Motivated sellers can be the lifeline of your investing business. What separates successful investors from the rest of the pack is their ability to turn these leads into deals. In most cases, it is how you interact with these sellers that makes all the difference. They are bombarded with phone calls and mailings for the better part of the last sixty days. They want to work with someone that they trust and feel has their best interests in mind. Before you go into your next seller meeting, you need to prepare yourself. Every homeowner is different, but there are some basic questions that almost all of them want answered. Deals are often gained or lost based on your response.
- What’s in it for me? Regardless if the property is in foreclosure or short sale, homeowners are looking for motivation to sell. Saving their credit score is not enough. They have heard that lenders may pay them to move out and want to get something out of their property. You don’t have to pay them to move, but you need to be ready to answer the question. If you would like to give something to move out quicker, that is your call. Most sellers know that if the property reaches foreclosure they may end up getting nothing. Stress to your seller that by avoiding foreclosure you will speed up their recovery process. A foreclosure stays on their credit report for years. It will be several years before they can get a mortgage again, despite a substantial down payment and income. This should be the focus of your pitch.
- When do we need to be out by? Time is of the essence with any real estate transaction. This is especially the case with a foreclosure. Once the homeowner goes four months late on their mortgage, the lender will start the foreclosure process. They will receive either an auction or strict foreclosure date. The transaction revolves around this date. There are ways to get extensions if you can show you are working towards a sale, but the lender does not have to extend. It is important to strike a balance between closing quickly and making the seller feel comfortable. In spite of their situation, they do not have to sell. The can always file bankruptcy or simply let the lender take the property. Find out when the seller would reasonably like to move. If they have children and want to finish the school year, see what you can do to make this happen. Dates are important with every sale, but particularly when working with distressed sellers.
- How much are you going to make? Even if there is no money for the seller, they are interested on what you will make as an investor. The easy answer to this is that you don’t know. You need to stress that you are taking on a lot of risk in buying the property. Don’t run from the fact that your goal is to make money, but it is far from a guarantee. After you purchase, you are going to spend money on updates, taxes, insurance and other items. You will see what the market looks like at that time and price the property accordingly. If you come back with a number that is too high, they will want a piece of the pie. If your number is too low, you sound disingenuous and untrustworthy.
- What are your plans for the property? No distressed seller envisions they day they are forced to sell their property. Many sellers have been in their house for years and made a lifetime of memories. They want to know that they are selling to someone that cares about their home. This may be just another deal to you, but it is everything to them. Most distressed sales transactions are done with the intent to sell or rent. Make it clear that you are not going to knock down the house and start all over. You are going to make the property the best product you can for another family to enjoy. If they feel comfortable that you will take care of the house, they will lean towards selling to you.
- How will the sale impact their credit? Every month a homeowner is late impacts their credit. Selling before the foreclosure date is helpful, but there will still be damage. Unless you are an expert on credit reports and foreclosures, it is best to direct any questions to an attorney or mortgage broker. By answering a question inaccurately, you open the door for trouble down the road. Going late and into foreclosure will always have a negative impact on a credit report. Let your seller know this as you move along in the process.
- Can I rent the property from you? It is important to know where to draw the line with your seller. While you want the property and want to help, there are limits as to what you will do. Renting back to the previous homeowner is always a little tricky. They will do everything possible to stay in the house and regain ownership. The truth is that in most cases you are going to do work that may take weeks or months. Certainly help them find another house and even make some calls for them, but avoid the temptation to rent back.
Sellers are always going to have numerous questions. Instead of becoming frustrated and annoyed, be as prepared as possible to answer them. The quality of your answers will lead to many more deals.