process very quick and simple for the sellers. You can have the money in your hands in as little as a week and be able to close this chapter of your lives. If you wish, we always welcome the family back for a private tour of the home once renovated. If you are too far away, we will supply all pictures and a video, if that is of interest to you.
Certainly you can hold out and try to get more for the home but with the list above I do believe it will sit for a lot longer. Any buyer will have a difficult time getting a mortgage with the electrical service the way it is. I am sure the toilet in the kitchen was much needed for the situation, but when buyers see that, they are turned off immediately. I do think the house will sit much longer and cost you a lot more money in holding costs and risk of freezing pipes, break-ins etc. (I say this because it has happened many times to us on vacant houses). Please seriously consider our offer and remember this is a simple cash offer with no contingencies. If you have been wanting to close this chapter of your life, this could be it. Thank you for your time and consideration.
How’d we do?
Well of course I’m using this example because it was a huge success!! NOT!! Our offer was rejected immediately! Their exact response was “We are not that desperate yet”. However, I’m a patient man (don’t ask my wife that question) and I’ll wait them out. Notice the key word they said, “YET”. Winter will be upon us soon and then taxes will be due, heating bills will skyrocket, the house will be vulnerable, as it is vacant, and when they are ready I will still be here. They need time to “tenderize” and come to grips with the reality of their situation.
By writing a cover letter it sets us apart from all the other vultures who simply send a low offer and usually just offend people. Try to develop a rapport with the sellers and set yourself apart as a real person who is trying to help them while also running a business for yourself and family. You’ll get more offers accepted than you can imagine.
Remember, people don’t care how much you know, until they know how much you care!