Making an offer is sometimes intimidating for a beginner – mainly because you’re scared the seller will accept, and you have no idea what to do next. Or you’re scared you’ll mess something up.
Either way, I totally understand.
But something that gave Ashley and I confidence was to realize that you aren’t contractually bound by anything just because you made an offer.
An offer, is just an offer.
This was confusing for us at first. I think that’s because we were making our offers primarily through a realtor. You see, when you make an offer with a realtor, they use a GAR (Georgia Association of Realtor’s) form called a PSA (that’s short for purchase and sale agreement). When you make an offer using a PSA, and the seller accepts it by signing it, you are immediately under contract and bound to perform by whatever terms you agreed to.
Submitting the PSA as the offer is important for an agent. You see, agents only get paid after a house closes. That means any work they do that does not result in a house closing is work without pay. Making the offer and contract be the same form speeds things along, converts more sales, and helps agents work for free less.
That’s not the case for investors. Every time we make an offer, we plant a seed for a future deal. If the seed sprouts today, awesome — we’ll buy the house. If the offer lays dormant for a while, even better. I’ve had sellers come back years later wanting us to buy their property. And the main reason they called was because they still had our written offer.
That’s no coincidence. When we make a written offer, we make sure to put in it a way for the seller to contact us. If they don’t immediately accept the offer, we tell them to keep it kitchen drawer and contact us if something changes.
Heraclitus said, “The only thing constant in life is change.” Understanding that concept will make you a lot of money.
You’re probably wondering if the terms in an offer that’s a few years old will still work today. They may or may not. Remember, what I gave them was not a PSA. It was just a written offer. And offers can be revisited and renegotiated at any time. It’s not until we reach an agreement and sign a contract that things are solidified.
Case in point: we have a house out in Gordon County that we were negotiating on. The house is a three-bedroom, one-bath ranch, that needs a $20,000 rehab. After-repair value will be $80,000, and the seller was looking to get $40,000. If we flipped it, we would make a $15,000 profit after closing costs and agent commissions.
At our first meeting, we let the sellers know that this was skinny deal. We made the offer stating if they would carry back a note for the purchase price, we would see if we could buy it for the $40,000 they were asking. They agreed, and we went to work digging into the numbers.
After doing our due diligence, we found there were quit a bit of back taxes and that the place had no central air conditioning – which was needed to compete with the comparable area sales.
We had to go back and adjust the sales price to compensate for those two things. The sellers understood, agreed and at that point we signed a contract and later bought the house.
By realizing that an offer is just an offer, and not a contract, it took away some of the fear Ashley and I had about messing things up. We recognized offers could be revisited and renegotiated – which lead to more written offers and more deals.
Joe and Ashley English buy houses and mobile homes in Northwest Georgia. For more information or to ask a question, go to www.cashflowwithjoe.com or call Joe at 678-986-6813.