Today we’re going to talk about the concept/strategy of lowering the price of an investment property once you’re already under contract. Matt and I were talking about this earlier. I believe that it’s not necessarily thought about too often. Matt brought up the point that maybe some people think that if they try to go back and renegotiate, that you could possibly lose the deal. However, once you’re under contract and you are following the guidelines of that contract, the worst you can hear is no.
Now, this is not our going ‘into a deal’ strategy. This is not why we get a property under contract. However, it is something that we utilize once we are under contract so we can try and get a better deal.
Once we secure property at a price we already like, that is a price that we would close the deal under, and it’s a price and return that we need to feel comfortable going into, the time to really get into negotiations start.
We’ve secured the deal, we’ve got it under contract, and we’re able to take a deeper dive into the situation. First, we get inspections done on the property. Whether that is an inspector that we pay to go look at it, our roofer, foundation guy, or contractor, they tell us issues that there may be with the property.
There are generally things that stand out to us that we know are going to be issues not only for us but also for other buyers. Not only this, but it could be an issue for the seller when selling.
Once we get the reports back and able to present the new material facts to the seller/seller’s agent that we weren’t aware of said issues and they’re going to cost ‘x’ amount to fix because of bids we got, we start presenting our new price to be able to get the deal done so that we get the return we need and get the property where it needs to be.
We also make sure that we have an option period. Once we’re in the option period, the seller knows that we have the ability to back out of the contract for whatever reason. Typically, in the third-party financing addendum, there’s a loan contingency. Meaning that if we, the buyers, are unable to get a loan on the property, we’re able to back out of the contract and get our earnest money back.
So when we send an amendment for a new price, we also give up our right to the option period. Meaning our earnest money is going to be non-refundable when they sign the amendment. This can make them feel better when we tell them we can close but will need this taken off to be able to get it done.
We try to utilize this to get a better deal, renegotiate, and make sure we’re not leaving any money on the table.