Eleven investor calls produced three buy boxes and one exclusivity ask I don't like

Five weeks of calling instead of pulling lists. I pulled cash deeds from the county recorder going back 18 months, flagged anyone who bought twice, got 41 names, reached 11 humans, and got 3 to give me criteria in writing.

Buyer A: 3/2, brick, 1965 or newer, ARV 240 to 320, wants all-in at 70% of ARV minus repairs, closes cash in 8 to 10 days, says he can absorb two a month. Buyer B: small BRRRR operator, purchase under 140, condition doesn't matter, needs 30 days because he uses a local lender with an appraisal requirement. Buyer C: builder, infill lots only, one zip, pays on entitled lots and nothing else.

A and B overlap heavily in one zip code. If I lock up a 1972 ranch at 118k with 40k of work, both of them want it, and A closes faster while B will probably pay 4 to 6k more because he's not modeling a resale.

A has now asked for a 90 day exclusive on that zip. In exchange he says he'll take everything that fits and close every one. Nothing about earnest money, nothing about what happens when he passes.

My model is $5,000 average assignment, two a month by month six. I don't know if that pace is real with three buyers or if I need eight before I start any seller marketing at all.

So: do I give the exclusive, and do I start on sellers now or keep dialing buyers?

Answer

1samantha_ruizAU4APRO6

Don't give the exclusive as written. "I'll take everything that fits" is worth exactly what he puts in hard earnest money, and he offered zero. I did this in my second year with a buyer who took four in a row and then passed on the fifth because his line of credit got pulled. I had no other buyer for that zip because I'd stopped calling. Cost me the deal and about six weeks.

If you want to give him something, give him first look, 24 hours, in writing, and keep the right to shop it after that. Costs you nothing and satisfies most of what he actually wants, which is to not lose deals to a faster buyer.

On your model. Two a month at 5k with three buyers is optimistic in a way that will hurt you. The constraint isn't buyer capacity, it's how many contracts you can get signed at 70% minus repairs. A said he can absorb two a month, which means he'll absorb them if you produce them. Nobody is producing two a month in month six from a standing start.

Also your spread thinking on B is off. B pays more because he holds, so his exit isn't a resale margin. But his 30 day close with an appraisal is a real risk on a 1972 ranch with 40k of work. Appraisal comes in low, lender trims, and you're renegotiating your assignment fee down. Price that in before you decide he's the better buyer.

2 replies

1carlos_nunezActive

I'd take the exclusive, with teeth. 90 days, one zip, and a written response window of 24 hours per property plus non-refundable earnest at contract signing. If he blows a window or passes twice, it terminates. Then it isn't a favor, it's a supply agreement with a penalty.

Keystone is right that the promise is empty without money attached. Where I'd push back is on the idea that exclusivity costs you. One zip out of how many? You said A and B overlap in one. Give A that zip, point B at the two next to it, and you've solved the routing problem you were asking about instead of having to pick a buyer every time a house shows up.

The thing that will actually bite you: you have three buyers and all three are local individuals. Any one of them can go dark for reasons that have nothing to do with you. Keep dialing. I run 14 active names and about five are real in any given quarter.

On the fee, my first year averaged $4,100 across nine assignments, and three of those were under 3k because I misread repairs and had to give some back to keep the deal alive. Model 4k, not 5k, and model your first year at nine, not twenty four. If you beat it, good.