Head in the Sand Vendor

The haunted face of a new client arriving at the door has become a familiar sight to Anne Riddle. “They’re very frightened, and usually carrying a big bag – very occasionally carrying a suitcase – of unopened letters. Letters that they recognise the shape and colour or the print on, so they haven’t opened them. Because that’s very often what happens – burying their heads.”

The above quote is taken from an article on the BBC website relating to the high number of insolvencies in Stoke on Trent.

The article goes on to state, “It used to be all credit cards and unsecured loans, but now we see more and more people who haven’t got enough money for the priorities – so it’s mortgage arrears, council tax arrears.”

Some people are struggling to make ends meet and the chances are if you are generating the right leads in your property business you are coming across them more and more. They are ‘motivated sellers’ who believe that the solution to their problem is to sell the house and move on. 

Your role is to solve their problem ethically, professionally and create a win-win solution that meets the needs of all the parties involved. That is not to say you are a charity – although depending on the circumstances you might point them in the direction of one – and any outcome agreed should certainly ‘stack-up’ for you as an investor (i.e. generate a good return on your investment) otherwise you will not stay in business long. Worse still you could join their ranks and become insolvent! 

Falling into debt and not knowing whether that knock on the door is the bailiffs or not is an emotive and stressful time for an individual; unfortunately, people do not think clearly or objectively when our emotions are involved. It is therefore one of your jobs as an investor to help the other person deal with those emotions in order that they can start to logically address the issues involved and face the consequences – no matter how difficult those consequences seem at the time.

I was recently coaching a property sourcer (a sourcer is an individual who generates leads from property sellers – usually off market – and moves them on to investors for a fee) who had had an off-market deal on their books for over 4 months and despite contacting several of his investors it was not selling. He knew why: it was still overpriced for the area and the figures were too close to call to ensure a good return on the investment.

The circumstances were that the property belonged to what I would call ‘amateur landlords.’ They had bought at the height of the market, in an area they were not familiar with, and had allowed the property to deteriorate over time. The final straw was that the last tenants had left owing rent and leaving it totally ‘trashed.’ Any new investor was immediately facing a total refurbishment of the house, new kitchen, new bathroom, new doors throughout, and whole of the house decoration. 

Additionally, there was no gas to the property and the sourcer was quoting the price of gas connection and a full boiler/central heating system in his refurbishment quotes to potential investors. This, as you can imagine, is costly and was therefore also affecting the potential return on investment figures.  Refurbishment estimates were in the region of £15,000 plus. 

They had failed to sell through traditional estate agents due to the property’s condition and the improbability that a prospective purchaser would get a mortgage. 

So, what were the financial circumstances of the seller? The owners had an outstanding mortgage on the property of £62,000 and after negotiation with the sourcer they were prepared to accept £55,000. Unfortunately, counting the refurbishments costs of £15,000 it added up to £70,000. When completed the house in that location would be worth about £75,000 to £80,000. Not overly attractive to an investor especially if the refurbishment came in over budget. 

The owner had gone back to work to start dealing with the lack of rental income and pay the mortgage and other bills. So, they were keen to sell but understandably very reluctant to go any lower in the selling price. The sourcer and I both agreed that it would be a more attractive buy at £50,000 and would probably sell at that price.

I spent about 15 minutes with the sourcer highlighting to him how he could plan and prepare for the discussion with the sellers to negotiate the price lower (other strategies like Rent to Rent and Purchase Lease Option had been discussed and discounted as not appropriate). If he wrote out the main options open to them on a piece of paper, he would have a clear and structured way to show them what the outcome of each option could be, and they could then choose what in effect was the lesser of two evils. It was a case of clearly pointing out the specific consequences of each option and more importantly the worst option of not selling and hoping that things would work out. He had to overcome the seller’s emotional feelings of not wishing to accept failure, recognise the pain of not moving on and help them see the logical answer to their problem.

To add to their troubles, they were already getting letters from the council regarding rubbish piling up outside, and as the property continued to remain empty, they needed to see that things would only get worse.

A further point that I also highlighted to the sourcer was the level of insurance cover on the property, and I encouraged him to mention this to the sellers. They had not informed the insurance company that the property had been empty for over 30 days and as such this could have potentially invalidated their insurance policy. A serious concern should there be a fire (arson) at the property – they could lose everything! However, it was also worth pointing out that once they informed the insurance company of the current position their monthly premiums would increase significantly due to the bigger risk. 

I left it with the sourcer to speak to the sellers and he messaged me the next day stating, ‘You were correct about talking about their alternatives re the house. They are now asking if a £50,000 price would do it.’

I asked if he had anyone interested at that lower price and he replied, ‘yes, I have a buyer already.’

Four months on his books with no serious takers, and within one 15-minute session of how to engage with the sellers the sourcer was confident enough to move forward and help them realistically weigh up their options. The result was the price had been lowered to a more realistic amount and subsequently sold within 24 hours.