Why Bid First-Negotiate Later
While we have no problems going to see properties we’ve found over the years that there’s usually enough information in listings, public records, and pictures for us to have an idea of what we want to bid or recommend be bid on a property without having to go see every property. So once a client gets comfortable with the data we recommend- “Bid First-Negotiate Later”
Through public records, including the Multiple Listing Service, we can calculate the potential After Repair Value & potential rental value without having to visit the property. Often the pictures provided along with private broker comments will give us an idea of what’s required for renovation or updating the property. Given known Return on Investment (ROI) targets Maximum offer can be calculated without having to visit the property. If we know the listing agent insists on a visit to the property prior to making an offer, we will visit, but we try to avoid it.
The reason we are comfortable with making offers without visiting every property is that the majority of our offers include an inspection contingency. The contingency provides us with 5 days to complete our due diligence, including an inspection & getting our contractor bids. If we’re working with an owner occupant client or an investor purchasing a turn-key building we’ll recommend a professional inspection be ordered. The inspection has to be completed within 4 days & we use the 5th day to decide if we’re going to stay in the deal or kill it.
If we’re working with an investor the objective is to get a contractor and/or handymen estimates completed within the 5 day period. With the numbers, the investor can rerun their financial analysis of the deal & decide whether or not to stay in the deal or kill it.
The above applies to listed deals that do not demand the client visit the property before submitting an offer. If the deal is off-market we usually recommend that clients visit the property before making an offer. Unlike most listed deals, many off-market offerings include a clause for non-refundable Earnest Money Deposits (EMD) unless the seller cannot deliver a clean title.
Making a Strong Offer
In the old days, you could get away with low ball offers. The bottom line- most markets & submarkets are highly competitive & full price or near full price offers are winning the day. We will examine the % difference between the closed price & list price for recently sold properties near the subject property. When we find the market is competitive we will usually recommend list price or higher in order to compete. Include quick closings, cash purchase, agreeing to purchase AS IS,… all are strong offer positions. In rare cases, if for some reason we physically looked at the property and had high confidence in the cost to renovate, we may even waive the inspection contingency. The days of low balling are over.
You don’t need to waste time on due diligence until you have a contract.
If you make your offer contingent on an inspection and resolution period, much of your due diligence can wait until you’ve submitted an offer and it’s been accepted. This means that after preliminarily checking the numbers and with a general confidence in the property and the returns, you can make an offer and feel good knowing that if something does not turn out the way you expect it to, you can walk away from the contract.
With a solid contract locked in you now have some control.
You can ask for everything you want and walk away if you don’t get it. If you know what’s important to you and what actually constitutes a deal-breaker (something you’d be unwilling to concede), then you simply terminate the contract if the seller isn’t willing to give you what you want. Since you are still within the timeline of your inspection and resolution period, you should have no issue recovering the earnest money deposit.
After you’ve determined what needs to be repaired, replaced, or further investigated, you can begin to negotiate. Things we’ve negotiated in the past- Money off the purchase price, more credits at closing, adding homeowners warranty, seller financing, change of closing date to maximize rent credited at closing,…..
The Bottom Line
So, get out there and start making offers! Once you have the property under contract, hire a good, reputable contractor and get bids for the work that needs to be done so you know what to ask for from the seller. Then, start negotiating. Decide what is most important, but have a list of things that are non-negotiable. That way, if negotiations begin to get tense, at least you can give a little bit while still getting the things that are important to you.