4 Simple Rules for Submitting Offers on Investment Properties
I remember hearing Steve McKnight quote one of his mentors, Stu Silver, saying, “If you’re not making offers, then you’re not making money.” That was an “a-ha moment” for me. The most successful investors not only make offers, they make a lot of them.
To be a successful property investor, you must master this important fundamental. But making offers is especially challenging for the first-time investor. After all, the offer is where you must put yourself out there. It’s the moment where you first risk thousands of dollars of deposit money, and potentially a significant amount of debt.
Here are four important rules for submitting offers that Steve teaches in his apprenticeship course:
1. Make Your Offer In Writing And Sign It
People always consider a written offer more serious than a verbal offer. Because you only want to make an offer when you intend to follow through with the purchase, assuming it passed your due diligence, don’t bother with verbal offers. They make you look uncommitted and unprofessional, too.
When you take that extra step to sign your name, you demonstrate that you are personally standing behind your offer. This will communicate to the agent that you are a serious buyer.
Ask the agent how they prefer to receive the offer. If they don’t supply you with a prepared, contract-like form, type up your offer as a letter. If they are happy to receive the offer via an email, attach your signed offer on letterhead as a PDF file, rather than just including the details as text in an email.
2. Include A “Get-Out” Clause In Your Offer
In Steve’s course, you’ll learn how to conduct due diligence in several phases. After a property passes your preliminary due diligence, it’s wise to make an offer. That way, you can tie up the property to avoid losing it to another investor. As long as you include the appropriate clause, you can continue your more in-depth due diligence. This allows you the leeway to make a decision later as to whether or not to follow through with the purchase.
Here are a few examples of some special conditions you can add to your offer:
- Subject To Satisfactory Building And Pest Inspection – This is a standard clause, but the wording of this special condition could fall in the favour of either the buyer or the seller. As the buyer, you prefer the inspection to be subject to your personal satisfaction. The vendor usually prefers a more objective criteria, like a set dollar limit to cover the necessary repairs.
Subject To Finance Approval – This is also a standard clause with a time limit attached, often 14 or 21 days.
This special condition buys you time to get your mortgage approved before going “unconditional,” meaning your offer will be free of any added conditions after all specifications are met.
Subject To Finance Approval – This is also a standard clause with a time limit attached, often 14 or 21 days. - Subject To Legal Review – This can be a catch-all special condition. If you decide not to move forward with the purchase, you can tell your solicitor to reject the contract.
- Subject To Due Diligence – This time limited catch-all clause buys you time to carry out a more thorough due diligence before going unconditional. Be mindful, however, that in many Australian markets, using this condition to bow out of a purchase, even once, can damage your reputation with an agent forever.
It’s important to recognize that the more clauses you include in your offer, the more unattractive it will appear to the vendor. The most attractive offer to the seller is always an “unconditional” offer, but as the buyer, you are often carrying some additional risk for which you should expect an additional reward.
3. Make Your Offer A Win-Win
There’s no point wasting your time submitting offers that vendors will never accept. And unless you’re in a very strong buyer’s market, submitting unrealistic offers is a great way to gain a bad reputation with local agents.
The best approach before making an offer is to talk with the agent about the reasons why the vendor is selling. That way, you’ll know what the seller wants to achieve, so you can craft an offer that appeals to their desires, and is therefore much more attractive.
4. Include A “Sunset Clause” In Your Offer
A sunset clause is a time and date for when your offer expires. This is important to include, in order to motivate both the agent and the vendor to be prompt in their communications. If you are looking at multiple properties and have a limited budget, you’ll want to know quickly whether they’ve accepted or rejected your offer.
Conclusion
Steve has an entire session in his property apprenticeship course devoted to making offers. He even includes a template that you can use each and every time you submit an offer, so you can remain systematic and consistent in your offer process.
If you’re especially keen to delve deeper into this topic, you can learn all about Australian contract law, here.
Either way, if you’re just getting started on your investing journey, remember it’s natural to be a little nervous when submitting an offer. Following the four rules above will keep you protected. It will also help you build a good reputation with agents in your area.
What other pointers can you offer first-time investors on making offers? If you’ve done a few deals of your own, take a moment to leave your thoughts in the comment section below.
Summary
Submitting offers can be scary for the first-time investor, but by following a few simple rules, you can both protect yourself and build a strong reputation with agents.
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Thankyou for this information! One question: what is considered an offer that a vendor would not accept? Eg 10% lower than asking price? If a property was asking $225k would you offer $205 or is that insulting?
Thanks
What a vendor will or will not accept is completely market dependent. In a seller’s market, it’s of course tougher to get the price or terms that you may want, but I wouldn’t say that offering 10% below asking price is an insult. But generally the vendor will expect more favourable terms if giving up price.
Thanks so much Jason!
Great article Jason, thanks very much. Just to add my 2 cents to the question from @missy with 2 examples i have seen recently. One particular property was advertised at $600K and settled on their first offer of $500K a good 16% below the asking price and another settled at $1.55M from $1.85M also approx 16% below. Both original asking prices seemed inflated for the area and for the condition and qualities of the properties and the vendors obviously realised this and settled on a fair deal in the end (in my opinion). So as Jason says an offer amount is very market dependent and should be fair and in line with the motivation of the vendor, to be considered favourably. When I sold my IP apartment recently I myself settled on $398K when i originally wanted $429K which is approx 8% lower. My motivation was to get out of an apartment IP asap as i want to focus on a subdivision. Hope that helps.
Great point. It brings up the reality that every vendor wants to get as much as possible for his or her property, so especially in a hot market, you should expect to see inflated asking prices 10-20 percent above what the vendor may be willing to take.