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New Seller Financing real estate investors often ask, “what is your acceptance rate of getting Seller Financing proposals accepted and approved by Sellers?” It’s a good question, and the answer involves a critical strategic point: the acceptance rate is entirely dependent on how the prospective buyer approaches the Seller and handles the negotiation. In this episode, Jeff explains the strategy for “diagnosing before you prescribe,” which drastically increases the overall acceptance rate of Seller Financing proposals.
Episode Transcript
Well, setting expectations and having realistic expectations is important, right? Well, you might wonder and other people might wonder, when you’re making seller financing proposals, what’s the sort of average acceptance rate so that we can set our expectations correctly? Well, it seems like it should be a straightforward answer might just give you a number and say, Oh, it’s 25, or it’s 42, or it’s 57. But you know what, it’s not quite that simple. The real answer is a more strategic way of looking at it. And it brings up a really, really important point that I want to discuss with you in today’s episode. So let’s cue up that theme song and we’ll jump right in/
Welcome to Racking Up Rentals, a show about how regular people, those of us without huge war chest of capital or insider connections, can build lasting wealth acquiring a portfolio of buy and hold real estate. But we don’t just go mainstream looking at what’s on the market and asking banks for loans, nor are we posting We Buy Houses signs are just looking for “motivated sellers” to make lowball offers to. You see, we are people-oriented deal makers, we sit down directly with sellers to work out win-win deals without agents or any other obstacles, and buy properties nobody else even knows are for sale. I’m Jeff from the Thoughtful Real Estate Entrepreneur. If you’re the kind of real estate investor who wants long term wealth, not get rich quick gimmicks or pictures of yourself holding fat checks on social media, this show is for you. Join me and quietly become the wealthiest person on your block. Now let’s go rack up a rental portfolio.
Hey there thank you for joining me for another episode of Racking Up Rentals. This is episode number 183, which means show notes can be found at. Please do us a big favor, and yourself a big favor, by hitting that follow or subscribe button in your podcast app; it really helps other fellow thoughtful real estate entrepreneurs to find this show because the platforms know that you’re listening, and it makes them want to spread it to other people, and of course, make sure that you don’t miss anything coming up either. Onward with today’s episode.
So somebody in The DEALS Workshop recently asked me the question what is the percentage success rate, on average, for somebody who’s good at making seller financing proposals? In other words, what’s the average acceptance rate? And as I was going to answer this person, I was thinking to myself, you know, even if I could give them a really specific number of percentages of seller financing proposals that are accepted, I thought to myself, gosh, that really wouldn’t be the right answer to this anyway. Because the truth is, it’s all in the approach, the acceptance rate is all in the approach when we have the wrong approach, where we don’t have the conversation correctly with the seller, well, then the answer is, the acceptance rate is low. But when we have the right approach, it means the acceptance rate is really, really quite high. And that’s what I want to talk with you about in today’s episode.
So if you know me, you know, I kind of like analogies. And I like to shift the context of a situation because sometimes, an idea is a little bit more clear when we see it in a different type of situation. So imagine this, you have scheduled an appointment with a doctor, and you know what you want to talk to the doctor about, but you haven’t told them you just scheduled the appointment. And the people who check you in, you know, leave you in a waiting room for a couple of minutes. And then they say, Oh, great, the doctor will be with you in a moment. Let me lead you back to the exam room and you go in and you sit in the exam room, and you wait. And about three minutes later, the doctor comes through the door and she says to you, hello, it’s so good to see you. So what I’d like to do is prescribe you with XYZ pharmaceutical. And you kind of stop and you’re like, what? I haven’t even told you what I’m experiencing. I haven’t even told you any symptoms. I haven’t told you how I’m feeling I haven’t told you what’s wrong. You haven’t asked me a single question. So I couldn’t have told you. Yet you’re making this prescription. And if that experience happened to you, how would you feel? Well, you’d be creeped out. You’d be flabbergasted that it was happening, but your guard would go right up. Why? Because this prescription that the doctor wants to give you is based on absolutely nothing. And what would you be thinking you’d be thinking yourself? I guess she just wants to give me this prescription. Regardless of what’s actually happening. He started to think then like, oh, maybe she’s being incentivized by this drug company or something to promote this pharmaceutical drug or whatever it is, you would think to yourself, Wow, this is bizarre. And now my overall confidence in this doctor is much, much less because that is not how this is supposed to go. You’re supposed to ask me questions, first, find out how I’m feeling and then thoughtfully come up with the right solution based on where I am and where I need to get back to, in medicine like this. And this analogy, prescription before diagnosis would be called malpractice.
But what is it in the real estate investing industry? Well, it’s normal. Unfortunately, it’s quite normal. So don’t do that. We don’t want to do that. And that is what we are doing. Most of the time, when we are making proposals. And in this case, it’s probably mostly offers instead of a full, thoughtful proposal. But we are making a seller financing proposal that is effectively the prescription for something that does not match a diagnosis. So the lesson here is diagnose. Before you prescribe, your proposal is like a prescription. Your proposal is like saying, seller, I’ve been listening to you, I’ve asked you a few questions, you’ve been very clear with me about what you’re trying to accomplish with the sale of this property. And as a result, here’s what I’m recommending we do. Your proposal is a prescription. But you must diagnose before you prescribe. What does diagnosing really look like in the case of working with a seller? Well, it basically is conversations, it’s you spending time with the seller. And as you know, I’m a big fan of spending time in person with the seller.
Secondarily, not nearly as good, but secondarily, some time spent over the phone with that seller, as well can be helpful. But it’s about having conversation with them. It’s about listening to what they’re telling you voluntarily. It’s about asking really good questions. And then listening to those answers and following up on their answers with appropriate follow up questions. Because really, what you’d like to do is you’d like to ask really good questions that create opportunities for the seller to say out loud, the things that give us the seller financing clues. Now, we’ve talked about this before on this podcast, but let me just give you a couple examples of the seller financing clues, we are always listening for the seller to give us things that they either say directly or allude to, in our conversations, they might say to you, I would like to sell this property, but I like to have the income from this property. That’s why I have this rental in the first place. If I sell this property, there goes my income stream. And that makes me hesitant about selling it. They may say, you know, if I were to sell this property, I’m gonna get a bunch of cash. And I’m not really sure what to do with that cash. That feels like kind of a burden or problem for me to figure out what I could do responsibly with his cash to redeploy it and get a reasonable return and keep it safe. And I don’t have any personal debt to pay off. I don’t need to go buy a yacht or anything like that. I’m just not sure what I would do with the money anyway.
And the third really big thing that they often talk about is their desire to avoid the pain of a big capital gains tax bill, right, a seller will say, Gosh, I’d love to sell this property, but I’ve had it for a long time the capital gains tax would kill me. And I am not really in the mood to just go buy another replacement property through a 1031 exchange. And so I’m really not sure about selling and I’m hesitant for that particular reason. Now, when we’re talking to the seller, and they’re alluding to these things, they’re giving us the clues that let us know that there is a diagnosis here that could be adequately addressed with a prescription, a proposal that centers around seller financing. So if we properly diagnose with the seller, and then present the prescription to the seller, the proposal in light of that diagnosis, back to our original question, then our acceptance rate is very, very high.
Now one thing I want to point out is that the seller usually does not see themselves as a patient and they don’t see you as a doctor. But the metaphor still makes good sense from our perspective, because we know that what we’re trying to do ultimately, is put a proposal in front of them, that has a really high likelihood of them saying yes to. So that means the proposal has to be really accurately reflecting, where they’re at what they’re trying to accomplish, what their challenges and concerns are, what their goals are, et cetera. So the seller is not seeing themselves oftentimes as really having a problem, they’re not coming to us as a solution provider to solve that problem. So they’re not thinking that they need a diagnosis, but they are definitely, definitely going to react to a proposal, a prescription that does not adequately or accurately address what they’re trying to accomplish.
In other words, they definitely will react to an inappropriate prescription based on their own diagnosis, it has to be logical in their mind that the prescription, the proposal you’re making matches their situation and what they’re trying to accomplish. So if we properly diagnose and then present the prescription, in light of that diagnosis, our acceptance rate is very, very high. But it gets very low. If we make one of two big, big, big mistakes. One is that we mis-diagnose. And the other one is that we don’t really diagnose at all. Let’s take a quick look at each of these two things individually.
Mis-diagnosing? Well, one thing I’ve noticed with working with coaching clients is that sometimes they’re so excited to buy a property with seller financing, they start having a conversation with the seller, and they’re so determined, ultimately, to make a seller financing proposal. That is sort of like they hear what they want to hear in terms of the diagnosis. And then they make the prescription they want to make, regardless of whether that’s actually what the seller said. So to give you kind of a more literal example, a really enthusiastic and eager student who’s new to making seller financing proposal starts talking to a seller. And, you know, the seller talks about how they’ve owned the property for a long time. And the new investor goes, Oh, that’s everything I need to hear, let me immediately make a seller financing proposal. Because what they were doing is they were they were listening for what they wanted to hear not for what the seller was actually saying they didn’t dig any deeper. They didn’t really interpret what the seller means or what the seller feels about the fact that they’ve owned the property for a long time. And then they just jump right in with their prescription, but they haven’t properly diagnosed the seller at all.
The second category is when they don’t even diagnose the seller whatsoever. It’s not a misdiagnosis, it’s just a complete lack of diagnosis. So in other words, they’re not even asking questions, they’re just waiting for the opportunity as soon as possible to say what they want to say, which is how about I buy your property with seller financing. And when you do that, you can’t possibly present a seller financing proposal in light of their situation, because you don’t even know their situation, you don’t, you haven’t even taken the time to understand it. So, the way that we can be assured to have a very low, very, very low acceptance rate on seller financing proposals is to either mis-diagnose, or to not diagnose at all.
So to sum up this key message for you today, you should know that if you find yourself in a position where you are making seller financing proposals that truly address what the seller is honest to goodness telling you, their situation is and their objectives are. And their concerns are, your rate will be of acceptance will be really quite high. More, you’ll get more yeses than you will notice because you’re suggesting something that is logical and makes sense to the seller based on what they have told you. However, if you are making seller financing proposals that are either too fast or based on lack of information or based on the wrong information, then they’re going to feel like you’re prescribing something to them that does not at all match the symptoms that they are experiencing and it’s going to feel to them honestly really random. It’s going to feel really like you’re making a very self-serving recommendation. It’s not about them at all. It’s just about you and what you want, and it will cause their guard to go up and cause them to shut down and cause your overall acceptance rate to get very low.
That is it for today’s episode of Racking Up Rentals. Again, show notes can be found atthoughtfulre.com/e183. Please do us a big favor, and yourself, by hitting that subscribe or follow button in your podcast app and do an even bigger favor for us by rating and reviewing the show. Oh my goodness, I see every one of those. I’m so grateful. And it really really does help get this show message out there.
Did you know that we have a Facebook group for Thoughtful Real Estate Entrepreneurs too Yep. It’s called Rental Portfolio Wealth Builders and we’d love to have you join us over there and hang out with your fellow thoughtful real estate entrepreneurs. Just go to group.thoughtfulre.com and the magic of the internet will forward you straight to that page in Facebook and you can join us. If you liked this episode, please take a screenshot of it, post that screenshot to Instagram and tag us on Instagram; we are @thoughtfulrealestate. Alrighty, I’ll see you in the next episode. Until then, this is Jeff from the Thoughtful Real Estate Entrepreneur signing off.
Thanks for listening to Racking Up Rentals where we build long term wealth by being win-win dealmakers. Remember: solve the person to unlock the deal and solve the financing to unlock the profits.
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