One of the main attributes of a successful investor is the ability to solve problems. At some point in almost every deal, there will be a mini crisis or something that needs to be resolved in order to keep things moving forward. If you are working with distressed sellers, finding and solving their problems is the key. Instead of looking at a deal with the perspective of how much you can make on it, you need to think about what the seller is looking for. A distressed seller is going to end up selling at some point, it is your job to make sure they sell to you.
The first step in working with any seller is to find out their motivation. Instead of looking at numbers and trying to determine whether or not the property makes sense, you need to talk to the seller and see what they are looking for. Some sellers are strictly looking to avoid foreclosure and get out of the house. Others may have equity and are looking for top dollar. During your initial conversations, you should attempt to derive what their motivation is, when they want to move and a ballpark price that will achieve this. If their expectations are unrealistic, you know you have a seller that may not be serious. You can then allocate your time to other deals. If your seller is truly motivated, but it will take a few things to fall into place, you can roll up your sleeves and get started solving their problem.
Distressed sellers are typically motivated by privacy, money, ease of transaction or how long they can stay in the property. As an investor, you may think that just because the seller is going through a difficult time that you have all the power in negotiation. Many investors will lose deals by overplaying their hand and asking for the moon – and the starts. Your seller may be compromised, but they still own the property and you need their signature to move forward. There is a delicate balance between expressing to them what is realistic and what you can give them. If you make concessions in one area, you can negotiate more favorable terms in other areas. Once you find out exactly what a seller is looking to do, the next step is to make your presentation.
A distressed seller most likely does not want to move and never anticipated being in this position. To think of what they want, you need to put yourself in their shoes. It may be critical to them that they stay in the house until the end of the school year. You may initially balk at this because there is no telling where the market will be in three months, but by agreeing you will secure a deal that you may not have. You can agree to a more favorable price for you today that will be good ninety days from now to protect yourself. In doing so, you will solve the seller’s problem while still locking up a good deal for you down the road. You can’t have everything you want on every deal, especially when the seller is constantly receiving multiple calls from investors every day.
Regardless of whether you are working with a new investing partner, attorney or mortgage broker, there is a constant need to stay in touch. Your sellers are no different: working a new deal from start to finish takes time. During this process you should make your seller as comfortable as possible and walk them through every step. Even if you don’t have a legal answer, you should point them in the direction of people who do. The easier you can make the transaction for them, the more likely they will actually close. Additionally, you never know who somebody knows. If you put a seller’s needs over yours, you could end up with a referral that you may have never imagined.
The real estate business is one that is filled with different terms and phases that can be quite confusing. It is important that you assume that your seller knows nothing. You don’t want to be insulting, but you should be prepared to answer the same question over and over again. Instead of getting annoyed or ignoring their call, you should embrace the interaction and answer whatever needs to be answered. The total time you will spend on the phone or typing an email will probably be less than five minutes each time. Five minutes for a deal certainly seems like a good tradeoff. If you ignore your seller and expect them to move forward with the deal, you can bet that they will have cold feet or make demands closer to closing. Again, even if they are in foreclosure, they don’t have to close. Each seller should be treated differently, but all of them want to be kept in the know and constantly updated.
How you interact with sellers will go a long way in determining how many deals you close. The more you know about your seller and what they want, the higher your closing ratios will be. Instead of looking at a deal from your perspective, flip that thinking around and put your seller first.