Hybrid Offers - Posted by Charles Parrish

Real Estate Investing Auctions
1

Posted by charles parrish on March 05, 2010 at 08:43:01:

We don’t like to give up any percent of a transactions,
but the Hybrid Offer is a way to make the deal work. I
would rather take a small profit than none at all. At
the end of the day, how much are you making. If you do
many little profit deals at the end of the year you’ve
made it big on little deals. The Hybrid transactions
helps to close more.

You heard of Win-Win, well without a deal, there is no
chance to even get to the first “Win”, by offering a
little more juice in some deals you are able to perfect
the truly Win - Win.

Charles

2

Hybrid Offers - Posted by Charles Parrish

Posted by Charles Parrish on March 04, 2010 at 09:05:32:

  1. When your intention is to “Control & Roll” (flip, resell, recast, wholesale, recycle, etc.) and the seller is stuck on a higher price than you are willing to pay, make a hybrid offer. Offer a lower sales price, plus a portion of your profit upon resale within 90 days. You’ll pay to advertise the property, so the seller has nothing to lose. Give the seller a written pledge to pay the portion of your profit, and call it your deposit. Assign your contract before closing.

Using this techniques gives investors options when negotiating with sellers. I always suggest using a good auctioneer to sell the property. With auctions, the property is offered as is for all cash and no contingencies.

Your contract should have a clause that states that this offer is subject to assignment before the settlement date. If unable to assign, you have the right to “walk” with no hard feelings or reprecussions.

Good Luck,

Charles Parrish

3

Re: Hybrid Offers - Posted by Wayne

Posted by Wayne on March 04, 2010 at 11:31:49:

I’m not sure what’s going on here. Some questions:

  1. “Call it your deposit.” What, your pledge?
  2. What are you pledging to give the seller, a percentage of your
    assignment fee?
  3. What does the auction idea have to do with the pledge thing?
  4. Can you give some example numbers?
  5. If you assign the contract, does the seller get what he expected?
  6. Is the investor you assign the contract to obligated to give the seller
    a percentage of his profit?
  7. Is the investor obligated to resell within 90 days of purchase?
  8. Who are you “suggesting” the auction thing to, me as the
    wholesaler? Or are you the wholesaler suggesting it to the seller?
4

Re: Hybrid Offers - Posted by charles parrish

Posted by charles parrish on March 04, 2010 at 16:17:16:

I use the Hybrid Offers when my first offer is not
enough for the seller to accept, but yet is motivated
to sell.

  1. The deposit is held with the title company and is
    negotiated only after the release of contingency, which
    is review of lien and title report.

  2. Yes, you could say that; If my offer is $100,000,
    and our Hybrid agreement is for 40% of anything I sell
    the property for above that, than if we sell at auction
    for $130,000, the seller would receive the $100,000
    plus 40% of $30,000 or an additional $12,000 for a
    purchase price of $112.000

  3. The, what you call “pledge thing” has nothing to do
    with the auction other than we use the auction to sell
    the property fast, within 3 weeks, without lots of BS
    contingencies that you would find in an agents
    agreement.

4.See above for the example.

  1. Yes, if we sell it for what I offer, if we sell if
    for more, the seller gets more. If we are in for
    $100,000 and at auction we only get $95,000, I am under
    no obligation to go forward with the sale. But, since I
    own the auction company, I control the Buyers Premium
    and can contribute $5,000 of my $9,500 commission to
    make the deal work. (I would rather have a small pay
    day than NO Pay Day). But if we sell short, I try to
    get the seller to come down on the contract price first
    before taking a hair cut.

  2. NO! It may not be an investor, it could be an end
    user. If the buyer at auction bids $130,000 he pays
    $130,000 plus 10 BP commission and settlement cost.

  3. I am the investor, or you can call me the
    “wholesaler” if you want, I created this deal from the
    time the seller found me or I found him. My plan from
    the start of this negotiation is to make money by
    Controlling & Rolling within 3 weeks using my auction
    company.

Thank you for your great questions.

Charles Parrish

5

Re: Hybrid Offers - Posted by Wayne

Posted by Wayne on March 04, 2010 at 21:36:08:

And thanks for your great answers! It’s becoming clearer, but I’m not
quite there yet. I’ll continue with the numbering we started, so it’s
more clear.

  1. You negotiate the deposit after you get a good title report? I
    thought you originally said: “Give the seller a written pledge to pay
    the portion of your profit, and call it your deposit.”
  2. Originally, you said “a portion of your profit upon resale within 90
    days”, but now, you say “within 3 weeks”. Is the 90 days just to give
    yourself some leeway?
  3. So in the auction, there is no guarantee that the highest bidder will
    get the property. Basically you have a reserve price, right? Also, the
    $9,500 commission you’re referring to is the auction “commission and
    settlement cost”, right?
  4. I’m still not clear about the assignment vs. the auction. In your
    original post, you said “assign your contract before closing.” But you
    also talked about an auction. So do you assign the contract to the
    winning bidder?
  5. So using your numbers of $100K plus 40% above that, and the
    property going for $130K, you would make a profit of 60% of $30K
    plus 10% of $130K for a total of $31K, less any costs you have
    associated with the closing?
  6. Using the same numbers, the winning bidder actually pays $143K
    total, $13K of which goes to your auction company, $112K of which
    goes to the seller, and $18K of which goes to you (or your RE
    investment company, which is presumably separate from the auction
    company)? Does all this get distributed at closing?

Thanks a lot!

6

Re: Hybrid Offers - Posted by Charles Parrish

Posted by Charles Parrish on March 05, 2010 at 01:34:50:

And thanks for your great answers! It’s becoming clearer, but I’m not
quite there yet. I’ll continue with the numbering we started, so it’s
more clear.

  1. You negotiate the deposit after you get a good title report? I thought you originally said: “Give the seller a written pledge to pay the portion of your profit, and call it your deposit.”

Not to worry about the deposit. Not to worry about the title report. Your deposit is held un-negotiated until you are satisfied with the report, but again not to worry about that?..what is important is, did you control at the right price. This is where you need to be the master of your market. If you make a mistake in comps here you are in trouble (not really if you use the right exit clauses in the offer).

  1. Originally, you said “a portion of your profit upon resale within 90 days”, but now, you say “within 3 weeks”. Is the 90 days just to give yourself some eeway?

Yes you want as much time as you can get, or make it 45 banking days with a right to extend for a period of time. 3 weeks to flip it at auctions!

  1. So in the auction, there is no guarantee that the highest bidder will get the property. Basically you have a reserve price, right? Also, the
    $9,500 commission you’re referring to is the auction “commission and
    settlement cost”, right?

Right, if the bid is not high enough to cover your offer, he may not get the property unless the seller comes off his number or you take a haircut.

Yes the auction company commission NOT THE SETTLEMENT COST, that is paid by the buyer at auction,

  1. I’m still not clear about the assignment vs. the auction. In your original post, you said “assign your contract before closing.” But you also talked about an auction. So do you assign the contract to the
    winning bidder?

Step 1. Control the property, 2. Book it for auction. 3. Sell it at auction (but more clearly, assign your right to the property at auction), collect your profit as an assignment fee at settlement. 4. If you are a Hybrid Deal with the seller, give him the overage percentage. SPEND YOUR PROFIT, FIND ANOTHER DEAL!!!

  1. So using your numbers of $100K plus 40% above that, and the property going for $130Ks, you would make a profit of 60% of $30K plus 10% of $130K for a total of $31K, less any costs you have associated with the closing?

Yes ? YOU GOT IT REAL GOOD THIS TIME.

  1. Using the same numbers, the winning bidder actually pays $143K total, $13K of which goes to your auction company, $112K of which goes to the seller, and $18K of which goes to you (or your RE investment company, which is presumably separate from the auction
    company)? Does all this get distributed at closing?

Sorry, I thought you had it! If it sells for $143,000 the commission to me is $14,300. The assignor will make $43,000, the owner would get his $100,000 plus 40% of $43,000. Yes we get paid at settlement.

Wishing you good luck,

Charles Parrish

7

Re: Hybrid Offers - Posted by Wayne

Posted by Wayne on March 05, 2010 at 06:07:27:

Just to clarify my last point:
11) I’m using the same numbers as before.

  • your offer to the seller is $100K plus 40%
  • the winning bid is $130K
  • the winning bidder pays a 10% Buyer’s Premium on top of his bid
  • the winning bidder also pays closing costs on top of his bid

My $143K was the winning bid plus the 10% BP. (I misread the
wording in 7 about “plus 10 BP commission and settlement cost”.)

Now, as I understand it, he pays even more than $143K when he bid
$130K, because he pays closing costs as well.

Thank you!