One of the best feelings in real estate investing is finding a great deal! You find a property that you know will cash flow well or has tons of hidden value. And you just want to get it cash flowing and add it to your portfolio. But first, you need to get your real estate offer accepted by the sellers.
And therein lies the rub.
Because one of the worst feelings in real estate investing is when your real estate offer on an awesome property does not get accepted.
But remember to go by the numbers
I always say that one of the great things about real estate investing is that it is less emotional and more numbers-driven. And this is true.
But it’s impossible to eliminate emotions completely. Like I said above, when we find great deals, we want them. And when we don’t get them, it does burn a bit.
But this is when we remind ourselves that the only reason a deal is great is because the price is right on our end. We spend lots of time in deal analysis deciding what purchase price with what financing will make the deal work on our end.
For a refresher on deal analysis, check out this post.
In the end, your real estate offer needs to be based solely on the purchase price that makes sense for it as a good investment. This is all based on your purchase criteria.
So, how can you improve the odds of your offer being accepted?
This is a fair question to ask.
If the price in our real estate offer is limited by what purchase price works in our deal analysis, how can we alter the offer to make it more competitive?
This is something that Selenid and I have worked on a lot. In fact, with many of our accepted offers, we were not the highest offer.
3 ways to make sure your real estate offer gets accepted
And we have used all of the strategies that I’ll review here successfully!
1. “Lock it up”
I’ll admit that this may currently be my least favorite way of sweetening an offer. Because it’s probably the most risky. But there are ways to mitigate these risks.
The lock it up method refers to a method of making your offer at the very maximum of what will meet your criteria. For instance, maybe you offer at a purchase price where your expected cash-on-cash return is 5-8% instead of your goal of 10% or greater.
However, you do this with the expectation that during your inspection period, you will identify issues. You then plan to negotiate the price down to what you actually want to pay for the property using these inspection issues as your leverage. If they don’t agree to your terms, you walk away. The only cost to you is the usually $500 for an inspection.
This works because once you identify an issue, a seller has to make these public when the listing goes back on the market. So it is often in their nest interest to negotiate with you.
So, criteria #1 for this strategy to work is that you need to have an inspection contingency in your offer. We generally recommend this regardless.
There are a few reasons this is a bit risky
- Your inspection may turn up less than expected and give you less leverage to negotiate with. In theory you could still ask for reductions and walk if they don’t agree. But this is a bit shady and not a great way of doing business.
- You put your agent in a precarious situation. They want to maintain their reputation which is their business. Arbitrarily backing out of deals or placing artificially inflated offers can hurt their business. Even more importantly, it can hurt your business if good agents don’t want to work with you!
So how do you minimize this risk?
Well, first off, only offer at a price that you actually would accept if you cannot honestly reduce the price after inspection. So this goes back to careful deal analysis.
Towards the second point, you need a good relationship with your agents. And you need to talk to them ahead of time when you are planning to do this. They need to know that you will only negotiate based on legitimate concerns and issues. And you need to make sure they are comfortable doing this on your behalf.
2. Modify the inspection contingency
This is a big one.
Option #1: Waive the inspection contingency
Think of it from the seller’s perspective. If they can get an offer in which there is no inspection contingency, it makes the closing so much easier for them. Many sellers look for this.
So, one way to really increase your offer’s competitiveness is to waive your inspection contingency. But do this only with extreme care. We’ve done this with variable success and it has taught us some important lessons!
I do not recommend this for a novice investor. As you get more experience, you learn what to look for in terms of huge issues. If there are none of these, you may eventually feel ok to take a calculated risk and waive the inspection. But not at the beginning of your investing career!
If you do this, you also want to make sure you have a healthy investing emergency fund in case something big does turn up after you close.
Option #2: 3-day inspection period
The standard inspection period lasts a week or more. So if issues arise, it can really delay a closing or delay getting the property back on market. This is a headache for the seller.
Therefore, to make our real estate offer more competitive and more likely to get accepted, we modify our inspection contingencies to be 72 hours.
This means that once we get the attorney approval, we have only 72 hours to get an inspection and submit a revised offer is necessary. If we don’t do this in time, we have to take the property as is.
To do this, you need to have an inspector ready to go to get in quickly. They also need to be reliable so you know you will get their report quickly. And lastly, you need a good, responsive contractor to review the report and give you an estimate for repairs. With this information you can educate yourself in creating a revised offer.
Seller appreciate this because if something comes up and you back out, they can get the property back on market quickly. It also shows you are serious and mean business. It shows you are committed to getting the deal to closing.
3. A healthy earnest money deposit in escrow
Once you have an offer accepted and the attorney approval is signed, you need to deposit earnest money into an escrow account. This is basically a down payment on your down payment on the property.
There is no uniform amount that needs to be put down. For our primary home, wee only put down $500 for example.
However, for our investment properties, we often put down $10-15,000 in earnest money.
Again, the point here is to show that we mean business and are serious about closing this deal. It also shows that we have solid money reserves.
This seemingly small thing has helped us get a bunch of offers accepted in which we were not the highest offer and our pitch was that we would make sure the closing goes smooth and quick.
The importance of strengthening your real estate offer
It may seem obvious but the stronger your offers are on great deals, the more offers that will get accepted and the more deals you will close.
The more great deals that you close and the more your wealth will grow. And it will grow quicker as compound interest does its thing. You can see this in action in this 1-year review of our first rental property and its impact on our wealth building.
In real estate investing, the details are important. They are often the difference between a successful and a mediocre or unsuccessful investor. But that is the beauty. There are plenty of mediocre investors out there. That’s what makes the real estate market an inefficient market that you can take advantage of!
Ready to learn more about investing in real estate?
- How To Actually Buy A Real Estate Investment Property
- Powerful Case Study of Passive Hustle in Real Estate Investing
- How to Pick the Right Real Estate Market
- The Complete Physicians’ Guide to Real Estate Syndications
- Real Estate Investing: The Good, The Bad, and 50% Returns!
- How to Win the Fight Against Analysis Paralysis
And don’t forget to check out my free masterclass webinar on The 12 Steps to Financial Freedom for Physicians!
What do you think? Have you lost offers on great deals? Why? What can you do to strengthen your offers on real estate? Let me know in the comments below!