by: Guest Author: Michael Acord, The Real Estate Maestro
As you stroll around your neighborhood or look for property investments online, you’ll find a lot of properties that have potential. An initial review will tweak your interest (maybe it’s the price, the location or it’s just in an area you really want to buy in), but you’ll need to dig a little deeper to find out if there is a real opportunity behind this potential. The cheapest way to do this is to pick up the phone, and call the vendor (or the listing agent – but you will probably find this method works best with For Sale By Owner Listings) and ask these 5 questions before you buy that house.
The purpose of the phone call is to extract information. What kind? As much information as you can get. I tell every student the same thing that was taught to me, real estate is a puzzle. Your job is to extract the information (the puzzle pieces) and put the puzzle together. Where do you start?
It’s not about lot size, bedrooms or baths; you start with what I call the 5 key questions.
2. Reason for the sale,
3. Any major renovations needed,
4. How long have you lived there,
5. What is owed (mortgage balance)?
What is your Price?
“Hi. I’m calling on the home for sale (include the address as some people may have several properties listed). What is the asking price? How did you arrive at that price?” This answer will tell you the level of the seller’s sophistication. If they paid for an appraisal or interviewed agents, you may have some data that you can use in figuring out your purchase price. If uncle Vince, the tire guy, gave them the price and he knows nothing about real estate then you may assume their sophistication level is low.
Reason for the sale?
This is the window question. The answer to this question will tell you how all of the other questions will be answered. The purpose of this question is to determine the motivation of the seller. If they are motivated, they will have no problem answering all of the other questions. And you really want someone who is motivated because they will be willing to negotiate on the terms of the deal. If they are indifferent to the sale of their property you aren’t going to get a very good deal. Not motivated sellers may respond with something more vague like “We are thinking of downsizing as we’re getting close to retiring”, or “We wanted to see what we could get for our place”. If they are not motivated, turn off your “take it personally button”. Their response to your other questions will likely be more abrupt and less helpful if they aren’t motivated. For example, when you ask what is owed, the unmotivated seller may say “that’s none of your business”. I like to ask this question early in the call because it’s an indicator on how the rest of the call will go. If they are rude at this point, I will bid them well and call my next seller. Time and circumstance have a way of leveling the playing field. A seller who was rude today may have to eat a lot of humble pie 6 months down the road when the property has not sold. That’s why you should always follow up on every lead you find.
Any major renovations needed?
I am trying to get a list of all of the repair items that might be required. From this list I can determine my repair costs before I go out to look at the house. I also call this a negotiation question. If you discover more repairs than were disclosed in your initial conversation, I suggest you use those as a negotiating tool when it comes to your offering price. I calculate my offer price using the information the vendor gave me in the call, but when I do my property inspection, if I find more repairs are required I will ride that lack of disclosure until I get a nice price reduction.
How long have you lived there?
Your goal with this question is to lead into asking how much equity the seller has in the property. A lot of equity means you have a lot of options available to buy the property. For example, the seller may be willing to hold a mortgage or hold a second mortgage on the property if they have a lot of equity in the property. A little bit of equity or no equity means you have fewer financing options that involve the seller. Be warned though, asking how much is owed can cause some uncomfortable tension between you and the seller. I prefer to just ask what is owed, that will tell me a lot about their motivation. But if you are not comfortable asking that so directly, you could ask “how long have you lived there?” If the seller’s response is many years, you can ask a follow up question such as “so you probably have a lot of equity is that correct?” This is a back door approach to getting the seller to talk about what the mortgage balance is.
What is owed?
If you’re comfortable asking it, do it. The length of time someone has lived in a house can be helpful for guessing how much is owed, but many people used their homes as ATM’s in recent years and have borrowed against their homes. This means, if you haven’t asked this question, you really don’t know forsure if they have much equity in the property. From the basis of these five questions you will start to develop your purchase strategies which will lead to writing your offer.
It gets easier – so commit to calling one seller every day 6 days a week. Voice mail doesn’t count – you have to speak with the sellers. Even if you have no intention of buying that property, it provides a good basis for research, it will build your funnel of potential deals and get you comfortable talking the talk.
Michael Acord the Real Estate Maestro is an active investor, national real estate instructor and licensed real estate agent. He is one of the developers of Real Estate Coaching and Mentoring for the Professional Education Institute. He has just finished a new book “Cash Cows Come Home” and you can get your free copy at MyCowMakesMoney.com
Published September 15, 2008