Novation Unlocked: Boost Your Real Estate Deals!

If you want to know how to explain to a seller exactly how the breakdown works after you did an Ovation or you brought their property to the MLS and you found another buyer, check out this call that I just had with a seller. She wanted to know what she was getting. I said, hey, what we agreed on is exactly what you're going to get, $50,000, plus obviously we marked it up a little bit and we're going to pay commissions, fees, and all that stuff. But check out how I did it, see what you think. Give me a thumbs up, thumbs down if you think I did good, if you think I did bad. But anyway, check it out. Hey Amber, how's it going? This is Nathan Payne from my cell phone. Yeah, I'm good. Do you have a couple minutes?

Yes, I'm in mom mode right now. So sorry if you hear some kids.

Oh, no problem. Cool. I wanted to call and kind of get some feedback on— or not feedback, but find out what's going on a little bit further. The buyer that I have is like, yeah, I want it, but they're like not willing to go at the price that you need. So it's just kind of— I just wanted to see if your buyer is going to go through or what's— how I can help or what's— What's going to happen, you think?

It seems like that they need longer to get funds in place. And I just don't think that we're going to be able to push it.

Do you think they're like a legit buyer? Do you think they're like a secret wholesaler that's trying to find someone else?

I don't know. I feel like when I talked to New Western, they said that this is one of their like more frequent buyers. Oh, okay. Because the last one, I was like, they don't know what they're doing. Right. You know, like it was very clear because I buy enough deals on my own that I'm like, I'm not disappointed that they couldn't vet that out, you know?

Well, also, like, if you're a real buyer, you can usually get funding within like 2 days, like at most, like if you have— if you're legit, right?

Yeah. And I'm like, why do they keep needing extensions? Like, if I need to— if I need to close on something, I can close in 48 hours, right?

Of course.

At this point, like, I want to remain hopeful and optimistic, but I'm also trying be cautious. I don't feel like my trust is there with New Western. That's just kind of where I'm at right now. Like, I don't know. I mean, they're saying everything's good, that it, you know, they can get it all in writing. They can up their earnest. I don't want to be in the same position. So I'm just kind of trying to weigh out options. I did, um, yeah, I did send over the gal that I work— I'm not a realtor, but my— one of the girls in my network, she is. And sometimes we tag team stuff. You know, if we're both just busy. So me and her tag-teamed this one and she's— so I kind of sent her over like what Fed and I said, hey, this is just an option that we might be able to do. Like if we fall out of contract with them, then maybe we can just go like fresh start and try this strategy. So I kind of presented that to her as well to see, you know.

Have you ever done that strategy before? Like, did it make sense?

No, I haven't done that. So I was going to, you know, run it past her and then just see if she wanted to like jump on a call and you could kind of like explain it.

Yeah, no, totally down.

If you have time, I have a question.

It's like, I haven't really looked too deep into the pictures in the house. Would it qualify for like an FHA loan, or does it have like a lot of things that maybe would need to get fixed up before it could qualify for that kind of financing?

No, it should. The only thing is the roof. Okay, the roof is gonna need to be replaced, but inside is like almost rent-ready. The basement is just completely completely unfinished. Really how we were kind of marketing it is that it would be a great opportunity for somebody to hold and like finish out the basement as another 3/1 and rent out that by BYU and stuff too. So, but the inside does not have stairs to the basement. So you only have access to the basement from the walkout. So they're kind of, it's kind of separate. And I didn't look into zoning too much. I know there's multi around there, but I think that the zoning is a little unique right there. I don't know if like somebody could go to the city and try to get it rezoned, right? You know, like multi, but is a possibility, you know?

Okay, well, that would be my best, like, that would be the strategy I would pick because like, let's say New Western says they can do this and then the people go in, they're like, yeah, well, let me just make sure my hard money lender will fund it. And then, you know, if they don't like the numbers, then they back out without really having anything, any consequences, right? And then you look bad. So I, like I said, I can get on the phone with the seller and I can kind of help you guys navigate this. I've done— I have one in Texas that's closing. I've done, you know, I've seen a lot of them being done and that's just kind of like the way people are moving now is just talking to the sellers and saying, hey, let's just take this to the open market and we'll take care of pretty much the whole process. You don't have to worry about anything.

Okay. Do you mind if I check with Sabrina and for me and the girl I'm working with?

Okay.

See if she could also just kind of speak to you.

Of course, yeah, I'm totally open. Yeah, I'm totally open to this because, you know, if this works, then, you know, hopefully we all could make a lot more on it than just, you know, $350 or whatever.

Yeah, exactly. I'm going to try to get Sabrina on the call right now. Is that okay?

Perfect, I'm ready. Yeah.

Okay, one sec. All right, Nathan, are you there?

Yep, I'm here. How's it going?

Sabrina, are you also there? I sure am. Okay. I told her a little bit, Nathan, but if you want to kind of tell her what this strategy that you've been doing.

Yeah, for sure. So Sabrina, I don't know if you've ever heard of the strategy. It's called like novation, doing a novation, or it's other people call it like a retail buyer program. Have you heard of that?

Retail buyer? Yes. But I thought the novation was a typo. I was like, what is she talking about?

Yeah. So novation is just specific. It's just different paperwork that gets done so you can get paid. But novation retail buyer program, essentially What it is, is you're listing the home of the seller on their behalf. So you have them sign like a power of attorney or attorney in fact, and it allows you to list the house for them. It allows you to get paid if someone buys it with traditional financing. So like if you wholesale a property, the only way to get paid is through like a hard money lender, right? That can pay you. But like if someone gets like a conventional loan or FHA loan, you can't wholesale a property to that because the bank won't pay you. So this is like the workaround where people are putting properties on the MLS and finding, you know, retail buyers and still being able to get paid when a retail buyer buys a distressed property or a property that like just you had to do a little bit of work to get it qualified for FHA or conventional financing. So that's, that's what a lot of people are doing to get higher prices. So I was just suggesting that like it seems like my buyers, they all came in at like $330,000 and like $335,000. And obviously you guys have it at $335,000. So you'd even have to get lower. But if you were to take this to the open market and tell the seller, hey, like you know, we're going to put this in front of more people, more investors. You won't have to pay any commissions, any fees. We'll take care of all the calls. We'll even vet all the people that are interested in the property because we just don't want a bunch of, you know, people that can't qualify or don't know what they're doing to walk through. And yeah, so that's kind of essentially what it is. It's just putting in front of more people and listing it for the seller so you can get them a higher price when people come with conventional or FHA financing.

Okay, so how does the rehab— this one definitely is going to need some work to get there.

Yeah. So do you think it needs a roof in order to qualify for conventional or FHA? Okay.

Yeah. So I think the rest of it is in good shape. What do you think, Sabrina? Like, I thought it was inside decent shape, roof rough shape, right? Yeah. Roof. And then, I mean, conventional, I think roof is going to be the biggest thing. And then FHA, VA, like there's quite a few things, systems, windows.

Yeah, right. So you would have to probably get a conventional buyer. But so what a lot of people do in this situation is like they'll pay. So since they've signed on behalf of the seller is allowing them to list it, they also file what's called the notice of interest or affidavit memorandum, which protects them if they start doing work on the property and the seller just isn't like, hey, forget you, because, you know, if you're going to put work into the house, you want to be protected, especially if you like start fixing up the roof. So that's an option as well. Like if we put this out there and you know, we have an FHA buyer's like, yeah, I'll pay this, but you need to fix the roof. Then, you know, we could look at it and say, okay, it's totally worth it to fix the roof out of our own pocket because we're going to get an offer like $400,000 or $410,000. And we just back that out. We fix the roof. They don't have to come out of pocket for any of the expenses that enable us for it to qualify for the higher offer. Does that make sense?

Yeah. So outside of what you have to put into the property, how are— like, where does the profit go? So what is it?

Great question. So for example, like if we were— I have to run the numbers to make sure it makes sense and what we could think we could sell it for if we took it to the market. But if we talk to them and you say, hey, look, I know $335,000 is the cash offer we said we could give you. We're having a hard time, blah, blah, blah. But if we take this open market, I think we can even get you more. We could probably get you $10K more. Like, let's just say $345,000. So then you would list it at, let's just say, I have to run the numbers again, but $390,000. And then, you know, you would subtract the commissions from the buyer's agent. That is most likely going to be like 2.5% or 3%. And you would subtract closing costs and then hope Hopefully we could find an agent that would do it for like really inexpensive, so it'd save us for the listing. Then you make the difference between— of the profit between like your expenses of what you sold for minus expenses and what you agreed to them on to give them. Does that make sense?

Yeah, so like anything above in that scenario, anything above $345,000.

Exactly, yeah. Again, if I ran my numbers, let's just say there's like a $20K spread in there, for example. So that's what you would be able to get. And then at closing, you could release your affidavit of memorandum or your notice of interest whatever you want to call it, and you release it for that, the profit. You say, okay, I'm going to release my cloud. And that's— and a lot of times they don't even— people don't even cloud the title. They just do that if they put money into it. But a lot of other times they just use it as a concession. And they just say, yeah, if you want the roof, we'll just give you that concession for the roof. And sometimes that works where you don't have to put any money into it.

So how does that differ from a net listing then?

I've heard a net listing, but tell me what that is.

It's kind of basically that thing that we set a benchmark, say I'm going to net you at least $345,000, anything above that I keep. And that's illegal in Utah.

How is that different than a net listing? I've actually never been asked that question. And that's a great question. It's just, I guess it's the way that it works where you get— you sign the power of the paperwork. It makes it work where you sign the power of attorney, they allow you to list it and then you sign the right paperwork with the notice of interest to release your cloud for the fee.

Right.

Great question.

I have heard scenarios where agents will, you know, say, hey, I'll come in and rehab it. And then, you know, I get my commission, but then I get certain percentage of anything over whatever X dollar amount. I want to run it by my broker.

Of course.

But this is a unique scenario where there's 6 siblings involved. And, you know, it's an estate situation.

And about the net listing, the reason why a lot of people do this, and investors this because they're not agents, right? So they, they just are like, hey, how am I going to be able to make money on the deal and bring it to MLS where I don't have a license? Like, for example, in Texas, well, you would list it with an agent there and you'd say, hey, this is a situation, and then they, they would list it. So, I mean, if you were to do it yourself, I don't know how that would work for your broker, but I have agents that would do it here as well. So, you know, if you're worried about you listing it, we don't necessarily need you to list it. I can list it for like— one of my people could do it for like $1,000. And then we would obviously handle the calls and, you know, vet the people and be like, okay, go see it. But, you know, if you were worried about you doing it, you wouldn't need to do it.

Yeah, find out on the net listing for me. And then, I mean, from what I'm understanding is Amber would get it under contract and then, you know, I could be the agent of record, but it's more so— well, yeah, I don't know. I guess I would just need clarification on that.

Yeah, I'll just tell you how it works. So you sign a real estate purchase contract with the seller that you're going to get them, you know, you're going to buy it for $345,000 or whatever. And then you sign an attorney-in-fact and an ovation that allows you to list it. And that's the paperwork that you would need— they would need to sign. And then you list it, you get the offers coming in, people come in and say, hey, you need this or that to qualify, or maybe not, just give them concessions. And then at the close, they take care of everything on getting us paid. So it's really just if they're open to putting on the market and not having to worry about commissions, fees, and dealing with a real estate agent that doesn't know how to deal with investors, then you know, we'd be the next best fit.

Interesting. Okay. All right. No, that's super interesting. Okay. Well, Amber, let's chat about it, but let me give the seller a call back and hopefully he has some good news for us.

All right. Well, it's nice talking to both of you. And if, you know, hopefully we can do some deals in the future if this one doesn't work out.

For sure. Thank you so much.

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