Question:
Hi Tony, Please help me reconcile these two statements: 1. You once said that you never cancel escrow on an REO agent. 2. You also said that you run “an offer mill” making 15 offers per day or so.
How can both be true? What if your offer on an REO property is accepted and then you inspect the property and discover that it’s going to require a lot more work and money than you thought? Do you lower the offer? Isn’t that what you called a “terrorist offer?” Or do you cancel altogether? And if so isn’t that the same as cancelling out of an escrow? You just disappointed an REO agent.
Or do you inspect every single REO property before you make an offer so that scenario never occurs. That means you and Sabrina are inspecting at least 15 properties per day.
Answer:
Dear David,
Nice of you to write. Let’s take your questions apart piece by piece.
1 – I don’t run “offer mills.” My goal is to send out 15 offers a day. However, we personally only write a minimum of five and those are LOIs on an 8 1/2 X 11, pre-designed template where we basically just enter the property and agent information. However, we only make offers for two reasons:
One, on properties that I’m interested in buying. These are made through the listing, or a buyer’s agent within the listing agent’s office or through a buyer’s agent outside the listing agent’s office.
Two, on properties where I am interested in meeting the listing agent such as a pending listing where I use an LOI (Letter of Intent/Interest) type offer. This is what I call a “calling card offer.” It’s just my way of introducing myself using a point of interest for the listing agent.
2 – I have never canceled a deal once I have a seller accepted offer and have opened escrow.
3 – Presently, in our market, properties that we pro-actively select to submit offers on fall into one of two categories: REOs or Short Sales. The REOs are typically inspected by Sabrina and/or myself and the agent representing us, prior to submitting our offer.
The short sale offers are submitted with one contingency – “Subject to Interior Inspection.” We seldom inspect short sales unless we are concerned about the present condition or the upgrades. This is typical and accepted when dealing with short sales where the final price has not yet been approved by the lender. Keep in mind, short sales for us are the equivalent of gambling, that’s why we call them “Slot Machine Offers.”
-On a short sale where the selling price has already been pre-approved by a lender and we are interested in purchasing at the approved price, we would be inspecting the property prior to opening escrow.
4 – In the past, when I have been out of town, and before the existence of the Flip video camera, I would have to rely on Sabrina or an agent to inspect a severely damaged property, something that has always made me somewhat uncomfortable. There have been times where they have underestimated the repair costs. One that comes to mind, is actually a recent purchase of a property where they missed that a part of the foundation was made of brick. This is a very costly repair.
However, it would be more costly if I cancelled that escrow as the level of damage it might cause my business may be unrepairable. In all honesty, many times it’s not so much the damage it will cause my reputation as a professional buyer, but the fact that having that level of commitment assures me of the loyalty of top brokers, indefinitely.
In any event, this is the way I’ve chosen to do business and I believe it’s largely responsible for the success that I’ve experienced. Keep in mind that I suggest that as new buyers, you keep your contingencies for inspecting, financing and everything else in place to protect yourselves from your own errors or poor judgement. Take your time, inspect properties carefully, really understand what you’re doing and the cost of those repairs as well as the added value that they will bring to the property. A declining market is not a forgiving atmosphere.
The bottom line is this, we don’t make offers on properties without prior visual inspections! Nor would I recommend that anyone entertain that idea, it just isn’t prudent since the condition of the property is such a crucial part of your equation. If the picture that I conveyed of our system of making offers was a disorganized or disorderly conglomeration of disjointed actions – nothing could be further from the truth!
I don’t make frivolous offers. I don’t waste an agent’s time by making uneducated guesses. Every action we take in our office is well thought out and pre-calculated with a specific reason in mind.
Unfortunately, my ability to communicate may not be as good as the systems in my office. Please forgive me for any confusion that I may have caused.