Landing a great real estate deal can be a humbling experience

August 12

(Justin Pierce)

Justin Pierce is a real estate investor who regularly writes about his experiences buying, renovating and selling houses in the Washington area.

In this business, finding and securing the right deal is everything.  There is no real estate magic and there is no contractor good enough to bail you out of a bad purchase decision.  My real estate mojo is powerful but it can always be defeated by the real estate ego.

So I spend a lot of time searching for the right seller and the right property and nurturing those deals to closing.  The finding part can be very laborious but the nurturing part can be extremely humbling.  Keeping the pipeline full really is the most difficult part of the business.  And there is no set of instructions for this part of the deal.  Every property and seller is unique.  You have to be creative in finding ways to bring value to the seller because it is impossible to compete with the retail buyer.

If you have skill and passion for home renovation and design then you only have half of what it takes to be a real estate flipper.

About a year ago, I started targeting a very nice neighborhood in Northern Virginia.  I sent post cards to this area for several months.  Finally, I received one good lead when a lady called and told me she’d received my post card.  She and her brother had inherited a home in this neighborhood.  She expressed an interest in selling the home as soon as she could.

For the sake of time and integrity, I always advise inquirers that my process is not for most sellers. Early in the conversation with this seller, I told her that I’d love to buy her home but I also made her aware that she would probably get much more for the home if she listed it on the open market with a real estate agent.  This is not a completely selfless act because I am also a licensed real estate agent.  I normally offer people a fast cash sale, or, if they don’t like my price I will list their home at a discounted commission and they can come back to my cash offer at any time.  This allows them to test the market on price and it allows me to be honest about their home’s value without completely losing the deal.

There are sellers out there, however, who just do not want or can’t take their home to market.  This lady was one of them.  She had inherited the home 50-50 with her brother and they did not get along at all.  Their individual problems and their difficult relationship made it impossible for them to take the home to market.

To make matters worse, the siblings lived in different states.  While the sister was here, the brother lived on the West Coast.

At the time of my first conversation with the sister,  they were not legally ready to sell.  The home still had to go through the court system and get officially transferred to the siblings’ names.  So I had a handful of conversations with her over about four or five months.

Several months had gone by and I realized that I hadn’t heard from them so I called her to follow up to see if she was still interested in selling.  It was good that I had called.  The home was through the court system and they were legally able to sell.  She had three offers from other investors already.

But again, she expressed to me the difficulties with her brother.  Her brother, she told me, was very anti-real estate investor.  He believed all of us were predatory.

Undeterred, I set up a time to go view the home.  I analyzed the recent comparable sales and I put together a budget for the renovation.  From that, I wrote up a letter of intent explaining that I wanted to buy their home and I  made a cash offer that was nearly $40,000 more than the current best offer she had in hand.  This was my very best offer right out of the gate.

I set up a meeting with the sister and sat down with her at her home to present my offer.  At that point, she showed me the other offers.  Most of them were one or two pages and I think two of the three were transferable contracts, meaning that the person who made the offer could sell or transfer that contract to anybody.  When I see a transferable contract I assume that the buyer is going to sell that contract to someone else and the person making the deal probably is not willing or able to execute the terms of the agreement.  Another one of the contracts she showed me was written by one person but another person would be taking title — very unusual.

The sister seemed very pleased with my offer but she said I would have to convince her brother whom she described as the hold out.  She said that her brother had refused to speak with the other investors.  He really didn’t like that the investors had targeted their home because they had been watching the probate records looking for people who died so they could buy their home.  He felt like they were very much swooping in like vultures.

Lucky for me I had come across the home because I’d been canvassing the entire neighborhood.  So I started by writing a letter to the brother.  In that letter, I spoke of the home’s potential and really tried to express my vision for the home and my intent to make it ready for another family’s story.

I was very proud of the letter and I think it broke the ice but he wasn’t letting me off easy.  When he responded to me, he said that my letter was unprofessional.  Actually, it was my intent to be less stuffy and factual and more personal but his comment still stung.  From that point on, I took quite a bit of abuse in the form of thinly veiled insults about my profession and me.  But I hung in there, remained professional and was always polite.

Just as I thought I was making a tiny bit of progress, one of the other investors came back and raised his offer to compete with mine.  The family asked if I could raise my price. When I told them I could not,  I was once again called unprofessional and they implied that my conduct was underhanded.  I explained that I made my very best offer from the beginning and I didn’t try to cheat them with my first offer.

I didn’t end up raising my price but I did agree to other concessions such as paying for their closing costs, moving their personal items out and a couple other minor things.  There were numerous liens against the home and I agreed to negotiate with those lien holders on behalf of the sellers.   In the end, I was able to cut those liens by more than 50 percent. So finally I won over the brother and the deal seemed to be in the bag.  I had verbal agreements from the siblings and I had a contract drafted and loaded into an e-signature program for everyone’s convenience.

Verbals are far from a done deal.  It took many additional days of back and forth with the sellers before I actually had a signed agreement.  Sibling rivalries would continue to complicate the deal.  To make matters worse, right at this critical point one of the first real estate investors came back and drastically increased his offer to beat mine.  But I fought on. Unable to raise my price, I stressed my track record, professionalism, honesty and service.

Eventually, I got all the signatures and we had a deal.  The story didn’t end there.  The closing was supposed to occur in 10 days but the process dragged out for more than six weeks.  Alliances changed again as the final closing neared and I had to then work with the sister to bring the deal across the final finish line at the day of closing.

This deal was extremely humbling and hard work.  At one point, my wife asked me why I took this abuse and said I should walk away. But I loved the home and the neighborhood.  I couldn’t let the deal go so I checked my pride and marched on.

I often feel the sting of what I perceive to be injustice in this business but I always try to do what I think is right.  That costs me a lot of deals.  This deal took about nine months from the time I started sending out the mailers until the time I signed at the closing table but this is one of the seemingly rare deals in which doing the right thing won the day.

Now that the home is selling for a $50,000 profit, I can look back and feel vindicated.  There is no rule book for real estate flipping or life, but in general it’s best to be honest and fair and when you’re winning keep your ego in check and your mouth shut.

 Read Justin Pierce’s previous posts:

When a flipping deal works out right

Why you don’t want to flip homes

Remodelers — not consumers — have the upper hand as their workload picks up

At long last, investor’s pop-top house sells

Setback may push Temple Hills renovation beyond Oct. 1 deadline

Crews make up for lost time in pop-top project

With plan approved, race is on to reconstruct house for fall sale

Pop-top renovation becomes pop-back plan

Gone are the low lying fruit of real estate investing

 

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