In real estate investing, making offers is an essential part of what we do. It’s like breathing air to your flipping houses business – if you don’t do it, your business will inevitably die.
He who makes offers, gets deals.
However, experienced real estate investors understand that the offer process is actually about much more than just proposing to a seller that you purchase their house for a particular price.
There are some important, keen insights that can be revealed to you through the dynamics of the offer/counter-offer process. And if you can really wrap your mind around them, the way in which you handle this back-and-forth process can greatly enhance your effectiveness as a real estate investor.
Early in my flipping homes career, I was very fortunate to catch on to the magic of a counter offer, and the important role it can play in my due diligence process. Actually I realized the offer/counter-offer process can be one of the most powerful and efficient ways to “smell out" a deal – or to keep me from wasting my time.
Here’s how to use the offer/counter-offer process to “smell out" a deal…
After making my initial offer to purchase a house, you’ll find that I am eagerly expecting the seller’s response. Why? Well it’s not because I’m hoping they’ll actually accept my first offer. It’s because I am standing in the wind, waiting to catch a whiff of something good. And because once they come back to me with a counter offer, I am now in a position of power. I’ve just been given all the options, and zero risk.
I’ve worked with many beginning investors who feel that after their offer has been countered, they’re still “on the hook" in some way. Not so.
You see, at the point the seller submits a counter offer I am under no obligation to buy their house. My original offer has been effectively voided by their counter offer, and now it’s my turn to play.
To understand the dynamics, you can say that essentially the seller has just used my offer as a template to present me with a brand new offer, tweaked in their favor.. And as I consider it, I can accept, decline or suggest another counter-offer. You see? I have the power – all the options and zero risk.
And I am not only in a position of strength but also of knowledge.
Like a well-played poker hand, I use my initial offer (which I fully expected to be initially unacceptable to them) to coax the seller to show me a little more of their hand.
And now that they’ve been forced to give up their poker face, I can much more accurately determine their level of motivation with basically no risk on my part.
If they come back with a sky-high counter offer, I know they’re not all that motivated at the moment and can make a pretty quick decision that I shouldn’t spend a lot more time with them right now. On the other hand if they come back to me with something that’s “close, but no cigar" – then BINGO! I smell a possible deal. Better work this one.
And here’s how I would work it…
In my initial years of being a successful real estate investor, if I made 30 offers and had 5 counter offers, I basically had 5 sellers saying to me, “We may be able to work something out – how about it?"
I would use the strategy I just described of making low offers to squeeze out a counter offer to get a very good idea of what the sellers would take. And this opened the door for me to begin “soft marketing" to my prospective buyers.
I would make arrangements to see the homes and further inspect them to “determine if I could pay the higher price they suggested in their counter offer." At this point I would often bring my prospective buyers with me to the house and introduce them to the seller simply as “someone who may be working with me on this deal".
My prospective buyer and I would inspect the home, and then I would get a casual idea for what they would be willing to pay if/when I inked the deal. If the sellers’ initial counter offer worked for me, I could just go with it. Otherwise I’d make them another counter offer based on the insights I had gleaned from my prospective buyer -- one that would put a profit in my pocket and be a good deal for them as well.
The most important thing to understand about this process was how I was using the information and position I was given once I received a seller’s counter offer. When I received the counter offer I didn’t technically have a deal, but I knew at the very least what I could get the deal for and that it seemed “close", which was of key importance to me.
The Offer Machine
With this strategy in mind, I developed a habit of consistently making offers, knowing that most of them were going to be turned down or simply ignored. It didn’t hurt my feelings. Any good salesman will tell you this part is a numbers game. I was just “fishing the waters" for motivated sellers and using any counter offers received to determine the level of the seller’s motivation and how to proceed.
Do you have an “Offer Machine"? – An established mechanism to ensure you’re out there constantly filling the “potential deal" funnel with offers?
Understand that in real estate investing, the counter offer can be a power-giving device, offering you keen insight and putting you firmly in control! Don’t be afraid to use a strategy similar to mine to “smell out" a deal, and save you many hours of potentially wasted time. It’s a beautiful thing in the flipping houses business.
Blessings,
- Steve Cook
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