The Lowest Acceptable Offer Strategy You Need

Acquisitions will struggle with the lengthy process, which involves gathering comps, completing pre-appointment checklists, and unfortunately, inflating comps and minimizing repair costs to meet the minimum net profit. In reality, these minimum spreads often ended up being less, making the process frustrating and inefficient.

This leads to what we refer to as the “circle of chaos.” Despite aiming for our minimum acceptable profit per deal, inflated rehab costs and comps led to an average profit of 25% or less per deal. This discrepancy resulted in a strategy that fosters manipulation rather than genuine value creation.

The Lowest Acceptable Offer (LAO) strategy is a revelation.

The LAO approach emphasizes determining the lowest price a seller would accept to resolve their issues, rather than just meeting an arbitrary number. This requires precise language and a shift from focusing on allowable offers—numbers that sellers might hear but not act upon.

Understanding this, we realized our true role was to solve problems rather than chase a specific profit margin. This insight completely changed our perspective on the business. It was akin to the realization that, as Ray Kroc suggested, we were not in the home-buying business but in the problem-solving business. Instead of focusing on a small cut of a transaction, we needed to focus on creating significant value.

We shifted our team’s focus from being mere home buyers to being dedicated problem solvers. This strategic change has been crucial in avoiding a less contracts and ensuring continued growth.

Your marketing and all your front-facing strategies should emphasize this problem-solving aspect. By firmly establishing yourself in the seller problem-solving business, you can tackle various issues more effectively.

So, what problems are you solving? This is crucial, especially for the acquisition team. One challenge you might face is helping your acquisition manager understand that their role isn’t just about negotiating on price. It’s essential to convey that you bring more to the table than just a financial offer. You’re offering expertise and liquidity. Just as the stock market provides liquidity to the macro economy, you provide liquidity to the local real estate market.

You’re also a market maker, much like the stock market, by connecting buyers and sellers in your local environment. This connection is something sellers can’t easily make on their own. But as you start to understand that you’re improving someone’s situation rather than just making a profit, it becomes clearer. Reintroducing the Lowest Acceptable Offer (LAO) can help shift this perspective and keep your team focused on solving problems rather than just meeting a target number.

Implementing this new approach may seem challenging, but defining a clear sales process is a crucial first step.

Key elements of your sales process should include:

• Setting expectations
• Using a pain funnel to understand the seller’s needs
• Determining if they are a good fit
• Providing solutions, and closing the deal

A significant part of this strategy is the mindset shift. Acquisitions should not be bogged down with analytical, numbers-based tasks. These tasks can detract from their primary role, which is engaging with sellers. If your acquisition team is frequently shifting between analytical work and appointments, they may not be at their best during meetings. Focused, emotionally prepared people will perform better if they can concentrate on understanding and addressing seller needs without the distraction of crunching numbers.

You may find yourself in a similar situation—trying to get the highest comps because you mistakenly believed that offering the most money was the best way to help sellers. This misconception leads to conflicts with the acquisition team. Criticizing the comps, calling them inaccurate, and offering the most money would solve the problem and make everyone happy. But that approach wasn’t effective.

We adopted a clean slate approach, which involves showing up to appointments with only the essential information needed to build trust and establish a relationship. This approach helps avoid overloading your acquisitions with unnecessary details and keeps them focused on the human aspect of the interaction.

One key rule is the importance of earning the right to have a hard conversation about price. Without trust, the Lowest Acceptable Offer (LAO) approach won’t work. Trust is fundamental.

Previously, you might have tried to get the seller’s price first. Now, you don’t prioritize their price. If a seller gives you a price, you acknowledge it but move on to focusing on understanding their problems rather than just throwing numbers around. In the end, you will see it is an absolute a game-changer and hopefully have you walking out of the property with a signed contract.