Buyer’s Brokerage
July 18, 2008
The break through concept that I chanced upon was this: When an owner decided to see if I could produce a buyer within a few days, I immediately entered into a standard sales contract with him which gave me, or my assigns, the right to buy the house at a stated price and terms within a specified time period, subject to financing. My contract specified that I intended to resell the house for a profit within one week. If I failed to open escrow within that period, the contract was rescinded and my earnest money deposit was returned.
My contract gave me total control over the property until my buyer could look the property over and decide whether to buy it or not. If the buyer was tempted to try to go around me, the seller wouldn’t be able to sell the house until my contract expired. This opened up three more possibilities: I could look around for another buyer. I could buy the house myself and wholesale it. I could buy the house and keep it as an investment.
As often as not, I bought the house myself for a simple reason. Remember, I was negotiating as low a price and as favorable terms as I could on behalf of the buyer. Every dollar I reduced the price was translated into less cash needed to take title subject to any existing financing, and this was often a fairly reasonable amount. Bear in mind that I’d already been paid $4000 to find the house and the combination of my fee and my negotiated price made most of the houses I found very attractive as long term rentals.
Along the way, using this approach, I discovered something else: Let’s say that I’m showing the first of three houses to my prospective buyer. I’d say, “If you don’t buy this house, I’m giving you fair warning that I’m going to buy it.” When I showed the second house, I’d say, “I hope you don’t like this house either. I bought the last house and it was a really good deal.” The buyer, if he bought any house at all from me, almost always bought the second house I showed him.
Let’s look at some arithmetic: If a conventional salesman sold a $300,000 house listed by another salesman, he would have earned a $18,0000 fee. This would have to divided in two by the two Brokers, than divided again in two, one half for the listing salesman and one half for the selling salesman. So, selling this house would have earned the selling salesman $4500. On the other hand, by entering into a purchase contract and selling it to my buyer, I was paid $30,000.
This amounts to 7 times as much money with the same amount of work, and a lot less overhead. I found myself making money with less effort and investment with my 7-day contract than I could have by listing it.
There are a lot of other advantages to doing business this way. The next Blog will be titled Short Term Options.
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