Although the Recession is behind us, there still seem to be a fair amount of investor and institutional homebuyers active in the residential real estate market. At the risk of overgeneralizing, the bulk of these buyers are looking for a property (generally with some deferred maintenance) that they can repair and flip (or occasionally rent) for a significant profit.
Investor and institutional buyers are a great asset to the market. When the market was slow and home values were tanking, it was the investors that were able to come in and aid home sellers to get out of very tough situations. And, since they are predominantly cash buyers, investor buyers are still a great asset to the market as they have the ability to purchase properties for which—due to their condition—no financing may be available.
4 Ways Investor Buyers Can Be Deal Killers
However, as a listing agent, investor buyers can be a little bit challenging to deal with. Here are 4 reasons why investor buyers may kill a deal and what you can do about them:
1. Investors write lowball offers. Since the investor is extremely concerned about the financial bottom line, offers from investors are frequently much lower than those that come from buyers who will occupy the property. As a listing agent, it’s your job to have a good heart-to-heart with the seller and make sure that the offer is in the seller’s best interest prior to signing on the dotted line.
Unless the seller has a significant level of urgency, if you receive a really low offer from an investor, hold off until the home has been on the market for a while. It’s possible that, with time, you will receive a stronger offer from another buyer.
2. Investors often leverage hard money loans. This is the modus operandi of some investor buyers. They send over proof of funds, and leverage a hard money loan in order to fund the closing. Investors of this sort move money constantly and what is available on one day may not be available on another: hence, the hard money loan.
To avoid having sellers waiting on funding and delaying the closing, consider charging a per diem if the buyer doesn’t close on time.
3. Investors have no emotional ties and may cancel at the drop of a hat. Most contracts have an investigations period, and, as is their right, the investor homebuyer may use that period to make further investigation and analysis of the property and its value. It is not uncommon for investors to request a further price reduction after the investigations period. Or, sometimes they may just bow out completely. Sellers—who are already packing and counting on the sale proceeds—may become frustrated because they feel they have been slighted.
To avoid this situation, make the investigations period as short as possible and make the deposit non-refundable after a specified date.
4. Novice investor buyers may be unprepared. An experienced investor buyer has systems in place to analyze the property’s value and the potential proceeds on resale. That analysis can occur very quickly. Novice investor buyers that are interested in dabbling in the resale market do not have such systems in place, and may not even have solid funding or a notion of what’s in store.
If the investor buyer who has made an offer on your seller’s home is a novice, consider adding very clear deadlines and penalties to the contract before accepting. This way you can avoid hearing on day 30 that the buyer is unable to close.
You cannot blame the investors for any of these approaches to how they are doing business. After all, for investors or many institutional buyers, it is exactly that: a business. As such, if the decision to purchase does not seem practical or timely, decisions are made accordingly.
What about agents who represent them?
Of bigger concern are the methods of the agents who represent them. Real estate agents that are representing investor (flipper) homebuyers need to understand the underpinnings and decision-making processes of their clients. I’ve seen countless agents make assertions such as “My client loves the property and is willing to _________” or “We can close in 5 days” only to find that when called to the task, the assertions were absolutely false.
If you are an agent that is making a living working with investor buyers, keep it professional. Don’t make promises that you cannot keep as you may be risking your own reputation only to collect a commission check. Which is worth more: a single check or a lifelong reputation?