Key Factors Sellers Prioritize in Real Estate Offers
When making an offer to purchase an investment property it is critical to know what is important to the seller but more importantly what it takes to win in this competitive market. Investment properties are viewed differently than personal residences because they require active management and an outlook towards future performance and value. Follow these simple guidelines to make sure you are competitive.
1. Offer Price
We all understand the importance of the overall deal points, but it is human nature to fixate on price. While pricing is a critical component of any deal, it is essential to have a well-thought-out strategy. One advantage of investment real estate is that it is more numbers-driven and less emotional, but make no mistake—emotion still plays a role. Be cognizant of your ability to support your offer price; otherwise, it will quickly become apparent that you are fishing for a deal. If the property hasn’t been on the market for long, this approach is likely to lead nowhere and may create a lack of trust between buyer and seller from the start.
2. Financing Type and Strength
Now more than ever, your financing terms and financial strength are crucial to securing a deal. Capital markets have tightened significantly since interest rates increased. While cash is still king, all-cash offers are not feasible for everyone, so it is essential to secure financing before making offers. Sellers want buyers who can confidently close the deal, making confidence in your financing critical. Nothing creates more unease than a buyer making an offer and then scrambling to secure financing.
3. Contingencies
Conducting due diligence is both important and expected. One of the great advantages of real estate is the ability to protect yourself from a bad deal through thorough due diligence. Contingencies like inspections, financial evaluations, addressing building issues such as violations, and financing contingencies are all standard and essential to safeguarding your investment. However, avoid adding unnecessary contingencies that complicate the deal. Too many contingencies can create a domino effect, leading to additional complications. Keep it straightforward. Remember, many investment property owners are mom-and-pop operators who have managed their buildings in a particular way for years. Overcomplicating the process or making excessive demands may deter them from working with you. Keep in mind that you are acquiring an asset you believe you can improve upon, not just inherit.
4. Timelines
Set reasonable timelines. There is nothing worse than a deal that drags on—such deals typically do not end well. While some timelines, like those for financing, may be beyond your control, aim to keep the overall process reasonable. Selling a long-held asset is a significant decision, and sellers often prefer a swift and efficient transaction.
Keep it clean and simple whenever possible. No two transactions are the same, but the buyers who acquire the most assets are those who make the process straightforward and easy for the seller. They thoroughly understand the asset and trust their process. The most important takeaway is to develop a clear plan and process—always considering how it would look if you were on the other side of the deal.