Real Estate Flip vs Flop: How To Make the First Offer Work

Posted by Residential Capital Partners on Jul 1, 2019 9:42:02 AM

“I think I’ll hold out for something better.”

“This is getting frustrating; maybe I can find a better buyer.”

There are times when these conclusions are the best course of action. But when it comes to a real estate flip, there’s a lot to be said for trying to make that first offer work. Once you and a prospect have reached an acceptable initial offer, making an effort to see the deal through is beneficial for a number of reasons:

  • Time is money. Every day that passes can cost you – especially if you’re holding a mortgage or a note from a hard money lender.
  • Opportunity awaits. You have better things to do than wait — whether you’re looking for your next real estate flip, or you want to move on to your next venture. Every day that you’re tied to your current property is one more day that you’re not securing your next purchase.
  • You’re only a “new” listing for so long. The “days on market” clock is ticking. According to Zillow, in 2018 the average residential property was sold in 68 days — and showing start to decrease as a property sits on the market. Signing an initial contract might keep your house off the market 30 days or more. That means if it doesn’t work out, your closing could take 90 days or more.

Whether you’re motivated by outstanding hard money loans, or by simply wanting to move on, Here are seven things you can do to make sure that your first offer closes successfully:

 

1.) Remember That It’s A Negotiation

Selling a house isn’t a fixed-price, retail transaction. The seller want a high price. The buyer wants a low price. Once an initial offer is accepted, there will be some degree of negotiation as the process continues — and it almost always involves a lowering of the price or conceding on repairs.

Accepting up front that the process is a negotiation should be part of your sales strategy: Realtor.com advises buyers to offer 10% below list price in a buyers market — so you can price accordingly and pre-determine your counter offer.  In addition, you can spot areas for negotiation that have minimal impact on price (such as move out dates and closing date flexibility), or minor improvements that can be made at minimal cost.

 

2.) Keep Your Cool — Or Let A Realtor Keep It For You

During the inspection and closing process, things happen that can irritate you to the point of wanting to walk away. Funding gets tied up. Sellers make unreasonable requests. Closing dates get bumped. A seasoned realtor can act as your buffer, and help you navigate through the turbulence that accompany many closings.

While some investors may not agree with the notion of paying a realtor’s commission, there are definite upsides. According to the NAR, the average FSBO home sold for $210,000 in 2018, while the average home represented by a realtor sold for $249,000.

 

3.) Don’t Put Off The Inevitable

It’s a common scenario: A buyer makes an offer that you find reasonable. But during the inspection process, the inspector uncovers a sizeable, unforeseen problem: Faulty wiring. Roof problems. Foundation issues. Or any other repair that could cost hundreds, if not thousands of dollars.

In these cases, the buyer will normally want you to make concessions or have the repairs done. When that happens, it’s never fun — and your first impulse might be to find another buyer. But chances are the next buyer will want you to make the same concession. Our best advice: If it’s a repair that would cause most buyers to have second thoughts, go ahead and resolve it on your first offer. Otherwise, you’ll most likely delay closing and end up making the repair for your second buyer.

 

4.) Be Prepared

A motivated buyer who needs a home fast is more likely to make an aggressive or full price offer. Before you list, make sure you’re ready for such a buyer. Have your property as close to “move-in ready” as possible. Go ahead and make repairs that are likely to be points of contention, so that they don’t delay the process.  And make sure you’re ready to meet an aggressive closing date if the buyer needs it.

 

5.) Know When It’s Wise To Give In

A buyer may come back with a punch list that contains 15 items. Many of them can be done for less than $50 each, or with a little bit of work. Rather than standing your ground and seeing how little you can concede, do the math and see how much you can concede on the little things that have minimal impact on your bottom line. To the buyer, it makes it look like you’re being accommodated — even if you’re not spending much.

 

6.) Stay Focused On Your End Goal

Before you list your property, set a final acceptable outcome:  How much do you want for your property, and how far are you willing to come off that price? How quickly do you want to close? Keeping your end goal in mind will not only help guide your negotiations, but will also help you keep a cool, logical approach to the sale and minimize the emotional stress.

 

7.) Be Ready To Move On

It’s great to have something to look forward to. If you’re an active flipper, your morale will be higher — and you’ll be less frustrated — if you already have your sights set on that next project. One way you can get ready for it is by getting pre-approved for a hard money loan.

 

Apply Today in 14 Minutes.

In no time flat, you can get pre-approved for a loan with Residential Capital Partners where you pay no money down. Existing clients can add a property to their application and close in as little as 14 days.

 

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