Constructing and Presenting Offers to Buyers

Posted on September 8, 2014 by

Last month, we talked about locating buyers and finding out if they had any money and/or credit, which is the definition of prescreening them. In this issue, the next step is getting them to the point to where you have a meeting of the minds and collect a deposit so you’re only a few days away from either lease optioning it to them or selling it with owner financing. Of course, this is assuming that our exit strategy is either lease purchase or seller financing. If it’s not and your intent is to cash out with a qualified buyer, your mission is to simply determine that their credit is good enough, which is usually a credit score of 620 or better, and/or their debt ratio is good enough and they have enough down payment to satisfy FHA or the lender’s needs. This is done by putting their application in the hands of your mortgage originator and letting them come back to you and tell you whether they will qualify or not. Once that’s done, on these cash buyers, it’s just a matter of setting up an appointment with the loan originator and letting him get the application and take it from there.

But in the case of seller financing or lease purchase, now it’s up to you to be the loan committee, and to do that you’ll need to have collected the facts and then have the meeting, get the commitment and set up the closing; we can do this all in one meeting. Before you call a meeting with the potential buyers, you should know how much money they have to put down, what they can afford per month and what their credit score is. Of course, all these numbers have to be satisfactory to you. Once you have arrived to the conclusion that you like this potential buyer, you then set the meeting. This is where you will determine if they have any more to put down and if you can get any more per month from them, and make sure there’s nothing about them that turns you off so bad you do not want to move forward.

It’s at this meeting, where actually the buyer constructs and presents the offer to you, you simply open the door and let them speak as to whether they have any more money down and how much they can pay per month. Literally, they’re making you the offers and you’re deciding whether you want them or not. From there your objective it to either accept what you can get or increase them, so constructing and presenting offers is not the issue, it’s determining whether you agree with the down payment and the monthly. Of course, if you don’t agree with it, the meeting probably shouldn’t have happened to begin with unless you have reason to believe they have more money they haven’t disclosed to you yet and you feel like you can get them to disclose it at the meeting.

Never tell a buyer they are accepted before you invite them to the meeting. Tell them the purpose of the meeting is to determine whether you can accept them or not based on the information that you’ve collected up to this point. If you give them the impression they’re already accepted, it will take away your leverage when you start negotiating more down and more monthly.

There are a few things they should bring to the meeting. First, a checkbook. Make sure your buyer understands the purpose of the meeting is for you to approve them or not and to get a deposit if you accept them. The minimum deposit I would accept is $1,000 and lately we’re getting $2,500 minimum deposits because it’s just as easy if they are committed and ready to move forward. If they do not have the money for the deposit, there is absolutely no reason to have the meeting. Make it crystal clear that they must bring money and you must arrive at the amount of money you’re going to collect before they come. When they ask me “How much down do I need today?” I say, “We usually get it all.” That means if we’ve arrived at a $10,000 down payment that they’ve agreed upon, maybe we can get them to give us the whole $10,000. That doesn’t happen that often, but what the heck? If you don’t ask, you won’t get it. If you can get it all, get it all. If not, I’d suggest $2,500 be the minimum you do get. If there’s a problem there and they balk at that you might ask yourself, “Why? Do they have the money or not?” It’s very important you verify they that they actually have the full amount because there’s nearly no reason to have a meeting until you firmly believe they have all the cash they need to put down on the house.

You’ll also need proof of income in the form of check stubs if they’re employed and any other proof of income they have. You’ll want to make a copy of their driver’s license when they arrive at the meeting to make sure you’re dealing with whom you think you’re dealing with. You’ll be surprised how many people will stick in a ringer and if you don’t get proof that they are who they say they are, it will cause you problems later. Before you call the meeting, you should already have the application with enough information on it to determine how much money they make, how long they’ve been employed and permission to pull their credit report. Today, we ask them to bring their credit report from www.CreditKarma.com, or another similar site, where they can go pull it themselves for free.

Okay, here we are at the meeting and your goal is to raise the down payment, if possible, raise the monthly payment, and go over the late penalty and the repair provisions. I simply say, “Listen, you said you could put up $10,000. That’s less than what I’d like. Is there any way you can get any more?” and their answer will quickly determine whether you are going to get it or not. It’s the same with the rent, “You say you can pay $1,000 per month. That’s less than what I would expect to receive. Can you get that up any higher so I can approve you?” Be careful to let them tell you what they can pay and you not tell them what you’re willing to accept. Ye who speaks first, loses. Let the buyer make you the offer then you simply accept, deny, or counter. You likely have already established the sale price at this point. That’s one number we generally name, but we never name the down payment or the monthly payment. Once that’s done, we begin the conversation about the late penalty. Mine is 10% after 5 days late. I just point it out to them briefly that that’s the case and if the rent comes in after the 5th day, there will be a 10% penalty. Then we go to the repairs and that statement is very simple, “Since you’re getting the option to buy the property, 100% of the repair cost will be yours, as shown in your lease agreement, after the first 30 days. In the first 30 days we take care of all the systems, beyond that anything that needs repaired in the house is your responsibility and so stated in your lease option agreement. It’s a condition of the purchase.”

Once you have all of these facts in place, you have decided you’re going to accept them by now and the only thing left to get signed is the Application and Receipt Agreement which is on your Gold Club site. If you’re not a Gold Club member, head over to Ron’s Gold Club right now and get signed up. This is the form that is nothing more than a receipt for their deposit. It does not take the house off the market. It does say, “I’ll take your deposit and apply it or if I turn you down I’ll return it and if I take you and you back out, I’ll keep your deposit.” Plus, it gives you additional authority to pull their credit report.

Ron LeGrandRon LeGrand is the world’s leading expert in residential quick turn real estate and a prominent commercial property developer. Ron has bought and sold over 2,000 single family homes over the past 30 years, and currently owns commercial developments in nine states ranging from retail, office, warehouse, residential subdivisions and resort

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