Investment in apartments – Multiple offers
“It was good?” my wife asked as she tried to lift my swollen belly off the dining room table. My eyes were clearly bigger than my stomach. I felt like I had gained 10 pounds. He was fully stuffed and ready to take a nap.
“It was very good,” I replied. “You outdid yourself.”
She smiled and began to clean the table. Even though the living room sofa and my favorite blanket were calling my name, I jumped up to help her. After we finally got all the dishes into the kitchen, she filled the sink with water, added some soap, and started washing them. I grabbed a towel and asked, “Can I dry the dishes?”
She fainted. (Okay, not really.)
But you get the point. Some offers are obvious. Others are a bit more difficult to get accepted. What I want to talk to you about today is how to get sellers to accept your offer when they expect multiple Purchase and Sales Agreements (PSAs) on an apartment building.
If you find a property that is not on the market and you are negotiating with the seller, it is not that difficult to accept an offer. That’s because you’re the only game in town and you have time to trade without the fear of someone else coming to rip the rug out from under you.
But what if you find a property that is on the market and the value makes sense? Chances are there are multiple buyers writing offers on the same property. If you suspect that’s the case, try these helpful tips:
If you’re buying a large property (or a building from a seller who owns several hundred units), they’re likely familiar with the PSA and likely have an attorney who will consider your offer as well. Still, I’ve found that most sellers are more receptive to offers written on standard forms. Agents are especially appreciative because they know what they’re talking about and will sound much more believable when they present the offer to the seller. The chance of your offer being accepted, rather than another offer from a different buyer, is much greater if you use a standard form for your area.
Don’t get greedy. If the property makes sense and you think there will be multiple buyers, present the seller with an offer equal to or slightly higher than the purchase price. That doesn’t mean you become stupid. To begin with, the property must be priced fairly, which is why there are multiple buyers. The nice thing about apartment buildings is that they rarely look exactly as they are depicted. That means you’ll have items to use in the negotiation later on.
Some sellers will push you to close quickly and others need time to find another property to complete a 1031 tax-deferred exchange. If you can, be flexible. Find out what is important to the seller. Even if the seller wants a long closing date, I’ve found that writing an offer with a quick closing timeline is often best, especially if there are agents involved. Agents despise extended closing dates and when two offers are similar, they almost always move up the previous closing date. You can always add a clause that gives the seller the right to extend the escrow closing to give you time to find your next property, just make sure you remember the loan process and keep in mind the interest rate. If you play your cards right, this can work in your favor in the negotiation.
Inspection and financing contingency
Most PSAs consist of an inspection period and a financing period. Some brokerage companies will break it down into several other contingencies, such as books and records and title report. For the purposes of this article, we will assume that the inspection contingency includes the physical inspection and review of books, records, and all other documentation. Depending on your level of experience and the size of the property, the inspection period typically lasts between 21 and 30 days. Read the agreement. Most say that the time runs out once the buyer has received all the necessary documentation. For this reason, I usually write a very short inspection contingency because the seller and/or his agent are likely to miss something anyway. Most of the time, I can complete the due diligence in less than 10 days, if absolutely necessary. Make sure you give yourself plenty of time, but be aggressive. Sellers want to know you’re making progress as soon as possible.
When it comes to financing, I’ve found that both sellers and agents stumble if I write an offer without a financing contingency. Don’t do this unless you are positively and absolutely certain that you will get the loan and are willing to do anything to get it. Submitting an offer without a financial contingency tells the seller that they have the means to obtain the loan and ultimately close the transaction, but it is not without risk.
Some investors refuse to write an earnest money check payable to the escrow because if things go wrong, the seller may make it difficult to recover the money. I am in that same group. I generally prefer to write a promissory note, however if I think there will be multiple offers I will write a check instead. I generally instruct the escrow not to deposit the earnest money check until I have eliminated the inspection contingency.
If you have bought and sold real estate before, provide the seller with a list of the properties you own. Sellers like paperwork that tells them you’re a serious buyer. I will also include a letter of interest from a lender if I think it will help.
Good properties don’t stay on the market for long. That means you have to position your offer to make it seem like a no-brainer. If the vendor is serving a big meal, sometimes it makes sense to offer to do the dishes. Ask lots of questions and be aggressive. Do your best – it’s a small price to pay and the sofa will be there when you’re ready to take a nap.