Do you know how to make an offer on a house below asking price?
If not, don’t worry! I’m about to share everything you need to know to present your offers like a badass.
I’m Matt Theriault, founder of Epic Real Estate.
After 11 years of real estate investing and teaching other to invest, I can’t overstate the importance of presenting offers.
If you don’t present offers, you will never do deals.
Even if you know how to flip properties, you’ve got your lead generation automated, and every other part of your business is running like a well-oiled machine….
… If you don’t present offers in writing, you are not going to do deals.
Thoughts of an Unprepared Investor
If you’re not prepared to present your offers correctly, I can practically feel your frustration from here.
Not knowing how to make an offer on a house below asking price leads to this train of thinking:
- “Crap, it’s time to make an offer.”
- “How do I start this conversation?”
- “If I have no idea what the value of the property is, how am I supposed to decide what my price and terms should be?”
- “This is going way too easily. Did I pay too much?”
- “This is going terribly. I probably insulted them with too low of an offer.”
- “Are they in the wrong, or am I?”
- “I suck at this.”
Above all else, you’re probably terrified that the seller can see right through you and they’re going to reject your offer as a result.
Thoughts of a Prepared (Badass) Investor
But if you DO know how to present offers like a badass, you’ll have a simple way to begin each seller conversation that sets you down the path of success for that deal and every deal that follows.
You’ll have clarity and certainty about the value of the property.
You’ll be confident about the price and terms and you’ll know that if the seller accepts, the deal will be good for them AND yourself.
Ultimately, your discounted offers will finally be accepted and you will find success in real estate investing.
How to Make an Offer on a House Below Asking Price
The following five points will cover everything you need to know about making an offer, from preparing your pre-meeting mindset to signing the contract.
Point #1: Alignments, Expectations & the Upfront Contract
Getting aligned, setting expectations, and establishing the upfront contract are your three important starting steps.
Aligning with the seller sets up the entire relationship between you.
While you might instinctively feel “against” the seller, decide ahead of time to align yourself with them instead. You’ll both solve the seller’s problem together. It’s you and the seller vs. the market.
If you’re truly operating from this space and you’re really interested in solving the seller’s problem, the right words will come out of your mouth naturally.
Expectations & the Upfront Contract
To make sure you can accomplish this, set the expectations for the seller by establishing an upfront contract (often referred to as a transition agreement). It sounds something like this:
“In order for me to help you out of your situation, I need to ask you some questions. I want to view the property. Then, I’m going to review the most current market conditions so I can come up with the best solution for us.
“As we go through this process, I want you to know that if, at any time, I don’t think the market is going to allow us both to get what we want or that it won’t be a good fit, I’m going to stop and let you know. I will do this right away because I can’t buy every property. Some work and some don’t.
“In return, I ask that if, at any time, you don’t feel this is going to be a good fit, you stop me and let me know. Will you do that?”
Typically, this is how you should wrap up your first initial contact with the seller. It’s a great way to end the phone call. You should also repeat it again when you arrive to tour the property and meet the seller in person.
The phrasing puts you on the side of the seller. It positions the market as the primary reason why things may or may not work out, and you give the seller permission to stop you at any time.
This is called a release statement.
Why do all this?
You won’t get a true yes from a seller until you give them the ability to say no. If they know they can say no, they’ll be more comfortable to do so. That way, you’ll know that when they say yes, they really mean yes!
And collectively, all of this lays the groundwork for establishing trust, which is crucial when dealing with distressed sellers.
These people are experiencing issues in their lives, so they’re likely nervous, ashamed, or scared about their current situation. But they want to work with a person they like and trust, and they’re even willing to give them a discount!
So, that’s what this transition agreement is for. It establishes trust, you become likable, and, ultimately, you convey your confidence to them. To the seller, it says, “I know what I’m doing. I’ve done this before. Don’t worry. Just follow along, and if anything gets too fast, just stop me and we’ll slow down. Okay?”
Point #2: Tour & Investigate the Property
Prior to arriving at the property to tour, pull your comparable sales in the area. You’ll want to see:
- What the market is doing as it relates to the property
- Look at the comparables for sales
- Look at properties that haven’t sold yet
- Search for properties for sale
- Drive by these properties to get an idea as to what is the market is saying about current market value
Why? Because you want to analyze why this property, which is for sale, hasn’t sold yet.
So if your appointment with the seller is at four o’clock, get to the market area around three o’clock and do a drive-by of these properties. This will bring you up to speed by helping you understand the market and what the house’s competition is like. You’ll see how those values relate to the property you’re about to tour.
Arriving at the Property
When you arrive at the property, before you even knock on the door or engage with the seller, walk around the property as much as possible. Take notes on everything you see that may directly or indirectly impact the property’s value. You’ll want to ask the seller about all these things later.
If you do this right, the seller will probably peek out the window and see you walking around. Once again, this will show the seller that you are competent.
After your brief self-guided tour of the exterior of the property, knock on the door and introduce yourself. After exchanging basic pleasantries, repeat the transition agreement. Then, ask the seller to point out anything and everything they think will directly or indirectly impact the property’s value.
All of this is really to extract everything that the seller knows. You want to know all of their opinions and what they’re thinking.
This is important, as your initial offer will be based off of what they say. It will be based on their idea, not yours, and it will be your starting point – the lowest point there is. You can go deeper into discounts from there.
Touring the Property Questions
As you tour the property, ask about everything:
- “How long has that water stain been up there in the corner?”
- “How long has that crack been down there in the foundation?”
- “Have you ever had anyone look at it?”
- “Did they give you an idea of what it would cost to fix it?”
- “Do you have an idea of what that would cost to repair it?”
- “If you stayed here another 10 years, what are two or three things you would change, fix, or improve about the property?”
These questions are important. By having them provide the answers to these questions, you are making all of these problems the seller’s idea. It’s not imposing your will or opinions on the seller – they are giving you the information.
This will result in your initial discount.
Your Own Questions
And, of course, you should take them through your own questions as well. We have a seller information questionnaire for that.
Freestyle questions are important, too. These are the remarks and inquires you make as you observe the property. A lot of these will likely be covered by the seller information questionnaire, but there will still be some holes to fill.
But before I go through the seller information questionnaire or ask my own questions, I ask the seller something like this:
“Seller, I’ve already gotten a lot of information from you, but I need a few more questions answered, and these are the same questions I ask everyone. In fact, I have them written down right here on a piece of paper. Would you mind if I just run through these really quickly? I’m just going to read them right off this piece of paper to make sure I don’t forget anything – particularly anything that may cost you an opportunity or some money. Is that okay?”
Saying this accomplishes a few things. First, it establishes permission from the seller. It also lets the seller know that these are the same questions I ask everyone else because some of them are pretty personal (i.e. finances, etc.).
Plus, by reading these questions off the paper, I don’t have to memorize them. And I’ve given the seller a very good reason for why I’m reading them off a paper – I don’t want them to lose an opportunity or money. (See how this all continues to align you with the seller?)
As the seller provides answers to these questions, do not interject with your own opinions or argue with the seller about their answers. Even if they are completely off-base, just nod your head and make notes.
What you’re really doing here is just fleshing out what the seller knows. The foundation of every deal lies within the seller’s motivation to sell, and that’s what you’re out to find.
Point #3: Evaluate Your Quick & Dirty Math
Don’t waste time with clean math before you have the property under contract. At this point in the process, all you need to worry about is the quick and dirty – a number that’s in the ballpark of where a contract can be signed by the seller.
Fair Market Value – Repair Estimate = _____
First, come up with a quick estimate of everything the seller shared with you regarding repairs and improvements. Deduct that from what you determined to be the “fair market value” when you toured the neighborhood.
Alternatively, you might deduct it from the after-repair value or a number that the seller suggested they want from the property (if one was offered). This gives you a few options, so use your discretion on which number makes the most sense for the equation. (Generally, you’ll want to start with the lowest number possible.) Then, you can subtract the seller’s opinion of the repair costs.
Once you have the difference between the fair market value of the property and the cost of repairs, you need to make sure there is money left over for you. This, of course, is equity! And if there isn’t any for you, you will probably lose interest in the deal.
If you’re planning to wholesale the property, make sure there is enough equity for you AND the person you’re going to wholesale to. Remember, whoever you sell it to will probably also be an investor, so if there isn’t enough equity left over for them, no one’s going to bite.
Next, it’s time to determine whether or not the property will cash flow. Here, you’ll apply the 1% rule: Is the monthly rent at least 1% of the eventual sales price?
For example, if you can see yourself either immediately or eventually selling the property for $100,000, at the very least, the property should bring in a gross monthly rent of $1,000.
If you have to sell the property at some point in the future, you’ll want to try to make sure it still meets the 1% rule. You don’t know if you’re going to hold it for one, five, or ten years, so just do you best to meet the 1% rule. That way, it won’t be such a difficult sale to a cash flowing investor.
Point #4: Make a Soft Pass
Once you have equity and netted cash flows, it’s time for what I call a soft pass. A soft pass is a soft, uncommitted offer that allows you to test the waters a bit. It’s like taking the seller’s temperature to see where you are.
In order to maintain your alignment with the seller, a soft pass must be executed very carefully and intentionally. And remember, if any sort of disagreement arises, the market is the bad cop – not you. It’s you and the seller against the market, always.
Reviewing the Transition Agreement
Before a soft pass, it’s a good idea to review the transition agreement one more time. A soft pass is the transition from the investigation to the presentation, which calls for a slight addition to the transition agreement:
“Seller, I think we’ve got a basic number here, but I’m not sure if it’s exactly what you’re looking for. I mean, the market doesn’t always let us both get what we want. So if it doesn’t work for you, are you comfortable telling me no?”
(You want them to say, “Yeah, I’m comfortable telling you.”)
“Okay, perfect. And conversely, if it does make sense for you, you’re comfortable telling me yes so we can more forward. Is that right?”
Executing the Soft Pass
Once you have affirmative answers to both parts of the transition agreement, your soft pass will sound something like this:
“Seller, the current market conditions have your property’s value right around $100,000. Based off what you’ve shared with me about the necessary repairs and keeping a small profit for myself in mind, what you’re saying is we’re right around $65,000. Is that right?”
Pay attention to the wording here. It positions the offer as the seller’s idea, and mentioning the property value, repair costs, etc. adds logic to your reasoning.
Signing the Contract
If the seller accepts, get the contract signed! But leave a little room in there for an adjustment to the price down the road. You might say to the seller:
“Okay, Seller, I think that’s going to working. Let’s go ahead and write it up. Ultimately, though, it really depends on what the market has to say and what it’s really going to cost to repair that water stain in the basement. I’m going to have that looked at more closely by a professional. But all in all, it looks like we can make this happen. Sign here.”
Just by telling the truth like this, you will protect yourself from looking like you’re attempting any kind of bait-and-switch scenarios or immoral business practices later.
Point #5: Don’t Take No for an Answer
Now, what if the seller rejects your soft pass?
Simply put, you’re not going to take no for an answer.
Most people think “not taking no for an answer” calls for stubborn and rude behavior that’s very “you vs. them.” That’s not what we’re talking about here.
Our version of “not taking no for an answer” is providing the seller with multiple options without ever losing your alignment. The market is still the bad cop, not you.
Consider a Lead Machine
For this part of the process, a lead machine is helpful. This may seem irrelevant at first glance, but think about it – with an ongoing flow of new leads, there’s much less pressure in negotiations. You will not buy every property, and nor should you! And if it tears you up to lose one, that just means you don’t have enough new leads coming in.
As soon as you’re afraid to lose the negotiation, you’ve already lost the deal.
Fight for deals, but don’t put yourself in a position where you’re scared to walk away.
If the seller rejects your soft pass, your response should sound something like this:
“Okay. Well, based off of what the market is saying and what you’ve shared with me, what is the lowest number you’d accept?”
If they come back with a number you agree with, get a contract signed!
If they come back with a number you do NOT agree with, it’s time to try again. You’re not taking no for an answer, remember?
“Hmm… My biggest goal here, Seller, is not to make the biggest profit, okay? That’s not what I’m trying to do. Although my goal is to make a profit, it’s not to make the biggest profit. This is my business and it’s how I feed my family, so I have to make SOME profit, but my bigger goal is to make sure that I’m safe and don’t lose money.
“And based off the current market conditions, what you’re proposing is beyond my risk tolerance. I don’t know if the market is going to allow me to do that. So would $75,000 be doable if I could close quicker?”
Again, make it the seller’s idea. What they proposed, based on the market conditions, is beyond your risk tolerance. It doesn’t make the seller bad or crazy – it just means you’re beyond your risk tolerance. Leave the seller blameless.
Price & Terms
The last question here is key:”So would $75,000 be doable if I could close quicker?” Here, you go from a negotiation on price to a negotiation on price and terms.
If you can’t come to an agreement on price, you’ll just go back and forth until you have a winner and a loser. But if you introduce terms as a part of the negotiation, all of a sudden, there’s some give and take that can allow you to both still win.
As a real estate investor, you will always buy properties in one of two ways: by your price and the seller’s terms, or the seller’s price and your terms. As long as you can control one of them, you can create a deal for yourself.
Once you introduce a term into the negotiation – quicker close, a reduced contingency period, an increased earnest money deposit, or whatever it might be – you now have two things to negotiate. Think of those as two prizes to be won. The seller gets one and you get one. Win-win.
Having both people win is important because there’s still work to do after the contract is signed. You’ll still need their cooperation, so you won’t want to create yourself an adversary to deal with after the contract is in place. Keep that in mind.
If they agree to this new price and terms, get a contract signed!
Your Final Attempts
If they don’t agree, say something like this:
“Okay, well, Seller, you now know my biggest goal. What’s yours? Is it to get the highest price, or is it to sell fast?”
Again, keep price AND terms in play. Ask them which one they want more and try to give it to them, keeping the other for yourself.
If you’re still unable to reach an agreement at this point, say:
“Seller, I’m sorry. It doesn’t look like the market is going to allow us both to get what we want. Darn market!
“As a final attempt at creating a win-win scenario for us, I will leave you with this letter of intent. You’ll see it has three different options of how I’m prepared to purchase your property. So go ahead and take a look at it, review it, and let me know if anything there resonates with you. My number is at the bottom if you’d like to call me to discuss further.”
Then you can walk out to your car. You’re done for now.
Roughly 24-48 hours later, call them back or drive by and knock on the door.
“Hey, I left that three-option letter of intent with you. I’m just curious, which one did you like best? Number one, two, or three?”
And then just be quiet and wait for them to answer.
Sometimes, they’ll pick one. From there, you can take it and run with it. You can start negotiating again. They’ll usually say something like, “I like number two, but we’ve got this mortgage underneath. How are we going to do that?” And you can get back in the game and explain to them how a subject 2 works, for example.
Many times, however, they’ll say, “None of them.” To which you can say, “Great. Which one was the closest?” If they give an answer to that, again, you can take it and run with it and start negotiating again. Figure out, “How far apart are we?”
Remember, you’re not taking no for an answer! And this is all still in alignment with the seller, and you’re letting everything be their idea first.
Josh Swanson: From Realtor to Investing Badass
Josh Swanson is a great example of getting control of deals.
Specifically, it’s in his presentation.
Josh lives and invests in Orlando, Florida. He was recently married (congrats, Josh!) and he’s been a full-time real estate investor for a few years now.
When I first met Josh, he was working as a real estate agent, and he was very tired of buying and selling real estate on other people’s behalf. I could certainly relate to that story – that’s kind of how I got started!
Anyway, he wanted to quit the agency entirely and transition into full-time investing so he could buy and sell on his own behalf. More money with nobody to answer to but himself, right?
Josh almost didn’t join The Badass Investor Program because he thought he already knew enough as an agent. He thought that knowledge would translate easily into investing.
Unfortunately, he quickly discovered that was not the case at all.
So here’s what we did:
- I had him think outside the box. I wanted him to stop think so conventionally, as many realtors do, and begin thinking more creatively.
- We dialed into his presentation as a buyer of real estate (as opposed to a lister of real estate).
With this advice, Josh went from listing a few properties a month to buying a few properties a month. This wasn’t a big difference in his workload, but his profit went from 3% commissions (~$3,000 per listing) to a minimum of $10,000 per investor deal.
So with the shift in how he presented his offers, he increased his profit by 70%… without increasing his workload.
Pretty badass, right?
My Methods in Action
If you’d like to see how this method translates into real world results – like Josh’s – go to epiccasestudies.com. There, you can view several examples of how this presentation of price and terms gets discounted real estate under contract over and over, translating into big profits!