EP 412 – Cancelling Your Bids

NCS 412 | Cancelling Bids

NCS 412 | Cancelling Bids

 

Fresh from the Super Bowl, Scott tackles one of the popular questions that keep coming up among note investors out there. How do you cancel a bid? For those who do not want to burn a bridge or get blacklisted from the fund, cancelling your bids right could save you from them. Scott shares the proper ways to do that, showing how it does not have to be necessarily stressful. All you have to do is pick up the phone and communicate.

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Cancelling Your Bids

I’ve got a lot of questions on this particular subject. It ebbs and flows throughout the year. I wanted this episode to come back and answer some questions because I’ve been getting a lot of questions from people about canceling their bid or they don’t want to burn a bridge or get blacklisted from the fund. What I thought what we’d do is talk a little about the proper ways to canceling a bid. The only way to cancel a bid is to submit some bids. I want to bring this and start first there a little bit before we come into the canceling side. Submitting bids, a lot of people get bogged down only making a couple offers from a hedge fund outlook. There are tapes floating around everywhere. People are contacting banks, they’re getting hedge funds. Servicers are sending out tapes. There are a lot of products being moved around.

Pricing Expectations And Consignment

We made a big offer on some assets that were accepted and we’re working through the due diligence of that aspect. There are 64 performing assets that we are in the process of working through. What I want to discuss with everybody is you’re submitting your bids. You can tape in and you do a little initial due diligence and you submit your bids. You’re not going to have some specific things solved if you’re making a bid within 24 to 48 hours getting a tape in. The first things you’ve got to ask when you get a tape in, these are two big things I feel a lot of people are forgetting to ask. This is the thing that dictates whether you’re going to run with this tape and make offers or not. What are the pricing expectations? That’s number one. What does that mean? We buy off a UPB. You’re buying off fair market value. What’s the purchase price of this stuff? What are you looking for? If they’re wanting something $0.90 on the dollar performing at single-digit returns when you figure in the yield and stuff like that after running your quick numbers, you killed the whole tape.

If the numbers they give you seem to make sense, that’s great. Let’s run a little bit further with it. The things you want to always ask, I’ve seen people forget about this, is you have to ask and if the sellers don’t tell you this, shame on them. They should if it’s not a direct seller, but somebody has got it under consignment. What’s that mean? Your fund is trying to move it and somebody comes in like me, gets the tape and marketing it on behalf of a fund or on behalf of seller. It happens quite a bit. It doesn’t mean they’re joker brokers, it means they have a relationship. Sometimes we’ll do these ourselves. You have under consignment and move it. You have to ask what fees are involved. If they start structuring the deals, “It’s 45% of UPB plus three,” that means they’re making three points in the deal. Ask, “What’s the pricing? Are you the seller? What fees are involved?” Those are the first three big things.

Once you have that information, you can start running with the numbers and start doing some initial due diligence. If your bids are due within 48 hours, you could tape on a Thursday and bids are due Monday, you’re probably not going to have enough time to get a realtor to drive-by the assets. Run off the online estimates. That’s what’s important about having a product like NoteProz that JD Bates run, NoteProz.com. They can give you a quick online valuation. Something to remember is your online valuations are not your hard-fast values. Your AVMs, automated valuation models, the Zillows, the NARRPR reports, those are not hard fast values. Those are all online value. You still need to put eyes on the asset. That means either having a local real estate investor drive-by for you to take some photos or having a realtor drop by. You always want to have a realtor drive-by if you can because ultimately, they’ll know more about the market like, “It’s a good block. It’s a bad block. There are ugly properties across the street. There’s a lot of blight going on. It’s a great area,” or, “There are a lot of things that can go into that.”

The reason you want to have that, but you’re not going to have the most amount of time to get the initial bids in, is you have to work through this. You submit your bids. You get your bids. You run your online valuation models, few phone calls to check taxes. You can check your taxes before submitting your bids, they’re not that difficult, then you submit your bids. While you’re waiting for your bids to come back, I would not necessarily sit on your hands and not do anything. People call me, “I got my bids countered back.” I’m like, “Have you had a realtor drive-by them yet?” They’re like, “No.”

That’s the first thing you’ve got to do. After you get your bids back whether they accepted, they countered or declined, especially on the accepted or countered, that’s when you got to get on the phone and start dialing for dollars for realtors to drive-by. If you need to, you may want to pay a BPO company to go out and do that. It’s up to you. I like getting a realtor involved if you’ve got the time to do it because the fact is that they’ll end up with the listing and they’ll give you a lot of better knowledge than running an online value. BPO is not bad. You got to make sure and check it and read through it. Make sure the comps are within the area. Make sure it’s not some weird skewed one-off asset that’s increasing or decreasing the value of the asset. Checking utilities, that’s when we’re going to pull an O&E title report from ProTitleUSA.com. You’re going to be diving into deeper due diligence.

NCS 412 | Cancelling Bids

Cancelling Bids: After you get your bids back, whether they accepted, countered, or declined, that’s when you got to get on the phone and start dialing for realtors.

 

Sending An Email

What happens when you make a bid and they accept it and you’re like, “I didn’t want to bid on that one?” I’ll give an example. I don’t buy in Cleveland. I know some people have made business with Cleveland stuff. They’ve got a nasty bond issue with the city and the city requires you to put up a bond on an asset. It takes a big chunk out of your profits and you don’t get all of it back. I don’t bid in Cleveland. Let’s say you bid on Cleveland and they accept it. What you’ve got to do when you get your bids back and you realize, “I bid on something I shouldn’t have bid on,” it’s simple. All you’ve got to do is send them an email. I would not pick up the phone and call. Some people are like, “What do I do? I’m afraid of burning a bridge.” Relax. This happens all the time. This is one of the reasons that we tell people you want to bid on more assets than you have funding for because not everything going to be accepted. If you want to bid on one asset and you got accept it, you realize, “I don’t want to buy that one,” you’re back at zero. You got to go back and look at the tape for more bids. Whereas if you bid on the frontend, ten, fifteen, twenty assets and you may narrow it down, you end up getting four or five accepted or countered. That’s okay.

Here’s the proper way to provide a, “I do not want to buy this crappy asset, cancellation of the bid.” Provide the reason. Send an email out. The thing is if you’re bidding on multiple assets, don’t send in one email per asset. You want to make it very organized, easy to read, easy to understand spreadsheet with the other bids. If you’ve been on ten, twelve and they come back and countered. Let’s say the counter is too high. You don’t like the counter. Simply say, “This does not work for me.” Give a little paragraph, “The value came in at $45,000. I’m not going to pay $37,000 for a $45,000 asset on a nonperformer.” Let’s say it’s a semi-performing asset, “I will not pay $0.85 on the dollar for something that’s not been consistent for a year.” We put that and, “Here’s my counter.” It’s always okay to counter a counter, “Here’s my number. Here’s what I need to be at for this to work.” Sometimes they’ll accept it. Sometimes they don’t. Send in an email with your spreadsheet of what you’re accepting or countering or declining. Put it all on there, “Client’s bid because the fact is I did not know about this $15,000 bond. The numbers are too high. We’re not going to include this into it based on the foreclosure timeframe.” Give some proof.

Loan Level Pricing

If you’re canceling because the values are way off, let’s say their online value in the spreadsheet is $60,000. You pulled numbers and our realtor drive-by and shows you that it’s worth $40,000, that’s a big difference in value for a $60,000 to $40,000 asset. What do you do? I send him a copy of the CMA, “Our realtors that drove-by the property say it’s worth $40,000, not worth $60,000. It’s worth $40,000 because of a couple of reasons. Foreclosures in the neighborhood, some crime, those things.” You have to realize asset managers or people that are selling assets consignment isn’t going to take the time to do every bit of due diligence on the frontend. They’re going to get a tape in and they’re going to send it out and wait to see what sticks against the wall with bids. They’re going to tell you loan level pricing, “Can you submit your bids in with loan level pricing?” What does that mean? That means they’re asking you if you’ve got 200 assets on there, but literally on a ten-year bid and you make a spreadsheet or copy the information of those ten and then put in your individual bids. It’s the same thing. They’re going to accept your counter back on those spreadsheets. You do the same thing counter, accept, decline, and buy, going back.

Common Mistakes

The thing is some people are like, “I’m afraid I’m going to burn a bridge.” Relax. You have to realize that you are out for yourself. If you keep worrying about what everybody else thinks, “I’m going to close on this asset because I made a bid,” no, you don’t. You haven’t signed a contract yet. There is no loan sale agreement signed. If you sign the loan sale agreement, that still does not mean that you can’t reduce your bids based on the due diligence. You can still fade your bid. The same thing is you will want to provide proof to the asset manager in an email. I would not get on a phone and call, they’re often busy. The easiest thing is to take some time, attach the proof of why you’re countering or why you’re declining or why you’re canceling the bid. It happens all the time.

The thing I want you to realize is it’s a normal thing. This is not like going out and buying a piece of property. A piece of property you’re going to make an offering on, usually there’s going to be an option period of seven to ten days. You’re going to pay an option fee. In a lot of states, you can put an option fee where it takes it off the market. That option fee is nonrefundable. If you cancel it within that seven to ten-day period, you’re up to $100 to $1,000 option fee. You’re putting some earnest money down. If you cancel your bid, cancel the contract on a property, you can earn this money back but you’ll lose out the $100 option fee. It’s very normal procedures for most places. We don’t have that in the note business. You’re not putting up earnest money for the most part, unless you buy a large portfolio. You’re not going to have to put up option money. Until you sign that loan sale agreement, you can still cancel. You can withdraw. You can still counter.

The last thing you want to do is not to respond. That’s the absolute worst thing you can do is say, “I’m not responding at all.” Get all scared and walk away. You’ll get blacklisted. I’ll get phone calls from asset managers, “Do you know this guy? Do you know this gal?” It happens all the time. I get phone calls, emails, “This person said they’re students of yours. Can you vouch for them?” I’ll vouch for a lot of people. Some people I won’t vouch for like, “I don’t know who they are. I can’t vouch for them.” My Mastermind students, I’ll vouch for. The thing is a lot of people are already sitting there thinking, “I got bids accepted. I don’t have any funding lined up.” This is where it comes down to the dance between making bids and due diligence while also marketing for money. Marketing for money is often the same thing.

Let me throw a map up of the assets they got accepted. Our offers accepted in these areas. That’s a dot. If you don’t give me any addresses, like a picture of the property, a picture of a property is going to be a lot better than a map with a dot. It’s okay to market and say, “I made bids on 50 assets.” That’s going to add a little pizazz to your marketing, but when you have something that’s finalized, take the time. Don’t map ten assets and throw it out there expecting people to fall over with money falling out of their pockets. You’ve got to do a little bit of extra marketing. You have to take it to the next level. You have to post a picture and talk about the exit strategy. Here’s one thing too you have to keep in mind. Don’t just post one strategy. You have to have an either/or for the most part. If it gets reperforming, great. If it doesn’t, then we’re going to foreclose. That’s an either/or. Foreclosure, while it may take a few months to do it, you always have the option for the Cash for Keys in that period. When you’re marketing, make sure you post it. Don’t just post, “It’s going to be reperformer.”

NCS 412 | Cancelling Bids

Cancelling Bids: Don’t just map ten assets and throw it out there and expect people to fall over with money falling from their pockets. You’ve got to do a little bit extra on marketing.

 

Why do you think it’s going to be a reperformer? Have they made it six months straight? Have they made it six out of twelve? If they made it six months straight, it’s likely going to stay reperformer. If it’s been six months since they made payment, it’s not a reperformer. It may be a nonperforming to foreclose on. Keep that in mind that you may have to look to foreclose. When you start to just focusing on the rosy side of things, things go wrong. You’re making your bids and a lot of people are like, “I got accepted but I don’t have any money raised yet.” You’ve got to market. That means you’ve got to send an email out to your database. You’ve got to reach out to people. You’ve got to talk to people. Talk to your network. Pick up the phone. I have people pick up the phone and call me. I was on the phone back and forth with somebody who’s canceled a bid. Just send an email and answer all of the assets. Once you’ve got ten bids that were accepted or countered, they’re going to want an answer to all of them. It’s okay to wait a day or so if you’re still waiting on realtors to get back to you because it’s Monday. Some people wait until the weekend, but I would follow up especially if you talked to realtors on Friday and they said they’d get back to you, “Follow up. I wanted to touch base. Where are we on you getting my CMAs back?”

This is where you may have to want to pay your realtors to get them to do their job. If a free servicer can do it for you, you’re going to expect some realtors on flights, especially if they’re going to drop by property for you. Simply say, “If your sellers come back, I want an update.” One of the things you can do is say, “I’m still pulling values on these assets. I’ll have an update for you in the next 48 hours.” That’s what you have to keep in mind. What happens if the realtors don’t come back to you? You need to get on the horn to get to somebody else. Do not sit around and wait. I’ve seen people who have posted in groups like, “Who has a realtor in this area?” and nobody responds. That’s their only choice to go out and try to pull values. That’s a big no. That’s a big shame on you. Don’t get me wrong, the WCN Crew Facebook page is phenomenal if you’re a member of that. What you have to realize is not everybody there is going to share their realtor. Not everybody there has a realtor in your specific area. One person was complaining and I’m like, “Didn’t you post it in WCN Crew?” They’re like, “Yeah.” I go, “Where is it located?” They’re like, “Some small little town in Ohio.” I’m like, “That’s the reason. It’s way out in the boonies. You’d probably need to pick up the phone or you need to probably cancel it.” Those two things. Pick up the phone and call or jump on Realtor.com, NAR.com, Zillow, NoteProz, ActiveRain if you need to.

Get Bids On The Counter Back

There are all sorts of ways to get a realtor, not just posting. Don’t sit there and post that one area and then sit around, “Nobody called me.” That’s on you. Get on the phone, use a little thing called Google, a realtor in Ashtabula or whatever, and start dialing for dollars. That’s the important thing. You cannot sit around waiting for realtors a week later and you still have no bids or no values back from realtors. That’s on you. That’s when you could get blacklisted. Get bids in and counter back. They either accept your counter. It’s okay to counter. If they counter back your counter, decline it, and then you have the choice to either go back to what they originally countered and accepted or say, “No, sorry. We’re too far apart on the numbers.” It’s okay to say, “I’m withdrawing my bid on this one based on area, based on the city, based on a number of things.” They accepted, declined, countered, cancel. Off the side in a separate cell or in a little paragraph and you send it to your asset manager, give your little reason why. “Here’s the reason why we’re canceling our bids because of this, this, and this.”

One of the other things too is we see a lot of value in tracking your bids. If you cancel your bids originally but you liked the asset based on your due diligence and you’re like, “They’re too high,” don’t be afraid to follow back up with the asset manager in 30 days. “I know that I canceled my bid on this one at your counter a month ago. Did you end up selling the asset? My original bid is still available. I’d still be willing to buy at my numbers.” I bought a lot of assets by following up over and over again. It went from a one-off asset or one-off, six-unit, small apartment complex in Florida before starting on eight-unit. Following up helps because a lot of times the asset managers have a number. Specifically sometimes the asset manager at the bank, their hands are tied because of what loan committee is doing. One committee in the banks is the committee that handles the note sales. Sometimes they’ll get together once every two weeks or once a month to look at bids and either accept it or carrying based on where everything’s at. Keep that in mind when you submit your bids. “How soon will I have counters back?” If they say one week or two, just wait around. Wait until we get the counters back and then start diving into it.

That’s the thing is those that take longer to get counters back, they often will have more that hangs around for a while. We don’t want to sit around for three weeks twiddling on what’s left of that one asset. We’re going to go out and be buying more and more assets and going out making more and more bids. Our capital from time to time get used up based on the new bids versus the old bids. Follow up. Don’t be scared. It’s okay to reach out to the asset managers and say, “Did you end up selling assets from a month ago or not? If you didn’t, here’s my new bid on it if you can see about it getting done.” Once an asset is hanging around for 90 days and hasn’t sold yet, the motivation changes for an asset manager or hedge fund manager or banker to move it off their books. It may be another 90 days late to reducing value. They’d rather get something versus nothing. Don’t be afraid to follow up with your bids once you cancel. It’s perfectly appropriate. It happens. We’ll do that with different lists that come out on a quarterly basis, “Those bids that I made last month, I see these assets are still available. Have you given any thought to my new bids?”

Sometimes the asset managers or the hedge fund guys or the person, the trader or the broker may say, “Let me resubmit the bids and see if the seller is willing to come down to pricing.” Then that’s going back and forth. Canceling a bid is not meant to be a stressful situation. As long as you’re communicating, that’s what sellers want. As long as you’re communicating on where you’re at in the due diligence process, as long as you’re communicating on where everything is at, where you are, any owes you find, when your realtor drives buy a property and see it’s trashed out, that would probably be something like, “This property is now trashed out. It’s been vandalized. The trashed-out properties are all around.” Share that information, communicate. That’s all we want to see in this business is communication. That’s one of the key focal points in canceling your bids. It’s a little bit different than buying a traditional piece of property or traditional real estate transaction.

NCS 412 | Cancelling Bids

Cancelling Bids: Cancelling one bid is not meant to be a stressful situation as long as you’re communicating; that’s what sellers want.

 

In the note space, we’re buying a whole lot more assets. We’re seeing a whole lot more inventory, so you have quite a bit more lenient cancellation strategies on your bid because you’re not dealing with the title company. You’re not dealing with realtors as far as listing agents are on this aspect. You’re dealing with a broker or a trader who has hundreds of assets usually on their books or a product like myself. Tell us why you canceled your bid. Don’t go silent. If you go silent, you will get blacklisted. If you communicate and say exactly what’s going on, the seller will work with you again. They’ll trade with you different times as long as you communicate why you’re killing your bid. That’s what I wanted to talk about in this episode. It’s a pretty easy process. It’s not meant to be a stressful situation. Take a deep breath, communicate, pick up the phone and call somebody, “How do I handle this?” Several people are doing it. That’s completely fine. Drop me an email at Scott@WeCloseNotes.com or send me a direct message on Facebook as well. Other than that, go out and make something happen. We’ll see you all at the top.

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