Four smart ways to work with investor buyers

Each and every week, I get more emails than I can count from investors looking to write offers on our brokerage’s listings. These emails are usually written under the guise of making a backup offer, just in case the current offer on the table goes sour.

They look something like this:

“I am an investor and saw your home on Random Street Name listed as pending. I know it has been pending for a short time, however I wanted to see if the buyer was still hanging around. I can pay all cash and have proof of funds. If the property falls out of escrow for some reason, please give me a call. I hope we can put something together.

Are You Working with Daddy Warbucks?

Agents come to me when they see these emails because they are excited at the process of putting together the next amazing deal—that the have this new Daddy Warbucks who is going to purchase homes all across town.

From my perspective, this sort of email buyer gives me reason for concern. I’ve seen tons of agents accept offers from cash investors that have gravitated towards the real estate market since 2008. These are individuals looking for a steal or an amazing deal—probably one that does not exist.

Long gone are the days when sellers will accept cents on the dollar. Short sale lenders and lenders with foreclosed homes hate lowball offers. They do not want to be nickeled and dimed by someone who believes that their cash is king. (After all, even if the buyer obtains a loan, the seller still gets cash at closing, right?)

4 Components of a Strong Purchase Offer

1. Solid, reputable buyer. Even if you’ve just met the buyer 30 minutes prior to showing, you’ve got to carefully vet this individual. If he or she happens to be an investor, what properties has he recently purchased in your area? Has he flipped and resold these properties? Does he hold them as rentals? If you are going to write an offer on behalf of a buyer, you are putting your professional name on the line, and you should only do that for buyers with whom you are completely comfortable.
2. A realistic price. Let’s face it. Nobody likes a low offer. In fact, some offers are so frivolous that they can be offensive to sellers. With short sales, banks don’t like low offers. As such, buyers need to be educated on the status of the local real estate market. If your buyer insists on writing low offers over and over, how many do you plan to write before you see this as an exercise in contract practice and not a reasonable way to earn a living?
3. Proof of funds. Always obtain proof of funds. If someone is writing a cash offer, make sure that the individual or entity writing the offer is also the one with the money in the bank. Some investors leverage other people’s money to make deals happen. Other investors use a concurrent closing method whereby they sell the property again for a higher amount without ever spending a dime. Know what you are getting into and obtain proof of funds.
4. Rational Terms. Closing in three days? Inspection and appraisal to be completed in five days? Generally, real estate transactions cannot happen that fast—even if you want them to. Make sure that the buyers request reasonable terms so that you will have an on time closing.

There’s nothing wrong with working with investors. In fact, a few good investors in your pipeline may mean increased money in your wallet. But, the fact is that you need to be smart with your time and professional in your actions. Don’t get overly excited the next time a prospective buyer dangles a cash carrot right in front of you.