Several years ago, a friend and I sat down and decided we were going to write offers on single family houses listed with Realtors. In fact, we were looking for a way to increase our production. We weren’t happy with the volume of transactions coming our way. So we decided to make something happen.
Our theory was, and still is, that there are always a certain percentage of motivated sellers in any market at any given time. The problem was “How do you flush them out?” We decided to do it with offers.
The plan
Here’s what we did. We sat down with a Multiple Listing Book. We would turn to an area in which we wanted to buy and zero in on our price range. Initially, these were houses at the lower end of the scale. (I guess you could say we were price conscious.)
When we first started out, we would write an offer on anything. Our goal was to write 100 offers at a time. We didn’t look at the properties. We didn’t call the listing agent and ask any questions about the properties or the ownership. We didn’t even let the listing agent know we were sending them an offer. We were just “shot gunning” offers. We would just write them up with the absolute minimal amount of effort and mail them out. Period.
We developed a formula for pricing our offers. It was rather crude. We would take the listed price and cut it in half. That way we didn’t need a calculator. Sometimes we would add a couple of bucks to try and hide the obvious. After all, we didn’t want anybody to catch onto our secret formula.
Remember, we were trying to stir up some action. We didn’t include any earnest money or even mention it for that matter. These offers were contingent on “inspection and approval.” It was a crude system. But it was a start.
Let’s have the results, please!
I’ll bet by now you’re a little curious about the results. Well, out of the 100 offers we mailed out, we wouldn’t even get a response from 50 of them. Nothing. Nada. Zippo. And this was from Realtors who are obligated to present all offers. Don’t get me wrong, I’m not judging Realtors. My friend and I are both Realtors. I just found this to be curious.
Back to our results: Twenty-five of these blind offers would come back in the mail with a counter-offer of full list price. I guess they were having some fun, too! On 15 of the offers, we received a telephone rejection. And of those 15, two Realtors would always cuss us out and tell us to never write an offer on any of their listings again. And this in America!
That left us with 10 offers. These 10 offers commanded serious interest from the sellers. We would follow up with these 10 and end up actually purchasing two of these.
Not too bad for a crude system put together on the fly. One hundred blind shot-gunned offers dropped in the mail produced two good properties purchased. The only down side we could think of was the two hysterical Realtors looking for a pound of flesh.
Does that sound amazing to you? Out of 100 offers, only two were good deals. If you knew with some degree of certainty you could locate two profitable deals by writing 100 offers, would you do it? It’s not real efficient, but it is effective.
A little joke
As a funny side note, one of the Realtors who received several of these blind offers was kidding me about it the other day. He said he had just put a listing in the computer he thought I might be interested in. He wanted to know if I wanted the address so that I could look at it and make one of my “ridiculous” offers.
I told him it wouldn’t be necessary. I had my computer programmers write a program that interfaced with the multiple listing service computer. When he enters a property, the program automatically generates an offer based upon a calibrated regression analysis utilizing all of the comparable market information available in the MLS computer.
I never see the offer. My computer faxes these out to the various offices during the night. Now it’s just an automated process that guarantees me a profit. Check your fax machine in the morning and call me upon acceptance.
I swear you would have thought the guy was begging for free dental work the way his mouth fell open. You should have seen the look on his face.
Flush out the motivated sellers
Making written offers on property is a great way to flush out motivated sellers. The system I’ve just described was only a starting point. We made improvements as we went. We added a non-threatening cover letter. We started calling the listing agent to inquire about the property and the ownership. We offered on free and clear property. We offered on vacant property. We offered on free and clear vacant property. We offered on property with out-of-town owners. You get the idea.
We tried a lot of different things. We changed our contract. We started to fax the contracts instead of sending them by mail. We hand delivered some contracts. We reminded the Realtors of their obligation to present all offers and gave them an out if they were not comfortable presenting our offer.
Probably the best change we made was when we quit sending offers out in bulk. Now, we try to write offers on a daily basis. It’s not as hectic. It keeps us in the market, and it keeps us in constant touch with Realtors.
Our results have changed dramatically. We’re no longer satisfied with two out of 100. By pre-qualifying more, our returns have increased to approximately two out of 10. Not too shabby when you consider our average cash profit is around $5,000 per accepted contract.
If you’re not happy with the number of transactions coming your way, I would challenge you to write An Offer a Day… it will Keep the Blues Away!