It was time to sell. The home was in a good part of the city. The values in the area had risen significantly and interest rates were low. Available inventory was low and many people are looking. Conditions were ripe.
I was in the middle of rehabbing the house and put out my sign on the front of the property. The road gets considerable traffic and I generate at least one new prospect call per day.
A few days later, across the street, I saw a mature couple wrestling with a big box. I ran over to help. The box was large, bulky and had some weight. It was a new bathtub. The man and his wife were trying to maneuver this box and I tried to assist.
Then I said, “Madam, I have a bunch of young, strong guys working for me. If you don’t mind, they would be happy to take this bathtub inside.” After saying that they could do it, I said, “Of course you can. But why should you tire yourself out when I have young, eager fellows just across the street? Now, I don’t want to hear anymore, it will be our pleasure to help. I hope that you allow us.”
I turned, called my worker’s, and had the man direct them to hauling three big boxes inside and all the way up to the second floor.
While the guys were hauling the items, the couple and I began to chitchat. It seems that the man had purchased the home two years ago and he was in the process of rehabbing it. Then he wanted to sell it. I asked, “How much do you think you can get for the home?” He said, “I’m hoping for $50,000.”
We parted with warm feelings. I had made a favorable impression as a neighbor. That made me happy, because I knew that I would need all the good will that I could muster with these folks.
You see, I was alarmed! I was trying to sell my house for $95K plus., but his house made my house look puny. My house was small in comparison, had only one bathroom, had maybe, 20% of the land he had, mine was older and in worse shape.
What would you do if your competition, just across the street, is bigger, nicer, newer, has two bathrooms, bigger bedrooms, lots more land, a full height basement, was more impressive looking — and, he is selling for way cheaper than you. I was not even close. I was in trouble.
Holy Cow!! What was I going to do?
What would you do in a similar situation?
I needed information and ammunition, so I looked up the property records at the county clerk’s office. He had gotten the house at a foreclosure auction two years prior, paying $12,000. No taxes were outstanding, no liens were against the property, and no actions were pending. He had no judgments against him. No motivation in those areas.
A few days later, I saw the fellow and went over to chat. I made sure that we spoke about personal things and I made some jokes. He was friendly enough and he told me some of his story.
It seems that he is had just retired from teaching. He now had time off and wanted to make some extra money by rehabbing this property. He had the skills, although he did hire out some of the work. He had already put on a new roof and had shored up a basement wall that had caved in. He and his new second wife were planning on traveling with the proceeds of the property. He also wanted to help his daughter, who had purchased a building and needed to convert the four units into two apartments plus a retail store for herself.
As I was leaving, I asked nonchalantly, “By the way, how did you come to the price on the property?” He said that someone had told him that the house would bring in $50K, tops. I asked, “How were you going to market the property?” He had a Realtor friend who would handle it for him. Don’t we all.
I said, “I’ve been thinking. I told you how I market property in this area. You see my big sign. That brings me at least one lead per day. I also plan to flyer this entire area. There are 930 homes within one half mile of this house and everyone will get a flyer. That’s a lot of people. Every one of them has a relative, a friend, or a workmate that is looking for someplace to live. I can market this home successfully.”
“After you pay the 7% Realtor commission of $4,900, you will only have $45K left and that is only if you sell at full price. Ninety five percent of homes sell at some discount, even 5%, that’s another $2500 off.”
“I’ll tell you what; I’ll give you $45,000 for the property. I will option the property and when I sell it, I will pay you the full $45,000. I can market both of the properties on one flyer, one on each side. Anyone that does not want my property will surely like yours.” He shook his “yes”, like he understood, and said that he would think it over.
The next few days were a time of activity and anxiety, what with my rehab going on and also constantly thinking about what I could do to salvage the situation across the street. As is my habit, I continually went over every word of the sales conversation to see if I had made any mistakes, if I had inadvertently offended. I was looking for clues and I thought about his expressions when I had said something. I tried to remember his body language during the entire conversation.
When I saw him next, he said “OK.” I was relieved!
I got out the option that I had prewritten, with the clause that said that the option’s exclusivity would start immediately but that the option’s term would start when the contractor had finished and the home was available to be shown.
I wanted a six-month term. That seemed long to him, so I said, “Realtor’s typically seek a one year listing. I asked for only six months. And I didn’t ask for the mandatory renewal unless there was an active buyer’s contract in place.”
Almost apologetically, he said that he wanted $50,000. I was ready for this. I had practiced what I would do. I hesitated for a full ten seconds. I looked like I was thinking and made a few pained faces. Then I said, “OK, I’m a salesman. I think I can make it happen. I’m not going to mess around for a few bucks.” He smiled and we shook hands. Then we went to the bank to sign and notarize the $1 Option.
This had been a close call. However, I had done my homework. Three different Realtor groups had told me that, after the rehab, I could get $80K-85K. If I had been forced to sell at $50K then I would be making $35K less than I should.
Well, the houses were completed at about the same time and the marketing was active. My sign works. It is a Prospecting Magnet. I did some classified ads to announce the Open House dates; on Sunday, from 3 – 4 PM. In that manner, my houses are seen last, after all the other houses had been checked and all the prospects come at the same time, creating a sense of competition. The ads are at the lowest possible cost because my Realtor allows me to use his bulk advertising account. In this large, local newspaper, a bulk rate ad costs only 17% of the regular, fully priced add
If someone saw my house but didn’t like it, then, and only then would I take the prospect across the street and show the second house. It was great! Prospects got the impression that I was a big time investor and did not even try to dicker.
I was correct in thinking that the homes would mostly pull applicants with marginal credit backgrounds. Better credit borrowers typically want to be in the bigger houses in the suburbs.
By pre-qualifying the applicants prior to bringing them to the bank, I knew which prospects to spend time with and I then could more easily control the sales process and the applicant’s emotions.
To my surprise and my delight, my house appraised for $87K. That allowed me to offer to pay for the closing costs, 6%, and still make my healthy profit. Remember, I had paid only $100 plus $7K in taxes upon purchase; plus the rehab cost of $16,500. I had also collected six years of rent prior to selling.
Also to my surprise, the house across the street only appraised at $125K. I had figured more. Seeking to understand the difference, I questioned each part of the appraisal. However, the appraiser justified the numbers and I learned several new concepts and gained valuable insight into how appraisers determine value.
I have a good buyer contracted for my house at $83.5K. Any Seller’s Concession I provide will be given back as a Second Mortgage, after the closing. I can use the profits from my sale to purchase the optioned house for cash and then I can rent out the house. I have an offer of $104K for the optioned house but I also have a renter who wants the house at $350 per month over the market rent.
I pay only $1 for my Options and I have done hundreds and hundreds of them. If I do not sell the home, then I have only lost $1. I can do lots of Options if all I have at risk is $1.
For my $1 Investment, I made an additional $50K on the optioned house and I did not lose $33.5K profit that I had anticipated making on my house. Not bad for $1.