108: Rookie Reply: How to Make an Offer on a House (Even If It’s Off-Market)

This is Real estate rookie episode 108.

My name is Ashley Kerr and we are back with another Rookie reply. I have my co host Tony Robinson here with me today. As always Tony, I hope that I never have to have a substitute that we get to be co host.

Fingers crossed. You know, you slowly become my most favorite person in the state of New York, so. And the bar is really high. Spike Lee is in New York, I think Adam Sandler's from New York and you've just like slowly like overtaken a lot of those other native New York folks.

Tony and I just got back from Denver last week. We had spent some time together. Well I guess when this was recorded it was last week, so probably a month ago. But it's always fun getting to hang out with Tony and his wife Sarah and getting to know each other better. So yeah, it was a lot of fun and we created some great content for you guys too. And if you guys missed it, do you know what episode it was where we did the live in person? Don't actually it was a rookie reply one yeah, so maybe 98 somewhere around there, maybe 6 and so you can watch that on YouTube and watch us in person doing our recording together in the studio.

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But today, Tony, we pulled a question from Facebook. And what is the question?

So today's question comes from Stephen Cobb. And Stephen's question is, I'm about to try to make an offer on a house, but the property is on market. It's listed on the mls. So I'm working with the agent. When I make the offer, is there any official document that I need to submit, or do I just give them the price that I want to offer? So, Stephen, this is a great question that I'm sure a lot of other rookie real estate investors are wondering if the property is listed on the MLS and there's an agent. You know, the seller has an agent that's kind of representing them, and you don't have an agent yourself. You can really easily just call up that listing agent and say, hey, my name's Steven. I really like this property. My offer number is xyz. Would you mind representing me in this transaction? And I think it varies by state or. Honestly, I'm not an agent, so I don't really know what the rules are. But some agents are okay with double representation, some of them aren't. So even if the listing agent doesn't want to represent you, there maybe know someone in their office that'll represent you. But once you tell the agent what your offer is, they pretty much handle it from there. They'll write up whatever contracts are needed if the offer is agreed upon, and you just kind of sit back and kind of wait for things to happen. So that would be my recommendation. Call the agent, let them know what the number is, and let them kind of take it from there.

I think one thing to watch out for too, is when you are approaching an agent who is the listing agent, who is representing the seller is to make sure that they give you a disclosure agreement to sign saying that you are fully aware that they are representing both the buyer and the seller. So I have done this before on both sides where I purchased a property and shared an agent with the seller. And then I've also had a buyer where I was a seller and we shared an agent. And both times it was a very easy process. And a lot of times I felt that it was actually more beneficial because instead of two middlemen, you only have one middleman. So I did like that. But there are some agents and they call it a dual agent. There are some agents who will not do that for you where they will refer you to another agent in the office. A downside could be that the agent is looking to make the highest commission in some cases. So they're going to go help maybe the other person more because they want the higher commission. But I think that it's very beneficial to have an agent, whether it's a dual agent or somebody else put the offer together for you first before it's actually submitted to the seller. So they'll actually draw up a contract for you and have you sign it with, you know, what is your purchase price, Are you doing inspection, things like that. There can also be a letter of intent. And you'll see this a lot of times on the commercial side where it's just a simple letter stating that you would like to purchase your property. This property. This is the offer, this is the purchase price, these are the contingencies. And it's just written in a letter format. If you Google letter of intent online, you'd be able to find a copy of this and you can fill in the blanks. And then that just kind of like holds the offer for you until somebody draws up the actual contract for you. And in the letter of intent you'll want to put that, you know, it is contingent on attorney approval too, before you know, it's actually finalized. And then what else, Tony, are you think for should we go into maybe like if off market deals, if somebody isn't even making an offer on market on the mls?

Yeah. So we've, we've purchased a couple properties off market recently. And when we buy anything off market. Right. You're talking directly to the seller at that point. And it's pretty much the same process. Right. So like for us, when we buy something off market, we have like a verbal or face to face conversation with the seller. We agree on the number verbally and then we send them a purchase contract or a purchase agreement that as the purchase amounts as well as the other stipulations that Ashley mentioned, like is there an inspection period, is there a due diligence period, Is there a appraisal contingency? I guess all of the details of that deal are included in that purchase agreement. And then once the buyer and the seller both sign that purchase agreement for us here in California, we send it over to an escrow company and then they kick off the whole process with escrow and title and then kind of runs from there. But that's how we do it pretty straightforward process. Also off market.

Yeah, I do usually a letter of intent and then once that letter of intent is signed by the seller, then I take it to my attorney who draws up the contract, then they send it to the attorney. In New York State you have to use attorneys for closing. So that's why it goes to the attorneys next. But another thing is too is when you are doing an off market deal, you get to negotiate with the seller. So don't be confined and constrained into what your initial offer is. Be able to work with the seller and listen to what, why they're selling and what they really want on the deal and be flexible with changing your offer and your terms even on the spot when you're negotiating with them. So I think that's a really great thing as to not having an agent involved. But if you are doing an on market deal where you have an agent, you're going through the mls, it can be beneficial to have the agent too because they probably know the market, hopefully where you're buying and they can tell you nobody is getting an offer accepted if they're doing an inspection. So, so having, you know, little insights like that from these people who are closing on houses every single day and watching these transactions happen, they'll be able to give you insight as to what the market is doing. There's also. Tony, what is this called? I can't think of the name for it. And it, I haven't done it or seen it done, but I think it's the escalation clause where if you put in an off, you can probably explain it better than me.

Yeah, we did this, I think on one property that we submitted on in Tennessee. But basically for talking about the same thing, like say that there's multiple offers, offers going in on a property. Let's say that your first offer is for $400,000. But you can put an escalation clause in there that says you're willing to bid $1,000 above anyone else's asking price up to $500,000. So that means if someone comes in, your initial offer was 400,000. Say someone comes in and offers 420, your offer immediately escalates to 421. Right. But say that you know you have a cap up there of 500. If someone comes in and offers 500, then you won, your escalation clause is over because 501 your top price. So you see that in a lot of competitive markets we've played around but haven't got any deals with it.

And that's just one of the examples of something that a realtor could let you know is going on in that market and a benefit to that. So, Tony, just if you had a choice, would you pick a dual agent that is representing the buyer and the seller or would do you prefer to have your own agent?

I think where I'm at in my investing career today, I'm fine having dual representation. The first deal we bought in Joshua Tree was that way. I'm actually going to call an agent for one of their listings as soon as we hang up that we're trying to buy here as a flip here in SoCal. So I'm comfortable with it. I think if you're a super rookie investor, you haven't done your first deal yet. I think maybe spending a little bit more time to make sure that the agent is the agent that suits you and your specific needs is probably more important. But I don't really need my agents anymore to educate me as much on whether or not this is a good market to invest in or kind of what the comps are looking like. You know, I feel comfortable enough in doing a lot of that research on my own, so it's not as valuable to me. So again, if you're a rookie, maybe spend a little bit more time really building that relationship and choosing the right person. If you're a little bit more experienced, then I think the dual agent works fine. What about you, Ashley? What are your thoughts?

Well, I think you brought up a great point as you need to figure out what you need an agent for. Is it just to write up your offer and submit it? Is it to take you to showings? Is it to help you analyze the market, analyze the deal, tell you how good the school district is? So you need to figure that out first and then find your agent based on that. If you are like Tony said, and I agree with this, if you just need someone to show you the property, then I'm fine with using, you know, a dual agent and just I know what my offer is and I know exactly what I'm going to offer on it. I don't need their advice on what the current market is doing. Then a dual agent is fine. But do remember that when you go to look at a property, if it is the listing agent, they're going to know more than just a realtor that's coming into the property and is not the listing agent. So that is one advantage is that you're probably going to find out more information talking directly to the listing agent and they can probably call the seller right away, hey, you know, I didn't know the answer to this question, what is it? And get you an answer right away. So that's another benefit. But also going back to using your own agent as the buyer, it's free to you. So either way, there's pros and cons. You got to look at what opportunity you need from the agent, but either way, it's free.

So I guess one downside to maybe going with, like, the dual agent piece. Like, so, for example, this happened to us two weeks ago. We're looking at a property of flip. It was listed on the mls. It was way overpriced. Right. Like, they were asking way too much money for in the condition that it was in. So we submitted an offer that we felt worked with our numbers, and we presented directly to the listing agent, and she wouldn't even present it to the seller. Like, she refused to present such a low number to the seller. Right. Whereas if we had our own buyer's agents, maybe they could have done a little bit more negotiating on our side to actually get that number in front of the seller. So, you know, sometimes they're incentivized to maybe sell the property for a little bit more than if you had an agent representing you just as the buyer. So there's some. There is a potential downside there as well.

Well, I think that kind of summarizes that question. I was worried that we'd be too quick giving a short answer, but hopefully we expanded onto a little bit extra there. So thank you guys so much for listening to this week's rookie Reply. Leave us questions on the Real Estate Rookie Facebook Group. If you haven't joined, just search Real estate rookie Facebook Group. Super excited to see you guys at the Bigger Pockets conference coming up. And Check out the YouTube channel Real estate Rookie, too. We put out new weekly videos, including recordings of each episode. Thank you guys very much. I'm Ashley at Wealth from Rentals, and He's Tony at TonyJ. Robinson on Instagram. And we will be back on Wednesday.

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