From Shaun McCloskey, Selling Advisor...
In today’s lesson, you’re going to learn how to quickly flip any property in three days or less – regardless of current market conditions. Within the next seven minutes, you’ll know how to do it, why it works and what you need to do in order to start flipping houses over the course of a weekend… with almost no work.
Get This First
In order to wrap your head around this concept, you need to first understand how the typical home buyer approaches the buying process.
Homebuyers these days aren't typically hyper fixated on a property’s listing price, because they already expect that the seller will accept less than they’re asking (and they realize sellers usually overprice properties to begin with anyway). In fact, unless you're in a hot sellers market, then most buyers are at least a little offended at the idea of not paying at least a few thousand less than the asking price for a property.
In a down market, this is especially true, and is one of the reasons you see houses languish on the market for weeks, even months, without generating a single offer. Sellers trying to squeeze out as much as they can, and buyers waiting for a deal.
So we're going to use all this to our advantage. By combining a slight spin on the round robin auction concept, plus some straight psychology and a herd mentality, it really is possible for you to flip a property within as little as three days. I started doing this about a year ago, and my students and I have been selling houses like hotcakes ever since. We're active in multiple markets all across the US. This works.
Sound impossible? Read on!
Round Robin 101
In case you aren't familiar with the concept of the round robin auction, it’s simply a specific auction type where interested parties are each given an equal chance to bid on a property, one at a time, over a defined period of time.
The first time I heard about the concept was in a book I picked up at Barnes and Noble called “How to Sell Your Home in 5 Days.” which lays out a basic plan for doing a round robin.
It looks something like this over the course of about week:
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Mon-Fri: Advertise your home like crazy, offering it for half of what it's worth
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Sat-Sun: Show your home to everyone who responds in herds
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Sun Night: Sell your home for 100% of what it’s worth, using the round robin auction
There are some important details embedded in those steps, but that's the basic concept from 10,000 feet. Do it right, and you'll create a strong sense of urgency, generate a lot of foot traffic, and coax out the best price the local market can offer you at the time.
Concern #1
Now the plan as it's laid out in the book is a solid one...for the right type of house or deal. But one concern I've always had with it is the absolute guarantee of sale.
You see, in the book, it explains that to generate enough buzz for your house, you must: 1) start the price at 50% of ARV and 2) advertise an absolute sale, meaning the house will be sold to the highest bidder, no matter what the price is. So someone could concievably end up buying the house for half of it's value.
The problem is...it could actually happen!
This is an old auction tactic you're probably already familiar with, even if only on eBay. And the obvious benefit is that hearing "absolute sale" causes people to imagine the possibility of getting the house for a steal, so they lose all sense of reason and start circling your house like ravenous sharks in chum.
And yes, that can happen. In a perfect world (from your perspective) the "absolute sale" will generate such a feeding frenzy that the price will go even higher than it would have without the guarantee of sale with no reserve.
But there's absolutely no guarantee of this. What if the bids simply aren’t high enough for you to break even or profit? So unless you have a house you an truly afford to let go super cheap, then this type of auction carries an inherent and fairly uncomfortable risk.
Concern #2
My second concern has to do with the advertising.
The traditional round robin methodology has you advertise the home and the auction event (starting approximately 1 week prior to the auction) using classified ads in the most popular local newspaper, Craigslist ads and sending postcards to homeowners who live within a half mile radius of the property.
All good stuff. Yes, do all that.
But also, what about the MLS?
Maybe it's because of my history as a real estate broker, but I can't believe how blatantly the round robin process ignores the single biggest real estate marketplace in the country!
My Two Tweaks
So this brings me to how I've amended the round robin process, and I must say it's been working brilliantly.
Thing #1: Don't go "absolute".
Yes, start the auction price out as low as you can confortably get away with. But don't worry about making it "absolute". I haven't been doing this, and we're still generating huge amounts of buzz and nearly always selling our houses to the highest bidder in a weekend.
Thing #2: Use the MLS!
Use a Realtor friend, a $500 flat fee listing service, FSBO.com or whatever. But whatever you do, make sure you leverage the power of the MLS to bring your pool of hungry buyers to the table. All other marketing aside, I've had far more success harvesting my round robin buyers from the MLS than any other method. Most of the time, it's all I need.
So Here's How I Do It
For the purposes of this example, let’s assume that we have a subject property that’s in good to excellent condition, with a fair market value of $270,000. While the typical seller would probably list it for $280k-$290k, we’re going to turn the process on its head by listing it for less than fair market value – in this case, $255,000.
No, it's not half price. But it's still an instant attention grabber for anyone looking at houses in the neighborhood. If every other similar house in the neighborhood is selling for $15,000 more, then anyone looking for a house like this in the area will perk up.
Starting on Monday
On Monday you want to kick off whatever marketing you're going to do.
As I said, for me, the MLS is a given. I'm listing the house with specific instructions for the Realtor about the auction and showings.
Real estate brokers who know their local market are going to steer prospective buyers towards the property right away, but because we get to set the framework for the round robin auction, we’re very clear that we're not going to allow anyone to see the property until Friday morning, from 9-11 AM, with a second showing on Saturday morning at the same time (to accommodate people who can’t make it on Friday).
We’ll also let everyone know that at 9PM on Sunday, the highest bid on the property will be the winner of the auction, and the property will definitely sell.
For any non-MLS advertising, I would setup a nice Postlets.com page for your property. Then you could post an ad in the local newspaper, a free Craiglist ad at few times through the week, and even do a postcard mailing to other owners in the area.
If you do a postcard mailing, just send to 500-1000 people who live in single family homes surrounding the home. You can get the list from ListSource.com or Melissa Data and use Click2Mail.com to print and mail the postcards to keep it simple.
Tip #1: Stuff to include in your advertising:
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Your starting bid price
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the address
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dates the auction
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link to your Postlets ad
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mention exactly when the house will be shown, no exceptions
Tip #2: Regarding photos:
Don’t provide too many photos. One or two nice photos that will draw people in is fine. But take some cues from Marilyn Monroe and make them want to come see more.
Friday Buzz
Here’s what will happen on Friday morning:
All interested parties will eagerly line up like kids waiting to see Santa Claus – the property is, after all, available for $15,000 less than market value. At 9AM, we’ll throw open the doors and let everyone see the property at the same time.
Having everyone view the property at the same time is crucial to the success of the round robin auction. While we’ll be letting interested parties see the property at the same time, something equally important is happening: Buzz.
Prospective buyers are able to see that this is a hot, in demand property. While they were already interested in the property based upon the price/condition, now they’re doubly interested in the property because of social proof – they can see with their own eyes that others are also interested in the property.
This is an important psychological tool. It’s true in dating, real estate, car buying, etc. When others can see that something (or someone) is in demand, they want it even more. While some potential buyers will decide that they aren't interested after all (no property is a perfect fit for everyone), you'll find that a pretty good number of the buyers are going to want to make an offer on the property.
Tip: Written Auction Rules...
One important tool you need to have handy are written auction rules.
In fact, I recommond handing a copy to everyone who walks into your house and make sure they review it prior to writing down any bids. This way you have fully disclosed the rules and also provided your bidders with an opportunity to ask you any questions they may have for you.
Within these rules, I have the chance to clearly explain:
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They are not locked in to their bids and neither am I. In fact, these bids are essentially the equivalent of a verbal offer, and you can back out of your bid until you sign an actual contract.
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Bids can be cancelled by the Seller (me) at any time without cause or reason as well.
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The contract will be signed on the Monday following the private auction, and a certified earnest money deposit and lender proof of funds letter will be required at that time.
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I also recommend stating that all bids must be a minimum of $500 dollars higher.
Tip: Additional Weekend Marketing...
If you want to drive some extra buzz and traffic over the weekend, bandit signs can work great. Maybe 6-12 yellow and black signs on H-stakes around the neighborhood that say: Private Home Auction – TODAY!, starting bid price, the times of the auction, and an address.
Or even better, you could take a cue from other local businesses and pay a couple of folks by the hour to stand out on the side of the road at the closest major street with a big sign about your auction!
The Secret Sauce
This is where this strategy becomes a powerful marketing tool: You've already announced to everyone that the highest offer will win the auction at a pre-determined time on Sunday. A desire to have the property will encourage everyone involved to place their best offer, even if it means bidding up the price.
Have a nice sheet of paper clearly laid out where everyone can see it, and a sign indicating that bids are to be written on it. When each person is ready to place a bid, they can see exactly who had bid before them and how much. They write their bid down, cross their fingers and hope.
In explaining the bidding rules, they already know that if they're not the winning bidder, they'll get a call on Sunday night to give them one more chance to bid before things wrap up. If they're genuinely interested in the house, then desire kicks in and hopefully emotion takes over.
And here’s the really fun part: Once you have all offers for the day on the property, you then rank the offers in order of offer amount, from highest to lowest. Then one at a time, call each of the non-winning bidders and let them know that sadly their offer isn't quite high enough to win the auction. However, you can encourage them if they’re really interested, to increase their offer amount in order to keep from losing out on the property.
Sounds pretty simple? It is! It’s also incredibly effective. The simple truth is some of the non-winning bidders will increase their offer simply because nobody likes to lose.
And the typical round robin auction process says wait until Sunday night to start this process. But I say, why wait until Sunday night???
The Saturday Squeeze
On Saturday, when the second wave of bidders flows through the property, you continue encouraging them to make their best possible offer to ensure that they aren't shut out of the chance to own your truly remarkable property.
As the high offer creeps upward, you simply continue calling the losing bidders to let them know that their offer isn't currently good enough to win.
Each time you call another emotionally vested could-be buyer, you’re tugging a little on that fear of loss string they dangled out for you when they made their original offer. They don’t’ want to lose the deal now – so what’s going up another thousand or two, right?
Sunday Settle-Up
As crazy as it sounds, you can actually repeat this process several times, which will push the price ever higher. Then on Sunday, at the appointed time, you can make your final set of round robin calls to seller, eek that price up as high as possible, then pull the plug on the bidding process and award the property to the high bidder.
On Monday, you're signing a contract and collecting their earnest money and proof of funds.
In the end, you may only sell the property for at (or very near) the fair market price. In some cases, you might actually sell the property for more than the FMV you estimated. Either way, in the span of a single weekend, you will have done what many might believe couldn't be done: Your property will be sold – even in a down market!
Here’s what you need to keep in mind from this lesson:
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All you need is a property you bought right, which means at considerably less than fair market value.
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List the property (below market) on a Monday, but let it be known that nobody will be allowed inside until 9AM on Friday. And be sure you use the MLS!
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Once you begin accepting offers, continually call non-winning bidders to keep them focused on increasing their offer and winning the auction.
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On Saturday, when the second wave of bidders makes their way through the property, let it be known that buyer interest has been high – and so have the bids.
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Pull the plug on the auction on time on Sunday, and inform the winning bidder that they've won the auction.
Now that you see how simple this lesson is to apply in your own investing business, it’s time to put it to the test. I guarantee it will keep your listings from taking weeks (or months) to sell, and can actually get a property sold over the weekend.
That’s a better use of your time and your creative energy than sitting on a property for months. Time is of the essence. Get started on your own round robin auction now!
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Want to start selling your houses fast, for as much as the market will bear? Then smake a decision right now that you’ll give this a go on your next deal you want to sell.
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Go all out, and really follow the blueprint I laid out for you above, step by step.