How To Tell If a Buyer is the Real Deal
Jotham Sederstrom July 18, 2012, 7:15 a.m.
One of the most challenging aspects of a broker’s career is accurately determining if the purchaser you are working with can ultimately close a deal.
The probability of successfully closing a transaction is what divides an exceptional broker or agent from an average one. You’re not in Kansas anymore, Dorothy! You need the courage to get off the Yellow Brick Road and pull back the curtain on your buyers.
It all begins with finding the right buyer for the deal you are trying to sell. Most experienced agents know the typical cast of characters and know from past dealings who is capable of closing, who is a flipper, who ties up a deal then scrambles to find partners and who uses his or her own money to close. However, the industry is constantly changing, and there are new players hoping to gain admittance every day. Additionally, there are many novice agents who have not yet learned the skills of properly vetting a buyer, which adds to the conf usion in today’s marketplace.
So in getting that deal to a contract, these are some of the typical items brokers ask for and, unfortunately, rely on: proof of funds, a résumé and a list of properties owned by a buyer.
There are several reasons why these are not the best indicators of probable performance. Many buyers can show sufficient assets to prove they can close a deal, but remember that the majority of buyers today will not be using their own cash. They will go to a lender, partners or other investors. Secondly, believe it or not, many hopeful buyers may show funds that they don’t control from an entity they may not even know well! I personally know of one buyer who has a file full of financial statements from various institutions showing millions of dollars in assets. Whenever she needs to prove that she is real, she simply slaps that contact information on the heading and sends it with her offer. Shazam! Instant credibility to an untrained broker’s eye.
Résumé and transaction lists are also not true indicators. Most investors are partners in many deals. I recently had a buyer show a portfolio of properties that I knew he didn’t own. Upon further research, it turned out that he had a 1 percent interest in them, which, at the end of my dirty math calculation, amounted to a total of $67,000—certainly not enough to qualify him for the $50 million purchase he was jockeying for a position on.
My favorite story is the one about a wannabe purchaser who was a former employee of a large real estate firm that controls over 200 properties in New York City. As part of his résumé and Facebook profile, he lists these properties as deals he sourced, purchased and owns. I decided to call the former employer and learned that not only did he not work at the firm at the time those assets were acquired, but he had been fired for fraud!
So the big question is, how do you really size up a potential purchaser? The answer is to do your homework. You can never do enough research. Develop solid relationships with top industry professionals. Transactional attorneys, mortgage brokers, appraisers and lenders will help steer you in the right direction. A well-connected broker with a reputable firm, who is current on the deals being transacted and has her finger on the pulse of the industry, is the best person to know. Connect with the broker who is at the epicenter of deal activity in your market segment. Find the broker whom the buyers and sellers trust and confide in, and develop a connection.
Don’t be cowardly. Pull back the curtain on the information you are handed.
Adelaide Polsinelli is a veteran real estate professional with more than 25 years of real estate brokerage experience and over 900 transactions under her belt. She is senior director at Eastern Consolidated, New York’s top investment sales firm, with a 30-year track record of innovative deal making.