Posted on: August 01, 2022
WI 1006 | Closing Deals

 

One of the most crucial skills in all of wholesaling is being able to make the right offer on a property. And that’s exactly the focus of today’s episode. In this episode Lauren breaks down the likely reason why you aren’t closing deals: your offers are just off. She highlights the biggest mistakes she’s seen when wholesalers make their offers and how to do it the right way.

 

If you like what you heard in today’s episode and want Lauren as your personal coach as you start your real estate journey, check out Lauren’s Virtual Investing Mastery program where she’ll teach you how to wholesale and flip real estate from anywhere.

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Show notes:

  • (1:55) – Beginning of today’s episode.
  • (3:44) – How to diagnose a problem: focus on facts.
  • (5:30) – The importance of always making an offer.
  • (7:29) – The biggest mistake wholesalers make when making offers.
  • (15:50) – The right way to evaluate and make offers on properties.

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Resources:

  • Want to learn more? Check out our Virtual Investing Mastery
  • To speak with Lauren or one of our other expert coaches call (281) 835-4201 or schedule here.

 

 

Why You Aren’t Closing Deals

Before I dive into the episode, I want to let you in on a little secret. I’m releasing a 2.0 version of my program, Virtual Investing Mastery. This is a comprehensive program that will teach you how I’ve closed hundreds of real estate deals from across the country. This program is for any experience level. If you’ve never done a wholesale deal, or maybe you’ve done deals, but you want to learn how to do them virtually, we have you covered.

This program includes the comprehensive Virtual Investing Mastery e-course, weekly live coaching calls, a forum where you can ask me questions every day, and monthly in-person meetings at my office in California. Can you close deals on the other side of the country without leaving your house? The answer is yes. Go to www.VirtualInvestingMastery.com and apply. Let’s get into the episode.

We’re going to talk about the real reason that you are not getting deals. Sellers want too much money these days. I hear students start exaggerating, like, “Anytime I talk to a seller, they say no, that they could list their property on the market. This is what every single seller says to me. I can’t get one seller to say yes. I’ve talked to so many sellers and every seller will not take my offer. I haven’t gotten any deals and I’ve talked to so many sellers.” Anytime I hear students get on that pattern or that rant of exaggeration a little bit, I always know that I need to run diagnostics on their business.

What I call running diagnostics is this. Imagine that your business is a machine. When you have a machine and there’s something going on in your machine, it seems to be broken, and it’s not producing what it used to produce or what it should produce, you get a repair technician in. What do they do? The first thing they do is run diagnostics to figure out what is broken in the machine. Machines have so many components and so many parts, and that’s exactly how a business is. There are so many components and so many parts of the business. If you do one thing wrong, it can break your whole machine. It can get you terrible results because you got one thing broken in your machine.

What I call running diagnostics is something that I do on my coaching calls all the time with students. I’ve got a flow. I’ve got a way I do it. When I do this, I can always hear what’s broken in the machine. In this episode, I’m going to share with you how I run diagnostics with people. I’m going to share with you the number one reason that most people hear this and are having a hard time tying up deals.

WI 1006 | Closing Deals

Closing Deals: If you think that only talking to five sellers is going to get you a deal that closes you $20,000, you’ve got another thing coming.

 

Focus On Facts

The first part of my process in running diagnostics is I want to get the facts. I don’t want to hear exaggerations. Exaggeration sounds like this, “Every seller is saying no. All the sellers keep saying that they would rather let their house go into foreclosure than signing my offers. I’ve heard from so many sellers that exact thing.” I’m going to stop you. You probably heard that once and you’re exaggerating and saying, “Every seller is saying this wild statement.” That is not true. What I want is I want facts when I run diagnostics. Do not give me exaggerations.

The first thing I’m going to ask is, “How many leads are we talking about? How many sellers have you talked to?” I need an exact number. You better have a number. You need a CRM. This is where a CRM is going to help you. You better have a number for me when I’m running diagnostics or I can’t help you. If you need a CRM recommendation, go to REsimpli. It’s amazing. You need a CRM. You need to be able to tell me, “I’ve talked to 45 leads.” That’s the answer I want.

When I ask you how many leads, you’ve got and you respond with something like, “I talked to 40 people,” I would tell you, “You’re on the right track. You’ve got enough leads in your machine so far.” When I hear, “I talked to five people,” this business isn’t that easy. If you think that only talking to five sellers is going to get you a deal that closes you $20,000, you’ve got another thing coming. If the business was that easy, everybody would be doing it.

Always Make An Offer

Let’s say you give me an answer of 40 next. I’m going to ask you, “Of those 40 sellers that you talked to, how many offers did you make?” The response is important. If you tell me that you made offers on twenty of those or more, I’m going to say, “You’re still good.” If you answer with twenty or less, I’m going to say you’re the problem.

A common area that people mess up here is they talk to 40 sellers and then they start over qualifying the sellers based on the dialogue they had with the seller. They don’t make offers. That is a cardinal rule I’m going to tell you not to break. Every seller gets an offer. I don’t care what the seller says. I don’t care if the seller doesn’t have the sixteen pillars of motivation. Every seller gets an offer. If you are on my team, every seller gets an offer.

Every seller gets an offer.

That seller that said they wanted the above estimate, believe it or not, might come back to you in six weeks saying they would take the price you offered them. I can’t even tell you how many times my team has made offers to a seller that was super high on their price in that first initial call and they eventually get the seller to come down in price.

If you are over-qualifying your seller leads and not giving them an offer because they gave you some high price, that seller is not even going to have a chance to think about your offer. You’re never going to be able to turn that seller into a true deal. If you don’t go through the whole process, you’re never going to know. Every seller gets an offer. If you answer that question with, “I got 40 leads, but I only made five offers,” you’re the problem. That’s the break in your machine. You need to change your process.

Don’t Offer Too Low

Let’s say that you’re doing everything right and you’re still hearing, “No. You’re coming into low.” Let’s say you answer the question with, “I made twenty offers,” or more than that. What are you doing wrong? This is the big one. This is why you’re reading this episode. You are offering too low. Chances are you got some offer price philosophy or formula from a YouTube video or another educator. They gave you the formulas I’m going to review next. What’s probably happened is you probably are utilizing a formula that is making your offer price too low. You need to adjust your offer pricing philosophy.

I’m going to tell you this, and I will argue it until I’m blue in the face. These formulas don’t work in every market. What’s unfortunate is you’ll have a YouTuber or an educator who works in this one market that says, “You should use this formula,” but you’re in a completely different market. That formula doesn’t work there. You end up offering too low or even maybe too high because that formula doesn’t work there.

I’m going to share with you next the formula that works everywhere. Before I do that, let’s go into some formula examples that I’ve heard that I would like you to completely remove from your process. The first one is the 70% minus repair rule. That is when you take the ARV and multiply it by 70%, and then you minus whatever repair estimate you came up with on this house. This rule is junk. Please stop using it. It’s seriously dumb. I promise you. This rule doesn’t work. It is an amateur rule. It doesn’t work. It’s what a lot of amateurs do. Please stop utilizing this rule.

WI 1006 | Closing Deals

Closing Deals: We are in a sellers market. The seller isn’t going to care what you want for the property, because they’ve got five other investors that they can call.

 

The reason it doesn’t work is because of a couple of things. Number one is 70%. Who made that up? Who got that? That number didn’t work. It does not work in the marketplace in most territories in the country. Most territories are about 85%. If you live in Southern California, it’s 95%. Do the math. Take a house that’s $500,000 and see how your offer price changes when you do 70%, 80%, or 90%. Imagine you’re a seller getting that offer price. If you have another investor you’re talking to and maybe one used 80% and one used 70%, who’s going to win? This formula doesn’t work.

The other thing this formula does, which is a huge disservice, is that it assumes you’re a rehabber. It is assuming that the end play on this house is you’re going to fix it up and you’re going to flip it HGTV style. In many markets, that’s not the best play. The best play is to maybe turn the house into a rental. Landlord buyers pay more than house flippers. The reason is they pay based on the rent the property generates. They don’t fix up the house the way a house flipper would. A house flipper might need to repair the home and spend $50,000. That’s ARV times 70% minus $50,000.

A landlord buyer might put $5,000, clean the thing up, and put a tenant in there. That tells you you’re assuming that your end buyer is a flipper. Your end buyer might not be. It might be a landlord market where all your competition is a bunch of landlords. Who’s going to win? It’s the landlord buyer that’s offering more money. You got the point. ARV times a certain percentage does not work in all markets, so stop using that.

The next formula I’ve heard is Zestimate times 0.65% or 65% of Zestimate. I’ve heard people quote 55%. I’ve heard people quote 75%. This rule doesn’t work in all scenarios. There are a couple of reasons. Number one, Zestimate isn’t always right. We know this. Zestimate is an algorithm. It’s not like Zillow has an appraiser in each market that goes house to house and puts in the value that they assess.

It’s all done by an algorithm or by a computer. That computer makes assumptions, and those assumptions could be incorrect because the subject property has something that a computer can’t wrap its head around. Don’t rely on Zestimate. Are Zestimates close sometimes? They are. In some markets, Zestimates gets pretty close, but it’s still not something you want to rely on.

You need to adjust your offer pricing philosophy today, because these formulas don’t work in every market.

The other thing is the assumption of 65%. In some areas, your end buyers want a better deal, so you need to do 55%. In some areas, the sellers have so many investors knocking on their door that you need to be more competitive. You need to do 70%. How are you going to win over that seller when you don’t know what percentage to use and you’re using Zestimate, which could be completely wrong? It could be too low, so you also came into low.

The next formula I’m going to talk about is one I’ve never heard. What I’m instead going to say are random formulas that you put together somehow because you watch one YouTube video. I have no idea where some of these formulas come from, but this one was very unique. I’m going to share it. In case this is something that’s floating around, I heard about this formula not long ago.

I had a student tell me that the way he came up with offer prices is he takes the per square foot sale price. Let’s say houses in the area are selling for $100 per square foot. He would take that $100 per square foot and would minus $5, so he got it cheaper. He would do $95 per square foot times the square footage of the subject property. I have no idea where he came up with this idea, but that’s what he would do.

For example, let’s say it’s a 1,000-square-foot property. I’ll come up with an offer of $95,000. Then, he would minus his desired wholesale fee. He would say he wanted to make $15,000 of a wholesale fee. He would offer the seller $80,000 because he wants that wholesale fee. I have no idea where you came up with that one, but it’s wrong. Don’t do it. Don’t do that method. It doesn’t work for a couple of reasons. The price per square foot doesn’t work in all areas. I hate to break the news to you, but the price per square foot does not work in all markets. It also doesn’t work in all types of properties.

If you have a row house versus a detached single-family home in Philadelphia, that row house is going to go for a different price per square foot than the detached single-family home in the area. Even if it’s in the same street, it’s going to be different. Don’t use price per square foot in every single market. It doesn’t work. If it works for your market, it could be a way you come up with pricing, but it shouldn’t be your only way. Price per square foot also doesn’t work in very high-priced markets. It didn’t work in my local market in Orange County. That’s the first reason that thing is wrong.

WI 1006 | Closing Deals

Closing Deals: If you can make this small adjustment and get your offer pricing right, and make sure you are staying competitive with what they are hearing from other wholesalers, you are going to start hearing yes.

 

The next is this theory of subtracting your desired wholesale fee. Whoever taught that to you, remove it from your brain. Pretend we’re Men in Black and I hold that thing and erase all your memories. Erase that memory that you get to dictate your wholesale fee. We are in a seller’s market. The seller isn’t going to care what you want for the property because they’ve got five other investors that they can call.

You need to make sure that you are offering a price that meets the seller’s expectation but also meets your end buyer’s expectation as well. That’s a delicate balance. In a seller’s market, you don’t have the luxury of determining that you want a $15,000 wholesale fee, so you’re going to offer that and stick to your guns. You’re not going to get any contracts. That’s exactly why you’re not closing any deals.

The right way to evaluate and make offers on properties.

You know how I feel about all these rules and formulas, so what works? I’m going to give you the method that I use to come up with an offer pricing that works in every single market. First, I want you to use your imagination a little bit because it’s easier if I explain it to you in this way. It’s going to make perfect sense when I’m done.

Let’s say that we are selling our used car. We’re the seller. It’s a used 2010 Chevy Tahoe. What’s the first thing you’re going to do to come up with that price that you think is fair to put out there for buyers? You’re going to probably go on Kelley Blue Book and you’re going to put some information about your car on that website. They’re going to spit out a price. They’re probably going to show you some listings of similar Chevy Tahoes that sold around that range.

Let’s say between $10,000 and $12,000 is the going rate for a used Chevy Tahoe that’s a 2010 model. It’s in average condition. It’s functional. It might be a little dirty because it’s old, but it still works fine. There are no major repairs. I want you to think of these properties as a used car and don’t overcomplicate it. I want you to ask yourself, “What are other investors paying for a house like this one?” When you have that question in your mind, you’re going to go and you’re going to look for comps utilizing whatever tool, whether it is BatchLeads.io, PropStream, Zillow, or whatever tool you use to comp houses out.

You need to make sure that you are offering a price that meets the seller’s expectation, but also meets your end buyer’s expectation as well.

You’re going to look for what other investors are paying for houses that are similar. Try to find the houses that look similar to yours in conditions. You’re going to look at some photos and keep track of the prices in the area. Often, you’re going to see that there is a pattern that they go between certain ranges. That is going to be the price range that you are going to offer the seller.

I’m going to give you another analogy. Let me take you back. Remember when you were buying your first house for your family? Maybe you haven’t done this yet in your journey in your life, but follow me here. Pretend you are buying your first house for yourself or your family. Did you, or would you, utilize some ARV times repair or ARV times percentage minus repair rule? No. You wouldn’t do that. You would use your eyeballs. You would go look at a bunch of homes in the neighborhood you are interested in. You would then take mental notes of what these houses look like, which ones you liked more, and the conditions.

Maybe you would have a poor condition, good condition, and excellent condition. You would probably think of it in terms like that. You would then look at the prices that they are being offered. You’d say, “On the low end, these houses go for $275,000, but they’re in poor condition. On the high end, it’s $325,000.” You would come up with a price range based on the homes and how they looked. You would come up with a price that was fair to you. You wouldn’t overthink it. You wouldn’t use any formulas.

What I’m telling you to do is that exact thing. We over-complicate so much when we’re trying to learn a new business. It’s funny because I have said this on many YouTube videos. I can’t tell you how many comments I get of, “What formula do I use?” It’s like you guys are hung up on using formulas. What I’m trying to explain to you is that you don’t have to use a formula. You could use your eyes and use comps. That’s what you do. An appraiser doesn’t use formulas the same way we would do it. I’m not even quite sure where this notion that we have to use formulas to make offer prices even started, but it started somewhere and it spread like wildfire through the wholesaling community.

You don’t have to use a formula. You can keep it simple and use comps. That is the number one reason that you are hearing sellers saying no to your offer. If you can make this small adjustment, get your offer pricing right, and make sure you are staying competitive with what they are hearing from other wholesalers, you are going to start hearing yes even more. There are going to be sellers that want higher prices. They would say a market sale is more in line with what they want or what they expect, and that’s fine. Maybe you’ve made 20 to 40 offers. If your offer pricing is competitive with your other wholesaler competition in the area, you are going to hear yes more. It was that you were simply offering too low.

Hopefully, this was some good advice. I put a lot into this episode. You’re probably going to have to read it a few times to grab everything that I’m trying to say. Hopefully, you got something out of it. If you need some more help in your wholesaling journey, I want to help you. Go to www.VirtualInvestingMastery.com and fill out an application. Someone on my team will be in touch with you within the day. They will let you know how I can help you in your wholesaling journey. Thank you so much for reading this episode. I will see you next time.

 

Important Links

 

About Lauren Hardy

Lauren Hardy is Virtual Investing expert and Real Estate influencer who owns multiple companies in the real estate industry including real estate investment, coaching, and software companies. She is also a Wholesaling Inc coach and co-host of the Wholesaling Inc Podcast.

Her experience in the last decade has been focused on real estate investing and creating products and services to serve the real estate investing community. If you are interested in investing in real estate virtually, house flipping, or virtual landlording, Lauren’s your girl.

 

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