Open Wide and Say "Sub2!"

Getting information out of some sellers is like pulling teeth.

I had to laugh last week (again), when a FSBO kept answering my leading questions with "I don't know," and "no" and "yes" answers.

I mean, they were playing so close to the vest (which isn't unusual for FSBOs) that they couldn't expound on the description of their house to save their life.

It was ready to water-board them!

One answer that is always hilarious to me when I request the seller to describe his house is, "What do you want to know?" Is that the worst answer ever?

What do I want to know!!!!!!?????

Just tell me about your friggen house!

However, I used to confuse this with lack of salesmanship on the part of the seller. Not anymore. Sellers that can't express themselves are often hiding a problem they need us to solve. At the same time, "un-forthcoming" sellers often need desperately to sell, but are in denial, or exhibiting "pain avoidance."

On the other spectrum, we have the "Chatty Cathy" who cannot stop talking about her house, and expounding on every single real and imaginary (as in made up) feature and benefits of her house. Sometimes, these folks are as desperate to sell as any close-vested seller out there. However, the "Chatty Cathy" is going to be less work to close on, if it's gonna happen.

So what? Well, it's important to figure out if we're dealing with a time waster, or as as Robert Allen puts it, "a wanter," or a desperate "don't water." Either way, we NEED to know why a seller is selling.

This usually requires a 30-minute routine of friendly questioning according to Barney Zick. He said that a seller can't lie to us for more than 30 minutes about why they're selling. I agree. However, some sellers are so slow at giving information we can't tell what they're lying about for probably 45-minutes.

It's in the cases where the seller is not forthcoming that we might be tempted to walk, or short-change the negotiation process by not allowing ourselves, and the seller time to "work" on the deal.

We don't like to admit that, as buyers, we have a need for satisfaction in the negotiations just as much as the seller does --- even if the seller is not aware of his need.

So going slow, controlling our emotions, and allowing the conversation to meander across all the seller's motivational elements, allows us time to naturally develop a rapport with seller, find the "becauses" that are necessary to justify what we want, and find out what we can give up in order to give the seller what he needs (and less about what he might "want") --- and achieve satisfaction in the negotiations so that all parties know they worked their butt off to get a deal struck. This is an important moment to remind ourselves why we want all the decision-makers present during the negotiations or "everybody" won't feel satisfied."

Meantime we'll equity strip the fast-talking, motivated sellers that have diarrhea of the mouth! j/k

Incoming!

Okay, I had to use a ringing phone gif, yes!

This post is about what we do when prospects respond to our ads.

Before I illustrate a good script let me say I just read a lousy sub2 phone script. It suggested asking Sellers all sorts of threatening, qualifying questions.

Questions such as,

• "What do you owe on your house?" which sounds to the prospect like, "How much equity is there left to steal?"
  
• Or, "What are your payments?" which sounds to the prospect like, "I'm in FBI interrogation training, what's your problem?"
  
• Or even, "Are you behind on your payments?" which sounds to the prospect like, "How can I take advantage of you in your most vulnerable situation?"
  

Nice.

Yes, nothing quite like getting straight to the point with a vulnerable prospect. Why not just wave a mirror and a cross in front of them, like we'd do with Dracula? Same effect. Everybody runs!

What good then is a script if we're not using it to qualifying leads, somebody asks. Aren't we supposed to qualify our leads so that we're not wasting time on the "curious" and/or the "unmotivated?"

No, we're not. We just want appointments. Later we'll find out what's going on with the Seller's property once we know if they're ready to play ball.

What's the point of knowing all sorts of technical information if the prospect isn't ready for our type of deal yet? We can only discover that by meeting the prospects face to face. Yes...it's that intimate.

So on the initial call, all we want is an address and the name of one of the title holders. We actually don't need the name of any of the title holders except to verify the address we have is correct when we look up the property information.

So, if we just need an address and the name of one of the title holders then, why not just get that information via a website? Why have a prospect call us in the first place?

Websites are for siphoning off the truly unmotivated. Prospects that won't call, are the same ones that go to a website because they can't overcome their fear of "high pressure" phone sales pitches, and/or they need to be cajoled, educated, and otherwise warmed by what we have to offer on the web page. That's fine, but rarely will these folks be warm enough for our purposes. So what?

Well, the phone call itself IS the screening process. "Forcing" a prospect to dial the phone and call reveals that the prospect doesn't need warming up. He's already motivated enough to overcome his fear of the unknown and make the call. That's good enough for us!

At the same time, the unmotivated will also call us. "But wait, Jay, you said that only the motivated will call on the phone?"

No, I said phone calls filter out those that need warming up, or the mostly unmotivated. However, those that are just curious, and not really warmed up also call us on the phone.

I realize this may be confusing. If the unmotivated, but just curious call, and the motivated also call, then what's the use of a phone call to sift out the unmotivated from the motivated if both call anyway?

Well, glad you asked for clarification. The desperate callers are going to call us. They just do. However, they also rarely tell us they are desperate. They are usually coy about their situations. They don't want to sell themselves out as desperate, anxious prospects.

On the other hand, the curious will often play desperate anxious Sellers, so they can pump us for information, weigh their options, and then do for themselves what we are offering to do for them ourselves, if that makes any sense. They also represent the competition. I've called many "I Buy Houses" ads just to see what they have to say, but I'm not in the least motivated.

Meanwhile, I get calls from competitors all the time that will sound desperate, but their only desire is to smoke me out as a fraud, huckster, or the competition, but not as a solution.

Meantime, the desperate and the curious can sound identical on the phone. Neither group always shows us their cards. And asking embarrassing, threatening questions sets the tone for our future negotiations. We don't want to set a "bad" tone!!! Correcting a tone is hard work, once a "bad" tone has been initiated.

So, our method then is to sift out the motivated from the unmotivated with a face-to-face meeting. Man, that sounds time consuming, huh? Well, it's not too time consuming to make $42,000 in pure profit from a forty-minute face-to-face presentation is it?

I mean even if we had to make 10 of these presentations at forty-minutes a piece, that's 400 minutes spent, or $105 dollars per minute. Or about $6,300 an hour! That's better than most any doctors I know, and better than most attorneys.

So, when do we find out if the client is motivated or not?

Well, we find out at the front door. Our negotiations begin before we even step into the Seller's house. At the porch we ask the seller, "Are you ready to sell today if we can come to terms?" If the Seller responds with anything other than a solid "Yes", I will say, "I understand." and add, "When you decide that you are ready to actually sell, please give me a call and I would be happy to come back."

I turn and walk away (slowly). However, I always give the Seller a chance to correct himself. Not all Sellers will. So, I want to know the answer now. It's that cut and dry. I've walked away many times.

What do Seller's actually say? They often say, "We're just weighing our options." Or "We're thinking about re-listing our house and wanted to see what you had to offer first.", etc. etc.

Uh, no, thank you. We're dealing here with a tire kicker. No tire kickers for us. We don't have time to educate the curious. We only want to deal with those who don't think (or feel) that they have any options, not those who are weighing them.

So we use the phone script only to get appointments, not prequalify prospects with embarrassing and/or threatening questions. We can get the rest of the information later in a non-threatening, elegant fashion that helps us better negotiate our deals without putting the Seller on the spot.

Meanwhile, we qualify our prospects in person because Sellers can't lie about their true motivations for more than 30 minutes. After that point we can either get down to business and make forty or fifty thousand, or walk away and make the same from someone else that is actually anxious, desperate and truly motivated.

Successful sub2 negotiations are born out of mutual trust, and a meeting of the minds, not hard-selling, strong armed negotiations. As a result, we can only successfully close on the truly motivated that we've developed mutual trust and credibility.

After all, is it really possible to strong arm a person into giving us their deed, letting us take over their payments, leaving them on the hook for their credit history on their old loan? No, is the answer.

The client has to want this, and know this is the best of both worlds for him; a painless, sure, and fast closing; a fair price; and restoration/protection of his credit. This can't happen by hard-selling the unmotivated.

Yay!

The Last Man Standing WINS!

Is anyone else tired of the "Instant REO Profits" scams being offered these days?

Let me provide just two examples of what I consider outright fraudulent advertising. One makes the promise that anyone can learn to profitably buy and flip REO's completely sight unseen. Puhleeze.

The other is that "anyone" can learn to flip 10 houses in less than five hours a week. Really again, "Oh Puh-leeze".

As an REO buyer goes, the nuts and bolts for successful prospecting, marketing, and investing haven't changed much, except for the ease of locating REOs' on the net. REO inventory used to be a guarded bank secret. Anyone who bought an REO course in the 1980's read a chapter about the "unknown secrets revealed" of how to get a banker to reveal their REO inventory. Back then lenders with REO's were as nervous as pregnant nuns about word getting around that their banks had become poor risks.

Several years ago I had the worst time getting a bank to tell me what they had on the books. They did offer me "onesy-twosey revelations" of "pretty" houses that they were marketing at full retail. "Next!", I said.

Even as recently as 1995, a bank officer dropped his voice as if sharing a dark "secret" with me about his "one" REO. Of course he had more than these, but he couldn't afford to let somebody spread the word this bank was "loaded with REO's [OREO's for those of you on the East Coast]. Someone's head would roll if this happened!

It was hilarious. I was respectful, but it was somewhat annoying.

Today? No problem. Banks barf up REO listings on the internet. They don't give us details often, but at least we can see how many properties are listed in say, Sacramento, CA (not only the State Capitol of CA, but the REO Capitol of CA, too!)

Now the information I'm going to offer here is not just for the pros, but for those just starting out. Once we've developed a reputation as a solid reliable buyer, things snowball. Agents, bank officers, friends of friends, and referrals will eventually keep you as busy. Meanwhile, I offer these real world tips...

From my experience in no particular order... (A. B. --- this is for YOU!)

The very first shortcut is...(drum roll, please)...

1) Treat your REO investing as a full-on business enterprise. Anything less, and success will be long coming, if not bumpy and inconsistent.

Next...

I'm not describing a part-time effort with a promise that you can do this in your underwear and never have to talk with anyone, or view property. If you want this strategy, I've got a bridge you can buy for cheap!

If you're still reading, here's my take on buying REO's profitably and efficiently (the true short cuts):

• As you immerse yourself in the process, you'll discover which banks are dealing, and at what price point. Right now I know of three banks that are dealing, and at what price point. This is to say I know three lenders that are dumping their inventory at about .60 cents on the dollar (rather, .60 cents of current retail --- there's a distinction).
  
• I always say focus on a farm area. However, with REOs, your farm may necessarily be defined as a certain property profile, not necessarily a certain geographical one. You'll probably discover that the REO's you can buy for a cheap price, are scattered over three counties in a given month.
  
• Be prepared to compete harder in the more densely populated areas. There's a lot of amateur competition that will agree to pay much more than we will if we stay in highly populated areas.
• Be patient. Remain friendly. Until we start getting referrals and inside information, we've got to try to be the last man standing, as it were, until after the bank wades through all the flakes that offer to pay more, but ultimately fail to close for any number of reasons.
• Accept that 1 in 50 offers gets accepted early on. This statistic dramatically improves as our reputation improves --- and after we become more confident in making wholesale offers at the outset.
• It can take two or three months of waiting, being ignored, negotiating, and countering before we close on a profitable deal at the beginning. Again the processes shorten up and become somewhat more efficient once we get a full head of steam.
• Some banks want proof of funds regardless of where you're getting your money. Before we've proven ourselves as buyers, we'll be asked to jump these hoops, meant to filter out the seminar grads.
• We only want to make "profitable offers". That is, if we plan to buy at 65% or less of A.R.V., we've got to initiate an offer that allows you to go up to that limit. If we start at 65%, where can you go, but upside down at that point.
  
• Our opening bids should start at 40 to 50 percent of the retail value, minus repairs (giving the bank a "net offer", or letting them know exactly what they'll receive after all closing fees and sums are paid.
• This practice alone will separate you from the amateurs. Amateurs can't seem to have the heart to actually make offers they can make money with, and will feel "good" making retail offers of 80 to 90% of ARV. That IS Stupid. Especially when the first 20% of the deal, not accounting for repairs, goes to everyone, but US. So, buying at 80% of ARV, minus repairs, means we make NOTHING!

Ok, here's two property inspection/negotiation options for your consideration...

• Option 1) Complete a thorough inspection of the property (which I do love doing), and then make a fully informed offer with tactical wiggle room for negotiations ******OR******
  
• Option 2) Analyze the comps, assume $30k in repairs, subtract the repairs form the ARV, chop that number in half, and submit the offer. If you do Option 2, and get an accepted offer, you'll then inspect the property and 'find' all sorts of things you "didn't expect," and then try to "educate" (beat the crap out of) the bank over a lower price.

[edited] I omitted my suggestion to avoid Option 1, because following option 1 would mean checking out three dozen properties before making an offer. Well, that's fine if you're only making an offer or two, and have lots of time to waste. It's better to look carefully at a property after you've got an accepted bid, especially when you have more than a dozen outstanding offers to make.

Frankly, for those of us who are actually trying to get 50 offers out at a time, physically inspecting that same number of properties before making an offer is a time waster. Option 2 is the more practical approach, because we're only spending time looking at properties the bank has indicated it's willing to counter on.

With irregular, if not "onesey-twosey offers, we can theoretically "afford" to go do pre-inspections of properties, and then make fully informed offers. That's nice when it's practical, but it's a poor expenditure of time when we've got 50 offers cooking at once.

So...if we've got lots of irons in the fire, the only way to be efficient is to make the offers based on Option 2, and then upon a counter offer, go inspect. Lots of lenders won't counter. So, we don't want to have wasted valuable time looking at properties where the bank hasn't indicated an interest in negotiating.

And...

• Be willing to wait patiently for the bank to wade through the amateurs. After the listing is stale and the bank's gone through a couple failed escrows, we start looking like REALLY good alternatives.
• Again, be professional and friendly. Bank employees will find us to be a breath of fresh air, when we relate with them in a friendly fashion (specially when they've rejected our offers). Rejected offers DO NOT MEAN "dead" offers.
  
• Again, we want to be the last man standing. This means that if we're patient even after being ignored for a "better" offer a couple, two, or three times in a row, we'll still be there with an offer in hand...and much more likely to win a closing after the dust settles.

There's more to be said, but that'll have to wait. A mind can only absorb what the butt can stand sitting to read.

Jay

Trust Me! I'm An Uber Negotiator!

A recurring theme on this blog is the ability to negotiate profitably, if not professionally. I say profitably, rather than successfully, because some folks forget they're negotiating for a profit. Instead they settle for successful negotiations.

So what's the difference?

Roger Dawson and Barney Zick were the first two gurus that introduced me to both negotiating philosophies and resultant gambits.

Barney Zick taught me about "Targeted Negotiations" and how superior this was to generic "win/win" negotiations. In fact, I would be embarrassed if anyone thought I was still negotiating for banal "win/win" transactions.

Anyone who knows, knows that "win/win" is the code word for "trust me" that the amateurs and residential real estate agents use to con the unsophisticated into thinking that they are being served in some altruistic fashion. Agents work for their own best interests. They work for closings and nothing else. Some agents are smoother about it than others, but without closings everybody starves.

Meanwhile, the Uber Negotiators I find are the ones that pull in the big bucks. These are the negotiators that focus 100% on the objective and don't get knocked off the tracks with win/win sob stories of one kind or another that would cause them to lose track of their primary objective which is to make money --- and lots of it.

Recently I heard of an investor who got tangled up in a sob story, and failed to ask for what he wanted in the deal in a professional manner, and ended up failing to close profitably. He confused his objective with that of some humanitarian effort of some stripe.

What's worse the story was relayed to testify to what an honest guy he was --- that his first priority was to "help people," and then passively allow the stars to line up as other party came around to ostensibly forge a profitable deal with him later. Ho hum. It's the old "Trust me. I'm really a nice guy." or the "Karma" approach to negotiations. Puh-leeze!

Been there. Done that.

Win/win is...more often, than not, a con. Or maybe at best its a way to deal with a neurotic guilt trip over actually making a profit off of somebody. Either way, run from anyone who says "Trust me. I'm a great guy! Look what I've given up to help others." The ones that impress me, are the ones that never say what they've done, but let others share the good fortune they've had dealing with that person. This would be called a "referral."

Of course I'm not suggesting that we shouldn't be honest in our dealings with those we do business with. It's a small world out there, and once a person wrecks his reputation by cheating people, or taking "undue" advantage...it just makes doing business that much harder and more expensive --- if he can stay in business.

I like cheap and easy business dealings. So I suggest that we remain honest about what we're about, and not confuse our identities with "frustrated priests." We're in the business to make money, not compete with charities.

To illustrate the otherwise confused mind that some folks allow to occur, let me share a situation that happened several years ago with a family friend.

Our family "bud" had a TV stolen from his motor home. After the police caught up with the thief, our friend was so sympathetic to the crook (with emphasis on pathetic) that he offered to drop charges and offer the burglar the TV to keep "if he really needed one".

The cops told him that was stupid. We told him that he was naive. Everyone told him that he was missing the point of the whole "prosecution" effort. However, our neurotic friend was so motivated to let this crook off the hook, as it were, that he lost all perspective of the situation and essentially undermined law enforcement efforts.

That's exactly what happens when the negotiator takes his focus off of making money, and internalizes a victim's situation to the point where the problem becomes the personal property of the negotiator. When this happens the negotiator begins operating from a position of weakness. He confuses his objectives with that of the prospect. And sabotages his own position.

Now let's consider the opposite...

There are a large number of negotiators that go overboard in their advantage taking. They'll equity strip Grandma Moses, if there's an opportunity. That's not what I'm saying we should do. What I am saying is that it's not a sin to make money. It's honorable if we are acting in good faith, doing what we say we'll do, not making false or empty promises, and keeping our intentions and actions clear and respectable.

Advantage taking, of course, is not a virtue by any account. However, keeping our heads on straight, and not confusing our efforts with some secondary objective is a virtue.

When a client calls me, they already know that I'm an investor. I don't call myself anything other than that. If the prospect doesn't like investors, he won't call me. That's fine. There's a bunch of other crap he won't like either if, for starters, he doesn't like those who negotiate for a profit.

So I say be honest about yourself. Don't lose perspective by internalizing the prospect's problems and fail to negotiate clearly in your own best interest. Remember there's a huge difference between having sympathy and being empathetic. Sympathy will draw you into donating blood. Empathy will motivate you to find blood donors.

Jay

“Win/Win” Is For Amateurs.

We rarely are given what we want. Rather we negotiate for it.

Even more, we HAVE to fight for it, or the deal is likely to fall apart. Part of negotiating successfully is offering satisfaction in “reaching” a conclusion, and also knowing what the other party wants and needs to come to a suitable settlement. Simple Win/Win negotiating is inadequate in many situations as illustrated in the following scenario.

Two hunters went hunting together looking for a large buck to take home. Finally a trophy animal showed up and both hunters shot at the same time. The deer fell over dead.

Upon investigation, they could only find one bullet hole in the animal, and neither of the hunters knew whose bullet killed the animal. Now it was a "win/win" dilemma to figure out which hunter “owned” the trophy.

Well, there’s no conventional “win/win” solution to this dilemma. After all, in this instance, both hunters wanted the rack, and so one or both is screwed. At best, one hunter has to settle for the left hand side of the rack, and the other has to settle for the right hand side, or one must give up the whole rack. Or they have to have a tug-o-war match to decide who gets what ---- and/or shoot each other to come to a conclusion?

Well, a mutually satisfactory solution has to be worked out nonetheless. So I say, “Win / Win is for amateurs!”

There’s a better solution to win/win.

For starters, we ask more questions of these hunters. Do they actually both want the racks, or is this an assumption? Do both hunters actually want the skin? Or is there anything else they want specifically? Is there a focus of need or desire that doesn’t clash with the other party?

Barney Zick calls this “targeted negotiation” or, “He who talks first “wins”. Yes, instead of making assumptions that each party wants the same thing, we instead ask lots of probing questions before we ever begin negotiations.

To our ultimate surprise, and sake of discussion here, we discover that the one hunter wants the rack, and the other hunter wants the meat, and neither wanted the skin.

Well, isn’t that convenient?

So after some questions we achieve a satisfactory "split" of the animal. In this case we discovered what is beyond the “obvious” --- in this case the real needs --- the non-negotiable needs, if you will and achieve a successful, targeted negotiation.

Well, this is no less true in real estate negotiations. We have to get beyond price in many cases and target our negotiations toward a specific objective. Price then isn’t always the primary motivation for all parties. However finding out what the true motivation for selling is the professional negotiator’s responsibility. And “win/win” for sake of “win/win” in these cases is not adequate to reach a solution.

To illustrate further, I bought a house from a bank at a huge discount. The price wasn’t the most important factor for the bank at that moment, but regaining the ability to borrow several times the value of that bad loan from the government, and making ever more loans was ---- way MORE important than price. Who knew?

In another case, a seller couldn’t complete a remodeling project because he was in jail. Who knew? His wife needed cash to pay legal bills, and she was willing to discount the price heavily to get the cash quickly. So, because we asked lots of questions, we got passed all the normal lies sellers tell us about why they’re selling --- and used that information to help solve her problem --- quickly --- because we couldn’t steal in slow motion.

Meanwhile, we ask lots of questions until we get down to the meat of the motivation, and use that information to go after the kill. Sounds a bit too aggressive for you? Then you’ll be a victim of someone who knows better than you. Keep reading.

We make profitable offers after we get all the facts, and then let the sellers say “yes” to our offers because they now “want” to, because we will solve their “real” problem.

Here’s a list of problems we’ve uncovered and solved over the years:

• assumed seller’s liabilities and negotiated a discount after we closed on the property.
• purchased appliances for seller to use in new house
• negotiated discount of seller’s second/third mortgages.
• paid off seller’s vehicle loan
• bought life insurance for seller
• bought down (shorted) the seller’s second mortgage
• paid off seller’s bad debt (at a discount) and upgraded their credit
• gave seller moving money instead of conventional down payment
• took over seller’s mortgage payment to protect seller’s credit.
• took over seller’s car payments
• gave seller cash in return for car in the garage

These are qualified win/win examples. We uncovered the real motivations the sellers had for dumping their property, and focused on solving THOSE problems. It allowed us to buy cheaper, whether through speed, discounting, assuming debt, or whatever. But we wouldn't have known without uncovering the seller's true motivations for selling, and negotiated those problems away in return for a great price.

To illustrate this more closely to home...

A few years back, my true motivation for selling a house had nothing to do with price, but just getting rid of a tax burden. I wanted to dump the house a.s.a.p. by discounting the price by 20% off retail to a friend (who didn’t know the market) --- just to get it out of my hair.

What’s interesting is that since I didn’t force my friend to “work for the deal”, and he was not appreciative of the facts of the deal --- I had a much more difficult time selling to him. It's like trying to get a horse to drink, that doesn't know he's thirsty!

In other words, I removed all the road blocks and normal marketing ploys I used, and it resulted in taking longer to unload the steal, than if I had listed the stupid thing conventionally and marketed it professionally. I guess I learned that, “No good deeds/deals go unpunished”, huh?

This was a classic, amateurish, albeit inadequate win/win” solution. I assumed that my discount would be immediately obvious and create motivation, but I failed to take into account that part of the “win” for the other party was “fighting” for the steal deal. So taking away the “fighting” part, nearly destroyed the deal, because the satisfaction level of the buyer (and myself) was short-changed.

The fact that because the buyer didn’t know the market, hadn’t been “working” to find deal in the first place, and that I made it too easy to buy, the buyer then resorted to “creating work” for himself in order to feel some satisfaction in an otherwise negotiation-free situation. Moreover, the buyer second-guessed the terms and price I offered --- with stalls, over-analysis, but finally grinding himself down to the conclusion that I was actually giving him the deal I said it was.

You’d think my credibility was enough? Nope.

Finally I also should have tried to “take away” the deal, by informing my friend of my “other buyers”; my reluctance to sell so cheaply to a friend; my “other alternatives” I had in mind about selling; etc., etc. This would have lit a fire under his feet and not allowed him to "steal in slow motion" ---- which is how it turned out.

So, asking the seller's why they're selling (repeatedly until we get to the root of their motivation), forcing both parties to work for a solution, and focusing on solving problems rather than on price is what defines a better win/win strategy called "targeted negotiations".

In a future post, I’ll discuss the “Take Away” in more depth and why it’s the “be all, and end all” in motivating "wanters".