Offers, Offers, Offers

May 29, 2009 · 6 comments

The past couple months, we haven’t put in too many offers on houses. In fact, we’re only averaging about three offers a month since March.

Luckily, we’ve gotten two houses in that time – The Deja Duplex and The Sunglasses House – but it could have just as easily been none, and we’d be sitting on our hands with nothing to do (and nothing coming up) right now.

There have been a couple reasons why we haven’t made too many offers recently:

* REOs are becoming increasingly competitive. With the $8000 tax credit and then another $14,000 credit for buyers of specific REO properties, there’s a lot of incentive for owner-occupants to be bidding full price and above on the available foreclosures. While these wouldn’t necessarily make good investments at the prices they’re being purchased for, they are great prices for someone looking to get into a first home and willing to put in some sweat equity;

* I’ve been very focused on building other aspects of the business. Between putting together more framework to scale our rehab business, to building this new website, to starting work on additional education content for other investors, I’ve been too busy to spend a lot of time chasing the few deals that remain out there.

All that said, we spent a good chunk of time this week looking at properties and putting in offers. Surprisingly, we found a number of houses we like, at reasonable prices, and seemingly without too much competition (meaning, there were no other offers at the time we submitted ours).

We currently have four offers in some state of negotiation, and with our 40% success rate with converting offers to contracts, we should likely get at least one or two of these houses.

I know there are a lot of investors who prefer to make dozens of low offers a week, and just play the numbers game, but I’m pretty picky about the houses I want us to work on; so I prefer my plan of making few offers, but working hard to get them accepted.

Between the (hopeful) upcoming closing of The 16-Bid House, The Deja Duplex and The Sunglasses House — and the possible purchase of at least one or two more — it should be a busy June and July.

With our goal of 20-25 houses a year, we better get used to it!

6 responses to “Offers, Offers, Offers”

  1. Owen Dashner says:

    Hi J,

    I have been following your progress on both sites, an really like the new design. I actually have a question for you regarding due diligence clauses in P&S contracts you write… I just submitted an offer this weekend on an REO, and I’m certain that it will get multiple offers before a contract is signed. My question is, do you have a standard “due diligence” clause that you include in your contracts? My offer is over list price, and I’m buying cash in its “as-is” condition (obviously), quick closing and have a fairly large earnest deposit, but I still want to allow for an inspection period to complete my due diligence. I want my offers to be strong compared to others, and I am a little concerned about how an inspection contingency is perceived by asset managers (i.e. does it substantially weaken an offer)…

    What has been your experience with this and what do you recommend as the best verbiage to include in the offer so as to buy “as-is”, but still allow for an inspection contingency?

    Thanks in advance!


  2. J Scott says:

    Owen –

    Great question, and I’m going to make this the topic of an upcoming post to ensure I cover it in detail.

    But, the quick answer is that a due diligence contingency will weaken your offer somewhat, but in my opinion, it’s worth weakening the offer if you’re not 100% comfortable doing the inspection beforehand or doing the inspection yourself. You’d rather lose a couple deals because you had an inspection contingency then get a house under contract only to find that there were issues that will cost you a lot of money.

    Also keep in mind that many competing offers will come from owner occupants who likely have many more contingencies than you (financing, appraisal, FHA, etc).

  3. Owen Dashner says:

    Thanks J- I look forward to your post. This is the verbiage I included in my recent contract: “Purchaser accepts property in its “as-is” condition, but elects the right to a home inspection to determine the extent of the property’s defects”. Just thought I’d throw that out there as a discussion point to see if it could be improved upon.


  4. J Scott says:

    Hey Owen –

    That verbiage definitely isn’t specific enough. In general, you’re going to want wording in there that lays out a specific period of time, as well as specific ways that you can back out of the deal if necessary.

    Something along the lines of:

    “Buyer has seven (7) days to perform property inspection and due diligence. Buyer may cancel this transaction at any time prior to midnight on the seventh day by providing written notice to Seller.”

  5. Owen Dashner says:

    That’s a good point- I forgot to mention that the P&S contract I used actually has a pre-printed section that allows you to specify the timeframe of the inspection (I used 10 days on the most recent offer I wrote), and that the buyer must notify the seller in writing, etc. in order to nullify the contract and receive a refund of the ED. The clause I included above was a supplement to the pre-printed verbiage so that the seller was aware I was accepting it as-is.

    Good stuff though- I like the way you worded the clause… Thanks for the info!

  6. J Scott says:

    Owen –

    I was running out the door when I responded to your last comment, so I didn’t write everything I wanted. I was going to suggest exactly what you said — all standard P&S contracts will have a “due diligence” section that basically turns the contract into an options contract (you have the option to buy within that x day period or back out). If you just check that box and fill in the right number of days, you should be fully protected.

    That said, adding extra stipulations that end just to be safe, or better yet, to make the Seller feel better (like you did with the “as is” condition), is very smart.

    Sounds like you’ve good on this…

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