Advice On Getting Offers Accepted - Am 0 For 10 Now
I'm a new would-be investor who's making cash offers on mostly vacant properties that are handyman specials. These are usually REO's. I have a realtor who has been finding them for me, getting comps, and helping me with offer price decisions. I'm now into my 13th week, have made 10 offers, and have had no takers. I want to buy, 'em, fix 'em and flip 'em, and have read most of the "best" books on this topic and have been following their examples.
It's starting to look like the San Antonio, TX market is just too hot to get deep discounted prices on run down property. I can tell my realtor is getting discouraged (along with me) and I'm hearing less from him each week. He says that investors buying the properties for rentals are outbidding me, because they don't incur the extra cost of selling it. I'm guessing he's right. It also occurs to me that some of them also are more experienced than me and don't need a realtor (who's taking a 3% cut.) I'm concerned, because it's taking so long and looks like this is not a good full-time way for me to make money. My initial goal was to flip 3 properties my first year at 10K a pop, but now it's looking like my great idea's not so hot. I got within 3K on one property, but a miss is as good as a mile! Any helpful advice is greatly appreciated.
only 3 k away!! Start offering a bit more. How about 6 a year at 7k each....
You don't say what you are doing, or offering, so there is little advice we can give as to how to do it differently.
I will tell you that no investor is "cutting out" the agent. If the property is a listed property, everyone is going thru the agent.
Give us some more info and let's see what the real problem is.
Roger
Thanks for the responses. I'm looking at listed residential properties that I'd pay from 40K to 110K for. I don't want to work the pre-forclosure market. To determine my offer price, I'm starting with the ARV, factoring in the comps, and am subtracting all my costs to buy, hold (assuming 6 mos.), fix and resell the property, including a 10K profit and a 1K fudge factor. This also figures selling it myself (paying for an MLS listing) and co-broking it at 3-4%. For a couple of places that were listed at around 60K, I lowered my profit to 7K, which I consider a no no, but I did it to try to get started. I will do all the plumbing, interior painting, some carpentry, and other work myself, and have contractors lined up with very low bids to do other stuff like, roofing, rewiring and flooring.
I've gotten a couple of counters, but neither were real serious. My realtor advises to let those sit for several weeks before possibly resubmitting the original offer. A lot of these funky, moldy, vacant, forclosed properties that, in some cases, need substantial structural repairs (this is shrink-swell heaven) are selling for close to asking prices.
I don't know if my realtor knows what he's doing, but I am learning a lot from him. I've read in the literature that it's hard to find a realtor who will represent a flipper, but this guy has spent a lot of time with me. He has told me that most of his investor clients buy rentals, though, and that what I'm trying to do is the hardest scenario for him to get contracts accepted. But he wasn't talking that way until the last several weeks.
But the most sobering thought is that, at this rate, even if I got a place tomorrow, I'm just not making it happen fast enough to make sufficient money to justify this endeavor. Based on what I've learned from the books I've read in the last five months, it feels like I've jumped into an investment market that is suddenly tough to scratch out a profit from. But being a damned greenhorn, I don't really know.
If I can tell you more to help you see where I'm missing the mark, please let me know.
Thanks a lot, beno
Since you don't want to work pre-foreclosures and you have cash, consider 1) finding the vacant places BEFORE they become REOs and subject to the scrutiny of others--drive around, look for the abandoned ones, get the owner info from the courthouse and contact them--and/or 2) consider wholesaling.
A market the size of San Antonio is bound to have a wholesaling company or two that buys the foreclosures on the courthouse/sheriff's steps, adds a few grand markup, and passes them on. Go to some Sheriff's/foreclosure sales, you'll meet them there. Not all their wholesale deals are good, of course, so you'll need to check each one out. If you can pay cash, the wholesalers will probably like you right away!
I do wholesaling or Flipping not rehabs. The analysis is different but the process of Submitting a Offer To Purchase is the same. I use Agents, Brokers and Bird Dogs in finding me properties.
My goal is to get a counter offer to learn what the Owner wants in writting. This sets up the basis to negotiate by counter offers back and forth.
My Offer is low, but not to offend. If we can not agree, he will not be offended when he sees another Offer from me again. If the property has not sold within 30 days, I go back with a lower Offer.
I continue this process until the property is put into Escrow. The I will try and have my back-up Offer accepted.
Beno:
I would suggest working with a Broker who will contribute 2% of their commission on an accepted offer towards your closing cost, making your offers more competitive. In terms of making 10 offers? This should have been for one day! You need to make
a considerably more amount of offers to be successful. Also, if the houses are vacant, why are you going thru your realtor? I would go direct. Try www.AnyWho.com for the owners phone number or nearby neighbors.
There is another goldmine in your backyard that you forgot about. Try the
"Absentee" owners with offers. You will
find some deals there.
Best Riches,
Jeffrey Adam
[addsig]
Real estate is a numbers game. The more offers you make the more you will have accepted. Make 20-50 offers a week.
Try using the greed factor to leverage your offers. If it is an REO it will have a listing agent, instead of bringing another agent to the deal, just use the listing agent as a transaction broker. Now the listing agent is going to double his commission. This becomes a juicy deal for him and he mentally switches sides, he might influence the bank a bit more to take your offer.
Thanks for all the responses. Loon’s suggestion makes sense. I did go to a couple of county auctions to get a feel for it, and could tell there are several layers of REI folks there. Are the people with “We buy ugly houses” pins trying to hook up with wholesalers? In buying from a wholesaler in this scenario, do they never take title, and therefore incur minimal expense? I hadn’t considered trying this.
I do understand that this is a numbers game. My confusion with making it work is mostly about using a realtor. I’m assuming that I need a realtor because:
1) I need the comps. I’m a rookie and don’t know ‘em yet. In Texas, there’s no public record of property sales, per se. I can go into the county records and pull up deed info, house by house, block by block, to find what they sold for and when, but that takes tons of time.
2) I need to quickly and efficiently find my target properties. The version of the MLS available to the public has very limited search capabilities, and the data gets loaded there more slowly and is updated more slowly than the database that my realtor accesses.
3) There may be some trouble spots that a realtor could steer me away from that I don’t see at this point. He’s teaching me the ropes, to some extent.
But, I’m going at my realtor’s pace, and because I’m not making him any money, he’s slowly but surely working me down to last on his list. The guy is very busy and I’ve been amazed (based on what I’ve read and observed) that he’s spent as much time with me as he has. We’ve looked at maybe 25 properties, and he’s not pushing me to buy something that I can’t make money on.
Assuming that using a realtor is a viable way to buy houses to fix and resell, does it appear that I’m framing my problem correctly? If so, how can I motivate my realtor to bump me back up his priority list? (One idea I had was for him to send me listings and comps, and I’d go look at ‘em by myself, if the numbers look good on paper. If something looked hot and/or I needed to get inside, I could ask him to show me the place. The dogs could be weeded out without him having to show 'em. Is this realistic?) Assuming he did get more motivated and I started making more offers, what do I do if I have multiple offers accepted simultaneously? (- A nice problem to have!) Actually, I have put in two at the same time twice already, but twenty seems unthinkable.
And as to the advice of The Rehabinator on going to the listing agent directly: Will the listing agent get me comps if I ask for ‘em? This is the most crucial service I think I need from a realtor. In Texas, there’s a standard contract for 1-4 family residential home sales that I can fill out myself. As far as locating the properties, other than driving around, I can look up what’s being foreclosed on in the county foreclosure database, as slow and tedious as that is. But I’d lose the security blanket of having a buyer’s broker.
Am I barking up the wrong tree? I can tell my realtor thought it was going to be easier than it has been. That makes two of us.
Thanks again for everyone’s help. I really appreciate the advice.
Well not the wrong tree exactly but at least a crowded one. And, by the sounds of it one which is pretty well priced. If the "funky, moldy, vacant" units are selling at close to asking it sounds like someone understands how to price these things. Generally that means an efficient market in which the prices are easily discernable.
So what you are looking for is an inefficient market which means you can find a bargain. A couple of suggestions:
1) try moving somplace a little further away. like the next county over. Or a small town in the county (I realize texas counties can be big places) where those myriad of San Antonio investors are not swarming.
2) turn the MLS on its head. Instead of chasing the new listings look at the oldest listings first. These properties are going to have some problem which has kept them from selling. You need to figure out a way to fix that problem without breaking the bank.
3) get out of the SFR market. Look at commercial look at industrial. What you are looking for is some niche that no-one (or almost no-one) is working. Remember competition is only a good thing if you are the consumer. As a supplier you're looking for markets that are underserved. Maybe resturants.
Remember its called Creative investing. That means that you need to use the gray cells more and the shoe leather less.
Beno,
This is what I would do.
Since you have been working with this realtor for a while, you know each other, I would change the relationship.
Are you going to list the houses for sale through him at a discount? If so then he can make his money from you on the sale.
I would make an arrangement to get access to the MLS from him either for free if you are going to sell the houses through him, or for a flat fee, whatever works. If you can get access, you don't need a realtor to run comps or find you things to look at, you can do it yourself and do it much more effectively.
Once you have the MLS accesss, then apply the greed factor technique as I stated before.
I'm thinking that when you were only off by $3000 on that one house, if the listing realtor was also your transaction realtor I'm kind of betting that he might have been able to make the deal happen.
You have to remember that these REOs from the banks have relationships with the listing realtors, the banks often rely on these realtors to come up with the original listing price, and sort through the offers and make recommendations when to drop the price. Often but not always, it depends on the bank. Like any business, some have in house depts that handle more or less of the stuff that others farm out to 3rd parties.
So if you are dealing with a realtor that has some say in the deal to the bank, you get a lot more leverage by having him be your transaction broker.
Plus, as an added benefit, once you start working with these realtors as transaction brokers, they will spill their guts to you on the inside workings of the business. Once they become a transaction broker their guard comes down and they will tell you all kinds of insider goody info that you would never learn in 10 years of being on the outside looking in.
There is no limit to what they will tell you, other offers that were made, why they were turned down, stories about past transactions, this is invaluable information that will never filter to you from the listing broker to your broker and then to you, never.
The relationship totally changes once you use the listing agent. In your relationship now the listing agent is getting a call from your agent and he is on the defensive, just another stupid ass investor trying to make a low ball offer, he has nothing invested of his time other than to look at a fax of your offer contract and throw it in the garbage can. But when you call him up to make an appointment to show the property, (by the way, I would have him also show you 2-3 comps in the neighborhood that are also listed at the same time) he is now invested in you his time and effort, now you sit down with him to make the offer up, do you think he wants to take 30 minutes to an hour puting together the offer with you if he knows it is a total waste of time? Who do you think he is going to show the offer to? Himself of course! Do you think he is going to walk into the next room and go, "self, here is the offer on the house, what do you think?" Hell, no, he already will know right from the start whether the offer is close or not. Believe me, you will be short cutting all the crap you have been doing in the dark very quickly once you are using the lister as your transaction broker.
If you get lucky he might just tell you exactly what you need to offer to get the deal - wink wink.[ Edited by The-Rehabinator on Date 04/27/2004 ]
No one has really discussed your problem, which is making the offer. I wouldn't recommend changing agents yet, especially if you've already got a good relationship with this one.
You say you're making cash offers. Do you have a proof of funds letter verifying your cash offer?
Does your offers have any contingency clauses, and if so, what are they?
How quick are you putting down for closing?
All of these things make a difference to banks when considering offers.
Also, double check your numbers. As a newbie, you may well be figuring too high on your costs. A good safety net maybe, but it'll kill you on making offers.
I would never recommend asking the agent to cut his fee to make a deal. If he offers, great, but don't ask. If you're not willing to cut your numbers to make it work, why as the agent, who is making less, cut theirs?
BTW, two more things. First, it took me six months of looking and making offers before I got my first deal, so hang in there. Second, this idea that REO's are sold at FMV is pure crap. Now, I don't know your market, but if the property needs work, they are rarely sold at the fixed up market price. Sure, some new investor may pay too much sometimes, but the majority of buyers for these homes will be investors, and investors, even landlords, will not in most cases pay more for a property than its current worth. So if you think this is the problem, you first step should be to re-evaluate your FMV figures.
Roger
Beno:
The Rehabinator gave you the best advice. You need to change your relationship with your agent. One of the keys to being a successful real-estate agent is having MLS access. You should not have to go thru an agent to get comps, listed properties, etc...
You should also stop concentrating solely on listed properties. If you go to http://www.Firstam.com and fill out an online application, you might be able to talk First American Title into giving you access to run property profiles, comps, and tax information from the luxury of your own computer. My suggestion to you is to promise to use them for your title insurance. They will also give you "farm packages" upon your request so that you can market the "absentee" owners in your area. That is where the real money is.
In terms of your offers. You should be offerring on multiple properties everyday with a good follow-up system in place. If you learn how to get in the realtors back pocket, that is also a key to your success.
This can be accomplished by asking them when following up on your offers
"what else do you have coming up that I may be interested in?"
Best Riches,
Jeffrey Adam
_________________
"The only place success comes before work
is in the dictionary."
[ Edited by JeffreyAdam on Date 04/27/2004 ][ Edited by JeffreyAdam on Date 04/27/2004 ]
[quote]
On 2004-04-26 14:17, beno wrote:
I'm a new would-be investor who's making cash offers on mostly vacant properties that are handyman specials. These are usually REO's. I have a realtor who has been finding them for me, getting comps, and helping me with offer price decisions. I'm now into my 13th week, have made 10 offers, and have had no takers. I want to buy, 'em, fix 'em and flip 'em, and have read most of the "best" books on this topic and have been following their examples.
It's starting to look like the San Antonio, TX market is just too hot to get deep discounted prices on run down property. I can tell my realtor is getting discouraged (along with me) and I'm hearing less from him each week. He says that investors buying the properties for rentals are outbidding me, because they don't incur the extra cost of selling it. I'm guessing he's right. It also occurs to me that some of them also are more experienced than me and don't need a realtor (who's taking a 3% cut.) I'm concerned, because it's taking so long and looks like this is not a good full-time way for me to make money. My initial goal was to flip 3 properties my first year at 10K a pop, but now it's looking like my great idea's not so hot. I got within 3K on one property, but a miss is as good as a mile! Any helpful advice is greatly appreciated.
If the market is very hot there, you do not need an agent to sell the property for you when you are ready to flip. Save the commision and use the extra margin to increase your offer. :-o
Again, thanks for all the feedback, guys. This is very helpful.
Dwsampson2002 sez:
If the market is very hot there, you do not need an agent to sell the property for you when you are ready to flip. Save the commision and use the extra margin to increase your offer. :-o
I do not plan to use a realtor for selling. I can get a listing on the MLS for around $300, put up more info and pics on my own website if necessary, and put up a nice sign in the yard, including a leaflet tube, that advertises co-broking for 3-4%. If I price it right, my gut feeling is that this will work for me. I’m already applying that money into my offer calcs.
Commercialking, I appreciate your comments, but I’ve decided that I want to be able to get to a property in 30 minutes or less, so the next county is stretching it. I have been looking at some problem properties that haven’t sold, but was hoping for something more straightforward to lose my virginity on. And I’m interested in commercial property for down the road, but I understand less about that than I do residential, which ain’t much.
As rajwarrior mentions, I may indeed be too conservative in my cost estimates. I’m figuring holding costs for 6 months, but hoping it will be less. I am looking at putting property back into top shape, but in keeping with the neighborhood it’s in. I know some investors who are looking to rent, especially, are not planning to renovate to the same degree I am. But I’m good at getting good work for reasonable prices. As far as proof of funds, I’m using a print screen of my Bank of America HELOC, which shows my funds available. My realtor says this is ok, and I’ve gotten counters this way. Is this a problem? The other two items you mentioned are days to close and contingencies. I think most of my contracts have specified about 3 weeks. As far as contingencies, Texas contracts for 1-4 family residences all have an option clause that basically gives the buyer an out for any reason. You put up a nominal fee for this ($10) and a number of days – ostensibly to get inspections done. (I’ve been using about 7 days.) My realtor doesn’t even include money in this provision. He treats it as a given. I’m trusting that he knows what’s customary here in San Antonio. Beyond this gaping contingency, I don’t fuss over lead paint, and do accept property “as is,” etc.
The points made by the Rehabinator about dealing directly with bank’s brokers make sense to me. These guys do look to be as close to the action as you can get in the REO game. But If I can figure out a way to get my realtor to work with me to get more offers in, whether he develops the comps or lets me do it on some kind of fee-based arrangement, I’d like to stick with him for the time being. If I can’t increase the number of offers I’m making thru him and get something accepted, I’ll likely try going directly to the bank’s brokers next. Actually, I’d wondered about getting a real estate license just to gain access to the MLS. Do investors do this?
As to JeffryAdam’s advice: I use a First American Worksheet to calculate buying and selling closing costs, but I didn’t know they could grant MLS access. I checked out their website but didn’t see a form I could fill out to gain access (with the understanding I’d do business exclusively with them.) Can you give me a little more info on that, please? As to multiple offers: Can somebody please explain to me what you do if you get more than one offer accepted at one time and can’t afford to do all deals? (I suppose the Texas option clause would provide the out.) But wouldn't listing agents and banks look dimly at this?
Thanks again to everyone for their help. If there are any more ideas, I’m listening. I see that I need to have a serious talk with my realtor about cranking things up. If he’s not receptive, I need to move on.
Beno:
First American does not give you MLS access. They will give you access to run property profiles, comps, tax values, etc...
In terms of getting multiple offers accepted, very simple solution:
"Wholesale"
Best Riches,
Jeffrey Adam
[addsig]
Good luck with all your diligence! I just wanted to make a couple of points as well.
As far as finding properties without waiting for your realtor, try www.forclosurefreesearch.com and you will find a list of REO's and how long they have been on the market, which may give you leverage when making a deal or deciding if you want to make an offer.
Also, call the listing agent. I am also a newbie and I have only called on 2 REO's and both listing agents told me a lot of information. I just asked, "What can you tell me about the property?" And each time they told me how many offers they had, what the highest offer they had that the bank wouldn't accept, one of them pulled comps on the phone right then and told me what the property leased for previously. Both realtors gave me the combination to the lock box to go see the house in my own time. And both gave me a complete rundown of needed repairs. Now, that could help you decide if you want to make an offer and if you still want to work your realtor into the scene, then call him up and ask him to place an offer for you. I know you want to use him because he has been so helpful; but, if you are falling last on his list, he may already be thinking that you are gone. Don't feel guilty if you decide to just use the listing agent, this is their job and they understand how people come and go all the time. Keep in touch if you like with your original realtor and have him contact you for properties that meet your criteria.
Also, as far as getting on the MLS, I have stumbled on 2 local realty websites that give you unlimited free access to the MLS of listed properties. I was just driving around and wrote down the name of the sign in a yard and when I went to their website, there was access to MLS for all counties in my area.
For comps, try www.mycastle.com. It is a pay website by they will pull comps and all sorts of information.
I have also learned that the banks won't come down much. We were looking at putting an offer on a property that had been vacant for a year- one investor had offered them 20k below list and the bank would not accept it. I couldn't believe it. It is in a fancy area and I guess the bank thinks they could get more.
Good luck. It sounds to me like you are getting out there and getting started. :-D
Beno, I just want to add food for thought.
If you are going to be dealing with REOs the last thing you really need is a realtor working for you.
These are facts:
1) There are no secret REOs. All REOs are listed in the MLS now. A simple, "bank owner" or "lender owned" keyword search reveals them all.
2) You don't need your own realtor to do the transaction on an REO. This is not like HUD that requires a HUD certified realtor. The minimum you need is title insurance. You are buying these As-is, your willy is flapping in the wind no matter how you look at it.
3) No realtor is going to provide you with leads to REOs better than you can provide them to yourself. Going back and forth with a realtor asking him to search under this criteria or that criteria is never going to be the same as you spending a hour using the MLS exactly as you want to.
4) Putting in more offers is not necessarily doing you any more good if those offers are just getting thrown in the trash without being presented. (Which I can guarantee has been the case of 9 out of 10 of the offers you realtor submitted) You still are spending a large amount of time, finding the proper property, going to see it, figuring out comps, figuring out rehab costs and then submitting your offer through your realtor, all those hours put in on each house still result in the same 10 seconds the listing broker takes to scan your contract for the line item that states your net offer and then throwing it in the trash can. The listing broker then calls your broker and tells him the offer was rejected.
5) Getting access to the MLS is not difficult to get. Looking at it in proportion to the diffculties you have to overcome to be a successful investor, getting MLS access probably rates on a scale of 1 to 10 as maybe a 2 or 3. Investing is about being creative and having tenacity, having MLS access has been stated many times as a key element that successful investors employ, if you can't figure out how to get it, I don't know how that reflects on how you are going to overcome many of the hurdles down the road which are going to be much, much harder.
6) Listing realtors who represent REOs hate the realtors investors use to submit offers second only to the actual investor himself and what they consider their low ball offers.
7) In your market I'm willing to bet that no more than 30% of the REOs are being purchased by full time investors. Just like HUD. More than 70% of HUD homes are purchased by owner occupants and not investors. Listing REO realtors in your market look at your offers as a nuisance and something they have to put up with until an owner occupant comes along, or an investor who will rent it out comes along, or a newbie comes along more than willing to pay too much.
8) Keep in mind that the definition of crazy has been defined as doing the same thing over and over again expecting different results. Doing more of what you have been doing is not necessarily going to deliver different results.
Good luck
Again, thanks for all the great replies. The Rehabinator capped off a post yesterday with the following:
8) Keep in mind that the definition of crazy has been defined as doing the same thing over and over again expecting different results. Doing more of what you have been doing is not necessarily going to deliver different results.
Hey buddy! Have you been talking to my wife, or what? She's been trying to blast me out of my comfort zone for 20 years. ;^)
Thanks again for the help, everybody. I sure got some great advice. I did let my realtor know yesterday that I need to start getting a lot more offers made. Maybe I can shift things so that I go directly to listing brokers for REO's and continue to rely on my current guy for other types of listings. beno