#150 -Making An Offer: Part 2
- Grant Wiese
- 3 hours ago
- 6 min read
FYI: in August I'm going to be offering a course helping you buy ground and prepare for land auctions. If interested, join the wait list.
SW Financial Literacy
Making An Offer: Part 2
Making An Offer (Part 1) ruffled a few feathers…
“You are screwing over the landlord.”
“You are being cheap.”
“What a waste of a lot of words. Obviously this offer at a 30% discount will be declined.”
And my responses to those…
Q: “You are screwing the landlord.”
A: This is not the case of a 95-year-old widow who is not in tune with the market and me undercutting market prices by 50%. The landlord is a retiring business owner who resides in the MidWest. He called me. He already knows I bought ground 2 months ago and that I’m not in a position to buy more dirt. And he still asked (begged?) for me to send in an offer, so I did. I know he has received offers from individuals he doesn’t want to sell to for much higher, so he gets to pick what he prefers.
Q: “You are being cheap.”
A: You bet I am! You make money with the purchase, so if you are going to stick your neck out make sure it is a good deal. Also, I know and highly respect the current tenant who has a right of first refusal. If anything with my cheap offer, I have provided a low bar for the current tenant to try to overcome in getting the ground bought. Best case scenario here: the current tenant executes their right of first refusal based on my terms. Be a good neighbor.
Q: “What a waste of a lot of words. Obviously this offer at a 30% discount will be declined.”
A: I am in ag finance. The majority of farm ground sells privately and farmers (the public) never hear about it until there is a new tractor in the field or name in the plat map. Farmers attend 4 public auctions in your county each year while I’m aware of 20 properties that sold in the same area. These types of deals do happen, which is why I’m sharing them with you here and took the time to put an offer together.
(Also, 30% discount!? No Way! I would say a 17.45% discount but saving them 8% in realtor fees, so we are less than 10% off.)
2 Offers
I closed last week's article by stating that I was presenting 2 offers to the seller, even though I only had one offer I could afford to make the payments on. Why would I do that?
Here is the full offer for you to review.
Negotiating skills are something that everyone should have, and they can come in handy very frequently in life. I’ve read a few books on negotiation and my favorite to date has been “Never Split the Difference: Negotiating As If Your Life Depended On It” By Chris Voss.
How did I use negotiation skills in the offer?
It is a professional looking proposal. Having a clean and formal offer adds weight to the offer I am presenting, even if it is a below market value offer. Ideally there would be a cover page, comparable sales, and other details around the property and cash flow, but I didn’t go over the top on this one.
I open by admitting that my offer isn’t very good. This is a psychological play to bring the seller’s expectations way down before they even see the offer. They have already processed that what they read may be disappointing to them and hopefully my actual offer won’t be as bad as they imagined.
Human nature also has a tendency to avoid conflict. By stating my offer is really no good, the seller's reflex response is to avoid conflict and defend me by stating, "It wasn't that terrible of an offer" or "I can see where you were coming from." The sellers start making the argument FOR me. How cool is that?! (Of course this can backfire, just like anything else)
There are two offers. By providing two contrasting offers, I have a few advantages:
a. I’ve shown that I can be flexible and am willing to work with the seller on terms that meet their needs. I’m allowing them to pick their favorite.
b. Even if I gave two bad offers, the seller has to say ‘Yes’ to one of my offers that he/she likes better to continue comparing against offers from other individuals.
c. The seller and I are now in agreement, one of my offers is better than the other. You always want to find ways for your counterpart to agree with you. It puts you on the same side of the table instead of opposite sides. You are now on the same team.
*Note -One thing I really regretted not thinking about adding into the offer was the advantage he could expect by coming to a sale agreement privately. By agreeing to terms without a realtor, I could be saving him 6-9% in realtor fees, which adds $138,300 (at 8% which is an additional $891.6/acre) to my offer in realtor savings. That savings, in theory, could have pushed my offer north of $12,000/a. Fortunately, I can mention this in a follow-up to the original offer.
Making the Offer Template
How did I make my professional looking proposal?
Here is exactly what I put into Claude to start the build:
“I am needing to put an proposal together to buy farm ground from a landlord. I'm wanting a simple but professional looking document that I can send as a PDF and email to the owner. I want to present 2 options for the seller to consider. There will also need to be some disclaimers that this is an initial offer and any final offer would need to be approved by my lender and other decision makers. What questions do you have before we get started?”
This is key. Make it very clear what you are trying to have AI to do in your initial prompt. Then make it ask you follow-up questions so it understands the assignment. Claude had me answer 11 questions ranging from my name and the property location to the two options I wanted to present and what disclaimers we needed to add at the end.
The result… was terrible. Blocky and looking like it came straight out of a 1990’s Excel horror story. Here is my next Claude prompt:
“Wow that looks terrible. Take out the 'and I've tried....' portion of the first paragraph, I don't want that. The block tables look so old and straight from excel. How you spelled it out is super confusing. Acreage, closing, and included don't need to be included in either of the options. Spelling it out closer to how I did it may look better unless you can find a more appealing way to present the offer. The 'important consideration' makes this way too formal. I want to modestly present my case without appearing to be in control. The seller is calling the shots, not me.”
This continued for a few times until Claude got it right on the 5th try, which is exactly the version I shared with you and sent as my offer.
The Escape Room
Another question I received from a reader was:
“If land prices decrease by $1,500/a over the next, what are you going to do?”
This is exactly the type of question that should be asked with any large purchase. Always have an exit strategy.
Nearly all ground farmers purchase is to buy and hold. If land prices decrease, it doesn’t matter to you at all as long as you continue to be able to make the payments. But what if you can’t make the payments any longer and land prices drop?
I am at real risk with this ground, since I know I won’t be able to make the payments without supplementing a large portion for outside sources. While I would like to buy and hold the ground for the long term (I am a HUGE believer in the appreciation and value of farm ground when valuating it 1 decade at a time. Buy and hold!), it may not be possible with this property. I must factor this in to my offer, which is another reason why my offer was as low as it was.
A $1,500/a drop in price (11.11% devaluation from $13,500/a) would still allow me to sell at $12,000/a based on the market value today, which means I’m selling at a profit or recouping my cash flow losses. My offer is to buy at $10,500/a remember, and I highly doubt there is a 22.22% drop in value (but not impossible).
Again, always have an exit strategy. It doesn’t have to be a flat-out sale. It could be to:
restructure debt with another lender.
skip a payment.
develop the property to generate more income.
rezone and sell off acreages.
sell half to a family member to lessen your exposure.
When making a private offer, it can be easy to envision a way to exit. This needs to be done in public auction when you buy for the highest price the county has ever seen as well. Always have a way out to avoid taking the whole operation under.
Summary
The steps we took to get here:
Know what your cash flow can support.
Know your down payment limitations.
Understand your collateral position.
Make multiple offers.
Have an exit strategy.
I’m going to run a live series starting in August helping producers prepare for buying ground. There are actually 30 steps to discuss in preparing for a land purchase. If you have an interest in joining, sign up here: 30-Day Auction Prep
Have a great week!
Grant
