Apartment Investing: Multiple Offers

"Was it good?" my wife asked as I tried to lift my bloated gut from the dining room table. My eyes were clearly bigger than my stomach. I felt like I had gained 10 pounds. I was completely stuffed and ready to take a nap.

"It was very good," I replied. "You outdid yourself."

She smiled and started to clear the table. Though the living room couch and my favorite blanket were calling my name, I jumped in to help her. After we finally got all the dishes to the kitchen, she filled the sink with water, added a little soap and started washing them. I grabbed a towel and asked, "Can I dry the dishes?"

She passed out. (Okay, not really.)

But you get the point. Some offers are no-brainers. Others are a little more difficult to get accepted. What I want to talk to you about today is how to get sellers to accept your offer when you expect multiple Purchase and Sale Agreements (PSAs) on an apartment building.

If you find a property that's not on the market and you're negotiating with the seller, it's not so difficult to get an offer accepted. That's because you're the only game in town and you have time to negotiate without the fear of someone else coming in to rip the carpet out from under you.

But what if you find a property that's on the market and the value makes sense? Chances are there will be several buyers writing offers on the same property. If you suspect that to be the case, try these helpful tips:

Standard form

If you're buying a large property (or a building from a seller who owns several hundred units), they're likely familiar with the PSA and probably have an attorney who will look at your offer as well. Even so, I've found that most sellers are more receptive to offers written on standard forms. Agents are especially appreciative because they know what it says and they'll sound much more credible when presenting the offer to the seller. The chance of getting your offer accepted, instead of another offer from a different buyer, is much greater if you use a standard form for your area.

Price

Don't get greedy. If the property makes sense and you think there will be multiple buyers, present the seller with an offer at or slightly above the purchase price. That doesn't mean you get stupid. The property has to be priced right to begin with, that's why there are multiple buyers. The nice thing about apartment buildings is that they rarely ever check out exactly as represented. That means you'll have items to use in the negotiation later.

Closing date

Some sellers will push you to close quickly and others need time to find another property to complete a 1031 tax-deferred exchange. If you can, be flexible. Find out what's important to the seller. Even if the seller wants a long closing date, I've found that writing an offer with a fast closing timeline is usually best, especially if agents are involved. Agents despise extended closing dates and when two offers are similar, they'll almost always push the earlier closing date. You can always add a clause that gives the seller the right to extend the close of escrow to give them time to find their next property, just be sure to remember the lending process and be mindful of the interest rate. If you play your cards right, this can work in your favor in the negotiation.

Inspection and financing contingency

Most PSAs consist of an inspection period and a financing period. Some brokerage companies will break it into several other contingencies, such as books and records and title report. For the purposes of this article, we'll assume the inspection contingency includes physical inspection and the review of books, records, and all other documentation. Depending on your experience level and the size of the property, the inspection period usually takes between 21-30 days. Read the agreement. Most of them say that the clock starts ticking once the buyer has received all necessary documentation. For this reason, I'll usually write a very short inspection contingency because chances are, the seller and/or their agent is going to miss something anyway. Most of the time, I can get through due diligence in less than 10 days, if absolutely necessary. Make sure you give yourself enough time, but be aggressive. Sellers want to know you're moving ahead as soon as possible.

As far as financing is concerned, I've found that sellers and agents alike trip over themselves if I write an offer without a financing contingency. Don't do this unless you're absolutely, positively sure you'll get the loan and you're willing to do anything it takes to get it. Presenting an offer without a financing contingency tells the seller you have the means to get the loan and ultimately close the transaction, but it's not without risk.

Earnest money

Some investors refuse to write an earnest money check payable to escrow because if things go south, the seller can make it difficult to get the money back. I'm in that same group. Generally I prefer to write a promissory note, however, if I believe there will be multiple offers, I'll write a check instead. I usually instruct escrow not to deposit the earnest money check until I've removed the inspection contingency.

Resume

If you have bought and sold real estate before, give the seller a list of properties you own. Sellers like paperwork that tells them you are a serious buyer. I'll also include a letter of interest from a lender if I think it will help.

Good properties don't stay on the market long. That means you have to position your offer to look like a no-brainer. If the seller is serving a great meal, sometimes it just makes sense to offer to do the dishes. Ask a lot of questions and be aggressive. Put your best foot forward-it's a small price to pay and the couch will be there when you're ready to take a nap.