Are You Letting Thousands Fly Out The Roof?

After being involved in well over 100 bank foreclosure purchases there’s one rule that always seems to stand…

You will spend more money on your rehab than you anticipated.

There are deals out there, and I’ve been lucky to be in on a few, where everything was as expected after the home inspection-in fact the inspector said if you don’t buy this I will!  Unfortunately that’s not normally the case.  As Michigan real estate investors get excited at the thought of cashing in on the foreclosure boom we sometimes get a little blinded by the big picture and overlook a few items that will need attention after we purchase and close on the property.

There are 2 ways to make your initial offer to the bank concerning the home inspection;

1. Buyer requires the right to a home inspection

2. Buyer waves the right to a home inspection

I suggest you should almost always write in at least a 7 day home inspection when buying from the bank.  The only time to wave in my opinion is if you are a very experienced investor who wouldn’t be phased if you found out the property requires $10,000-$20,000 in surprise repairs.  In that case dive right in.  However, if you do not like $10,000 negative surprises you should enlist the help of a professional home inspector.  At the REIA of Macomb you’ll often find Matt Fletcher hosting a vendor table and offering advice, warnings, and special pricing to REIA of Macomb and Champions Club members.

Once you’ve decided to demand an inspection on your offer and the bank accepts your price there are 2 ways to go into the negotiations;

1. After inspection you deem the property to be what you anticipated and you do not change the terms of your offer, you move ahead and close o the purchase.

2. You initially make your offer and find out that here is a $4,000 roof repair needed and some scoundrels have made off with $1,500 worth of copper plumbing.
(here’s where the games begin)

You then arm your agent with the professional inspection who in turn gets it into the hands of the banks listing agent.  At this point the banks agent may or may not actually need to send the report to the asset manager at the bank who makes the decisions-a lot of times they’ll simply call them and plead your case.

DONT FORGET-no one gets paid unless you close-not your agent, the bank’s agent, & the bankers files keep piling up.A scenario very close to this just happened to active REIA of Macomb member Jeff Maniaci.  He hired Matt to do the home inspection which proved to be a genius investment.  Matt was able to help Jeff get a $3,400 reduction due to a bad roof.  That netted Jeff well over $3,000 in his pocket after paying for Matt’s important service.  Again, how would having an extra $3,000 in your checking account feel?

Now you may have the upper hand with the bank that controls the property (only if you’re willing to walk away from the deal).

-if you decide to re-offer at a lower price whether it be due to the property being in worse shape or not, you are breaking contract with the bank on your original accepted offer and they must re-accept.

That being said you need to put yourself in the bankers shoes, picture this…You have a property for sale for $50,000, a seller offers full price with an inspection clause, a few days go by and all you do is imagine having this file off your desk.  The buyer comes back and says that they can only pay $47,000 because of the missing plumbing and terrible roof.  Here’s the fun part-the $47,000 does not go to you neither does the $50,000.  It’s simply one of hundreds of files on your desk that you are in charge of getting rid of.  You tell your BOSS about the hard fought battle to get the buyer to the $47,000 price.  The BOSS says “Okay, accept it!”

Dirty Trick ALERT-Some savvy investors will go into an offer situation fully knowing that they are going to go in for a big discount after their home inspection.  Although this tactic is completely legal should you decide to go this route you should let your buyer’s agent know upfront that you plan on using this secret weapon.  You will lose deals by doing this.  Some bankers will tell you to pound sand-however as long as you and your agent are on the same page ad you are fairly compensating them for their time this tactic can and will save you many thousands if used the right way.   You will have to be more patient as I said you will lose deals doing this, but if that’s your plan going in than you can prepare for it.

Last note-if you want to really be successful when buying Michigan foreclosures offer your buyer’s agent a little something extra on every closed deal.  Even $500 can MOTIVATE your agent to work harder and smarter for you.  It’s legal under Michigan real estate law and the Realtor code of ethics so long as it’s spelled out somewhere in your buyer’s contract with your agent and their corresponding brokerage.  If you stand to make $20,000 or $30,000 on a project-DONT BE GREEDY-share a little with your team member (buyer’s agent) who was (& will be in the future) instrumental in getting you the deal.

Make money not excuses,

Dylan Tanaka-Founder
REIA of Macomb