In my book “One House At A Time / Finding And Buying Single Family Rentals" I explained my formula offer which was used only on commercial properties, and has been made obsolete because of the much better and more importantly varied financing now available on these properties. I did include a chapter on my formula offer, not for it’s value as a viable offer (it’s not, any more) but rather to teach both simplicity and the value of tenacity in investment real estate acquisition. You should read “One House At A Time" if you’re into bargain investment real estate or real estate flipping. “One House At A Time" is also a great book for those who though they could never own a home.



The other unique offer is what I call the “Net Offer," simply put instead of a price you state that “the seller will sell you the property on any terms that “net" him/her $x,xxx.xx." Or, any similar phrase, quoting only the sellers net at closing, not the gross sale price they will receive.

Most of my clients have been after “opportunities" buying with their head instead of their heart (You should read “One House At A Time"). You find “opportunities" by recognizing other people’s problems and offering a solution (Like I said you should read “One House At A Time.")

Other people’s problems can be real or strictly a figment of their mind, or most often a combination of both. Real problems could be late payments, a need to move soon, an NOD, a high payment, a desperate need for cash, etc . . . Mental problems could include all of the above and/or a hang up on the sale price!

In “One House At A Time" Chapter 1, is “Vickies’ Story" about the one of my clients many houses, the first time I had Vickie use a net offer was for her sixth house. Vickie had gone to a yard sale to look at a large screen TV for her then new home, as instructed she asked the people “how much do you want for the yard?" They came back with a price but only if she could close within 30 days. Vickie called me from her car saying they (she got them to close the sale and loaded them in her car) were on their way to my office. When the sellers arrived I knew within minutes they had no equity and the property was not worth what they were asking. I also discovered that they hadn’t made a payment on the first or second in more than six months. They were in foreclosure on the first and only had 40 days left. So we asked why they hadn’t sold the house, it turned out they had tried. They had even had it listed for six months. It hadn’t sold because of their asking price! So I asked about the price, how had they come up with the price?

It seems they needed (or thought they did) $10,000.00 to start over. Their realtor® had added up, all the closing cost, including their $10,000.00 divided the sum by 94% and that was the asking price, they also assumed this was the true value. (The realtor® wanted his full 6% commission. If you don’t know the math, you need to read my book “Counting On Your Fingers." Available this winter, 05/06.) The sellers were hung up on that price and the $10,000.00! They would lose the house before they would take one dime less! So while we continued to talk I took out an option agreement and started writing. I passed the form to Vickie while the sellers were still talking quietly pointing out the details. Vickie signed it, I pointed to the consideration ($200.00) Vickie wrote a check. When the woman drew a breath, I jumped in before her partner and said: “Then what you want is to net $10,000.00. So if Vickie can net you $10,000.00 you’d sell her the house?" They said yes! I said sign here! They did! We had an opportunity!

What the option said for price was: *(see note below) we didn’t list a price. Below where there was room to write I had written: “*We will sell Victoria ... the house on any terms that will net us $10,000.00 at closing." I explained the option was not an offer and acceptance, because we didn’t know if we could close the deal. Then I explained that the $200.00 check was their’s to spend today. While they argued over where to gamble with the money, I got the rest of the information and written permission for the lenders to talk with me. The rest of the story is in “One House At A Time," we closed 26 days later.

The lesson here is not this purchase, the cash out, or created equity. The lesson is the “Net Offer," by offering them the net they wanted they never saw the sale price until the “HUD-1" at closing. They wanted $10,000.00. We paid them $10,000.00. Had I used the final sale price on the option they would never have accepted it. Had I used an offer and acceptance, I would have had to include all the contingencies, these would have explained getting major fees waived on the first, and the short sale on the second. I was Vickie’s lender. I did not represent the sellers and I was not about to educate them, if I had they would have cut both Vickie and I out of the deal. This was a very complected deal, the sellers knew that it might not close, the lenders knew that we didn’t have to close. The only one that though we were defiantly closing was Vickie! I only knew that there is always more than one way. (“There Is Always More Than One Way" is another book that should be available by the spring of 2006.“There Is Always More Than One Way" is for the other side, the troubled seller.)

With no sale price how did we close it? Instead of a purchase money mortgage, we refinanced the house in Vickie’s name. By refinancing instead of purchasing we got around the down payment and pulled cash out. We kept the lender fully informed and got Vickie and the house approved contingent upon her being shown on the title, then we called the sellers into closing and had them execute a *“Warranty Deed" making Vickie a “Tenant in Common" **with them. Recording and an up dated title report took four days. Lender review and documents took two more. 20 days from the option we went to escrow. Closing didn’t work the story is in “One House At A Time" but it did 2 days later and the sellers got their check for exactly $10,000.00 at 5:00 PM on a Friday, 30 days from the date of the option. Vickie cashed her check and started remodeling the house.

*Many of you are thinking I got it wrong, that I meant “Quit Claim Deed" I didn’t." Most title insurance companies will no longer insure over a “Quit Claim Deed" so use the right form. Investors should have their own team including a title and escrow officer, visit with them, they can teach you how to properly execute the right form. It’s always easer to do it right and to work with your own team.

** The sellers had agreed to any terms that netted them $10.000.00 but for their security we had Vickie deposit in escrow another “Warranty Deed" returning the property to the sellers and enough money to cover recording and the tax on both deeds. At closing the sellers and Vickie deeded the property entirely to Vickie. The 3 days between closing and release of the funds were because legally this was a refinance, RESPA (The Real Estate Settlement and Procedures Act) requires a 3 day rescission period on refinances.

Our next “net offer" deal came only three weeks later. Vickie brought friends to my office they had just reduced their listed house to way below it’s appraisal could I help? Again the full story is in “One House At A Time". To avoid bankruptcy they needed a certain amount of money. They had had their house listed at a steadily declining price for many months. (They foolishly remained loyal to their realtor®, an old friend, even without any showings, if they had treated each other this way they wouldn’t have been getting a divorce. Oh well.) They knew exactly what they needed to solve their problem. They didn’t know, until I did the numbers that their net from a sale would now be less than they needed. This time I used a sales agreement the sale price and terms said “* See below" below I wrote “* We will sell the property to Vickie ... on any terms that net us $1xx,xxx.37". Everything was contingent on financing acceptable to the buyer.

Because we could establish a long term relationship between buyer and the sellers

and because the LTV (Loan to value) was so low we used a gift of equity, from the sellers to Vickie. “Gift of equity" doesn’t work often but when it does it allows you to use appraised value. Because of the low LTV the lender allowed Vickie to take cash out.

A “Net Offer" was the only thing that would have worked short of a much higher sale price. They no longer had time to find a full price buyer. The well intentioned realtor® had let the sellers reduce the price to a point that would have left them about $20,000.00 short of solving their problem, why sell at a bargain price if they lost everything else? We could have recalculated the price (my math was better than the realtors®, she should read “Counting On Your Fingers"), but had we established a price the high appraisals would have had no value. The “Net Offer" got the seller what he needed right down to the 37 cents. And allowed the buyer and her lender to use the full appraised value.

Not a bad deal! Vickie paid slightly more than the property was listed for but got $30,000.00 cash out, over $130,000.00 in real equity, and bailed a friend out of major trouble. Just to interest you in “One House At A Time" that in less than four months Vickie had gone from living in a small $130,000.00 house to a $145,000.00 home with pool, to a much nicer $165,000.00 house with pool, to a $500,000.00 mansion on a huge lot with pool, and pocketed over $40,000.00 on the way! Oh ya, everything was legal and she now had 7 houses and a positive cash flow! When you read the book you’ll find out that Vickie is an ageing cocktail waitress who dropped out of high school. Not bad at all!

As of this writing I’ve written three more offers for Vickie all of them flips all of them “Net Offers" on options. The first said “I will sell the property to Vickie... on any terms that net me $4,000.00 payable $1,000.00 at closing along and a note for $3,000.00 bearing interest at 5% payable when Vickie... or an investor buyer sells the property to an owner occupant. The second said “We will sell Vickie... and W J Archambault, JR (yours truly) the property on any terms that net us $2,000.00" Because one of the sellers was in bankruptcy we also had to pay her attorney bill, but we did negotiate away some of the lenders fees.

In “One House At A Time" we teach never walk away from a willing seller. In all of these deals we wrote the option on the first meeting with the seller, remember that options are a purchased right to purchase not an obligation to purchase. If when you get a property fully checked out what’s the worst that can happen? You walk away from your option payment, normally only a $100.00, so what? If your time is worth anything, not to mention the possibility of the seller changing his mind or selling to another buyer the loss is nothing. Once you’re in the business these payments are tax deducible. The latest one was the same for a $1,000.00 net. Vickie only grossed $60,000.00 on the deal, I wrote the option while Vickie and the seller talked, it was done in less than 10 minutes from the time I met him, two weeks later it was closed “subject to". Not bad!

“Net Offers" are great: when the seller needs or wants a specific amount, when you can create equity, when taking a property “subject to" the existing financing, when being added to a deed so you can refinance instead of using purchase money financing, when you don’t want to pay even $1.00 more than absolutely necessary.

You’re going to have troubles using “Net Offers" with: realtors®, escrow officers, attorneys, and lenders! Sellers will like “Net Offers" with a simple explanation, if you’re solving their problem. realtors® are never going to like these offers but can be brought to the table by including a fixed amount for their commission in the offer. Use your own escrow officer, like realtors® they don’t like the ambiguity in “Net Offers". (Buy your escrow office a copy of “Counting On Your Fingers" suggest to the sellers realtor® they buy their own copy!) Your attorney is going to love this as soon as he understands it, give him a copy of “One House At A Time", “Counting On Your Fingers" and this article! Nothing you can do is going to make the sellers attorney like this. but he will approve, he’ll also try to included his fees out of your money. Lenders, always start with a mortgage broker, in Nevada call the author or his son, else where give your mortgage broker a copy of “One House At A Time", “Counting On Your Fingers" and this article!

Never, never, never let any mortgage person suggest anything illegal, when your being creative you must be squeaky clean! There is always more than one way (that’s my one book I hope you never need, but it’s a great gift for troubled home owners.) No property is worth five to ten in the federal pen!

“Net Offers" can be written on any acceptable purchase agreement or option form. We recommend you get your forms at a local legal forms store or your attorney, and learn how to fill them out. Even “Lawyer In A Book" (No I didn’t write it, I’m not an attorney, but we do sell it, CD $5.95, we even give it away check out our web site www.lawyerinabook.com) a handy collection of legal forms will often do. The important thing is always have a form available when opportunity knocks!

Sales agreements can be dangerous when used for “net offers" because you are obligated to preform and you could find out that the total purchase price is higher than you want to pay!

Don’t think you’re putting anything over on the seller with a net offer, you’re not, but if you are obligated to close you could be in danger. I prefer short term options, because I can write an option when the seller offers a deal and research the property later! If I don’t like what I find I can either renegotiate or walk, only losing my small option payment, and no one can steal my deal while I do my home work.

“Net Offers" are not the panacea to real estate riches, finding and recognizing opportunities is. “Net Offers" whether written on options or sale agreements are just a tool for the knowledgeable investor.

© 2005, William J Archambault, Jr

And The Real Estate Investment Institute