Prospect vs Suspect

Real Estate Investing
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Today's Article: "Prospect vs Suspect"
How do you prescreen sellers? When a lead comes in to you, you have to gather the facts. I and my partners use something called an Ultimate Prescreening Seller Sheet.   If you would like more information on this or my partnership profits program, respond to this article and let my team know! Whether or not you use this form, the questions all have to be the same.

  • ARV
  • Asking
  • Repairs
  • Situation
  • Loan Information
Those are the primary things. Let’s take a moment to dissect each one of these.

1.     The first thing is ARV and stands for After Repaired Value. What you're trying to gauge right now, first and foremost, is information from the seller. So my question would be, “Mr. Seller, what do you think this house would appraise for if I had it appraised?” And you're going to let them tell you what they think, no matter what it is, whether they’re right or wrong. You want to get that information from them. Let them tell you what they think their house would appraise for if you had it appraised.

ARV is ultimately when a house is fixed up in its best possible selling use to get the most dollars extracted from it. That's an ARV, After Repaired Value; what’s its best value after being fixed up. So, what the house would appraise for if I had it appraised right now. They’re one and the same, but they’re not. But for all intents and purposes of gathering information from the seller, you want to know what they think it would appraise for. So you ask that specific question, “What do you think the house would appraise for if I had it appraised?”

2.     Asking price: “How much are you asking for the house?” Right then and there, those are the two most important questions you can ask a seller, and here’s why. If I ask a seller, “Mr. Seller, what are you asking for the house?” and he says, “It would appraise for $150,000.” Now I ask, “What are you asking for the house?” and he says, “Well, I'm asking $120,000.” So right there, he’s telling you that he thinks it’s worth $150K, but he’s asking less than what he thinks it’s worth. So he is telling you, in his mind with what his response is, that there’s a spread, that he’s semi-motivated for some reason or another.

So you have to ask those two questions first and foremost to the seller and try to get inside their head. You must always get inside a seller’s head before you worry about getting inside their house. Gather the facts directly from the horse’s mouth.

3.     The next thing I like to ask is, “Does it need any repairs?” I'd say, “Is the property in excellent, good, fair, poor, or terrible condition?” And then I would try to get an estimate of what they think those repairs would be. You cannot base this on accuracy 100%, but you're trying to determine in their mind if this is a prospect or a suspect; if it’s somebody that you want to do business with and think you can make money from.

If someone says, “Well, it’s in good shape.” I would say, “Well, do you have any ideas on any type of repairs, we're talking cosmetic here stuff, or what?” And “Yes.” “Well, what do you think in repairs?” “Well, maybe $5,000 or $10,000.” “Okay, I'm just trying to an idea.” All I'm trying to do right now in this conversation is to get a ballpark, get an idea and you should be able to get an idea from the seller within 30-60 seconds. You should know on your first phone call back to the seller whether they are a prospect or a suspect. Do not allow yourself to sit on a call for 20-30 minutes before you determine whether or not they are a prospect. The quicker you can gather the facts and get this person through your system to determine if they’re worth your time to work with or not, the quicker you will be able to do deals, and the less headache and hassle you will have.

4.     Next, you will have to determine their situation, “What’s your reason for selling? Why are you selling?” It’s a fair question. “Well, why do you need to know why I'm selling?” “Well, I need to know if the house is falling down, or is there something bad going on?” “No, I'm going through a divorce,” or there’s a job loss, or a transfer, or anything to that effect. It’s good to know why, because most of the time you're not buying a house problem, you're buying a people problem.

The reason why people need to sell is because something has happened in their life. If they do need to sell, then here you are; you're going to be the one that's going to buy. Knowing what their reason for selling is will help you understand and determine how you can possibly negotiate what you ask for and what you don’t ask for, etc. Maybe it’s, “I need to get some quick cash for my son (daughter) to bail them out of jail,” or something. “How much do you need?”

5.     The last thing you need to know is loan information, and I simply say, “Do you a mortgage on a property; if so, what do you owe on it?” You’re probably thinking you will get a lot of push back on this question. So what? I'm going to tell you right now, if somebody will not tell you what they owe on their property, they’re not a motivated seller. A motivated seller will tell you anything you need to know, within reason.

I just say, “Do you have a mortgage on the home?” “Yeah.” “Okay, well, what do you owe on it?” “Why do you need to know what I owe on it?” “That's a good question. Well, there are two reasons; number one, if I do buy this house, I want to make sure that the money I would pay you would be enough to cover this loan so I can get clear title. And the second reason is, “Well, I'm an investor, and one of the ways that I do buy properties is by taking over debt that's already on loan.” So those are two honest answers.

And that in a nutshell is Prescreening 101. Notice I didn’t get into bedrooms and bathrooms and where’s the location and how long have you owned it, and how old is the home, and all this stuff because that doesn’t matter. You're a prescreener right now. You want to base your prescreenings on those items:
  1. “What do you think the house would appraise for if I had it appraised?”
  2. “What are you asking for the house?”
  3. “Does it need any repairs? If so, what do you think those repairs would be?”
  4. “What’s your reason for selling?”
  5. “What’s your loan information?”

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