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Investing Strategies

How to Renegotiate Your Wholesale Deal

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armsToday I want to share with you a few top-secret ways to renegotiate deals and get out of bad wholesale deals.

Every wholesaler I know has, at one point or another, (i) put a property under contract, (ii) marketed the property like crazy, then (iii) could not find a buyer.  Over the years, I have learned several tips and tricks that will allow you to easily renegotiate your deal.

Here’s how the process is supposed to work (with hypothetical dollar values):

  1. You put someone’s ugly, unwanted property under contract for $100,000.
  2. You estimate that the property needs around $20,000 of renovations, after which someone will probably be happy to purchase the property for $150,000.
  3. You give this property a $5,000 mark-up and attempt to (quickly) sell it “as is” for $105,000, in conjunction with your own $100,000 purchase.

Sounds simple enough, right?  You’ll make a quick five G’s and move on, right?

Not always.

Sometimes reality sets in over the next two weeks, after you have called hundreds of potential buyers, posted dozens of bandit signs, and sent out thousands of emails, spamming everyone you can think of.    (Even your own grandma has marked your emails as spam!)

Sometimes you realize that the property may be under contract at too high of a price. 

pocketsWhat do you do? 

You have two options: (i) cancel your contract and move on, or (ii) renegotiate your price.

You might want to cancel the contract and just move on if you know your seller will not go any lower on his/her asking price, or if you simply have “a bad feeling” about your deal.  Remember, deals are everywhere, so you don’t need to get stuck on any single deal.    

(To cancel your contract, you must simply contact the seller in writing to say, “The property does not pass my inspection and/or my business partner’s approval, because of [insert details here] in our contract – and I would therefore like to cancel our agreement.”  Also, if you have previously put-up any earnest money with the title company, you should send them a copy of your letter and get your earnest money check back.)

Personally, I like to always try and renegotiate the offer price.   After all, I have probably put in hours (and hours) of work trying to wholesale the house, so why not see if I can still squeeze-out some profit?    Even if the house is just a dump in the worst area of town, and even if it needs a ton of work, you can usually find buyers a low enough price.      

Now, before I go back and renegotiate with the seller, one thing I always do is (i) call some of the buyers with whom I have already explored the property and (ii) ask them what price they would be willing to pay for the property “as is”.  Even when I am showing the property, if a buyer says the house is not for them, I always like to ask the buyer what price they would pay (or I sometimes ask them to “make me an offer”). 

This way, I know exactly what price range my cash buyers will pay.

teacherCreative Ways to Renegotiate Wholesale Deals

Having been personally involved in well over 200 wholesale transactions, I’ve learned a few ways to successfully renegotiate your wholesale deals.

Remember, in order to successfully renegotiate any wholesale deal you have put under contract, you must ensure that the contract is renegotiate-able.  In order to do this, I always include two “escape” clauses in my contracts:

  1. My first escape clause explains that the contract is contingent upon my business partner’s approval.
  2. The second escape clause explains that the contract is contingent upon the property passing my own personal inspection.

First, let me describe the art of renegotiating your contract through Escape Clause #1: your business partner’s approval…

This method allows you to inform the seller that the deal’s current price does not make sense to your partner.

Here is what you should say to the seller: “Look. This deal made sense to me, but I have not been able to get my funding partner to agree with my numbers on this.  He is simply not comfortable with the current price.  But here is what he is willing to do…  I know this is not what we talked about, and I am sorry for that, but my hands are tied.  Here is the best that we can do…  Is this something that will work for you?”

scapegoatOr you can also say this to the seller: “In no uncertain terms, I am interested in this deal.  This price makes sense to me, but I am not the only decision-maker.   My funding partner must also approve the deal.  If he does not approve the deal, and if the numbers do not make sense to him, then the funding is obviously not there.  My funding partner brings the money to the table; I bring the deal to the table.  That’s just how our relationship works.”

(Of course, your funding partner is your end-buyer – whoever you ultimately wholesale the property to.)

I have been in this situation before, where you think you have a good deal and then (for whatever reason), it is difficult to find a buyer.   Having Escape Clause #1 for business partner approval can really help you out!

Also, be encouraged to note that approximately 90% of the sellers do agree to lower their asking price to what you want, in my own personal experience.   They seem to realize they have an actual cash buyer on their hands, and they do not want him/her to get away.

Sorry, but your house is ugly!

And the second way that I successfully renegotiate deals is by Escape Clause #2, through which I inform the seller that his property does not pass my inspection, based on its current condition. 

Sellers of such properties will often agree with you, saying, “Yes, I know the property does need a lot of work – and based on what you have said, I think I can live with a reduced price.”

uglyIn some instances, you may also use a combination of Escape Clause #1 (the business partner’s approval) and Escape Clause #2 (personal inspection standards).  Say to the seller, ”Based on the current condition of this property, the real estate does not pass my business partners inspection.  In this condition, he is only comfortable buying the property at [insert reduced amount here].”  

You will really be surprised when you apply some of these simple negotiating techniques.  Sellers will frequently be very apt to lower their prices!   

How to Handle the Fear

One of the biggest fears experienced by new real estate investors involves the dual possibility of (i) successfully getting a property under contract and then (ii) not being able to wholesale the property in a timely fashion.  The fearful investor thinks he is going to be “stuck” with a terrible deal that proceeds to ruin his life.  When these thoughts begin rattling around in the back of your head, they can cause you to be uncertain about even the basic ingredients of a deal – such as making offers – because you fear that you might get “stuck” with the thing.

I see this all the time.  New real estate investors become paralyzed by fear (sometimes before they even get started), because their biggest fear is not being able to sell the deal.

Just remember that you can easily go back to the seller and renegotiate the purchase price, or cancel your contract altogether and move on.

There is nothing to fear now.


Do It To It! Immediate Action Steps

Go ahead and put that property under contract.  There is nothing to fear anymore. 

Structure your contracts wisely.  Remember to always supplement your contracts with escape clauses, to assist with future renegotiations – such as “this contract is contingent upon my business partners approval” and “this contract is contingent upon my own personal inspection of the property”.  

Know your potential buyers.  Always do your research to learn (i) “What are the cash buyers in my area actually paying for properties?” and (ii) “What are their criteria for buying?”  Also, if you cannot find a buyer who wants your wholesale deal, invite them to make you an offer of their own, or ask them what they would pay for the property.

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