How about making offers "minus repair costs" when in doubt

Question

As a newbie wanting to get a property under contract, how about getting a tentative offer 'minus repairs tbd(by contractor/inspector)' accepted? Have any of you lacking rehab estimation knowledge done something like this? Without experience I'm worried there would be a tendency to either underestimate repairs causing a large gap between what the seller already accepted and what realistically you could offer after having a contractor have a looksie or overestimating and losing the deal entirely. Is this something easilly accomplished with the standard contract? Is it an overall good strategy for a beginner without a more knowledgeable partner?

And while on the subject, how do the pros do successful deals "virtually" on properties they get offers accepted before even seeing the properties?

Do they just only settle for deals done by the lowest offers possible to make room for underestimations on repairs? I'd imagine only taking deals on such low offers would limit you to so many of the available deals.

And while on the subject, how do the pros do successful deals "virtually" on properties they get offers accepted before even seeing the properties?

Do they just only settle for deals done by the lowest offers possible to make room for underestimations on repairs? I'd imagine only taking deals on such low offers would limit you to so many of the available deals.

Sam B. · Answer

@Benjamin Cowles  Understood.  In such situations, I would have my agent provide as much detail as possible from the listing agent on the property condition, estimate what it will cost to repair, add in a conservative cost overrun and you have your starting offer.

Even without experience, you should be able to put together a +/- 20% cost of rehab just drawing on numbers available on the web/books like JScotts The book on flipping houses, etc.  I would also consult heavily with your agent as they should have a good idea of what offers are coming through for this property type with rehab required.

If you're bringing a cash offer, you can generally be more aggressive (ie lower) with your initial offer.  If you require financing, you'll have to offer closer to market price.

As of late, in my market, values have been coming up as more investors get involved.  Thus, my first offer that might have been 65-70% ARV a year ago is now closer to 80% ARV, based on my initial estimate of repairs (estimate put together solely on information I can get from my agent/others in the area).

Again, your fail safe is going to be a strong inspection clause in your initial offer.

Your statement of:  'hey, I can give you 65k(on your 100k home) minus repairs' isn't a bad place to start, especially if your offer is cash and your market isn't a hot one.  With a cash offer and a slower market, you can usually get a counter-back from the seller and at least see where you're at.

Benjamin Cowles · Answer

thanks @Sam B. but I'm asking about how you factor in rehab costs before having any pro's look at it, BEFORE you get the seller to accept, in your offer. I've been planning on researching all I can on costs for materials and labor but without experience I doubt any studying will give me the experience needed to make any confident estimates. So I'm thinking just forgoing the entire rehab portion of the valuation and giving seller the 60-70%/ARV offer, like 'hey, I can give you 65k(on your 100k home) minus repairs which within the week I'll have my contractor/inspector help me determine. How does that sound? Sign here?' hoping the seller has a close enough idea to what those costs will end up being.

Sam B. · Answer

@Benjamin Cowles  Discuss with your agent (or local representative) but what I always do is ensure you have strong inspection clause in the contract, allowing X amount of days for inspection after the property is under inspection.

Perform your inspection (or send in your project manager/GC/boots on the ground), put together a scope of work to get it rent ready/flip ready etc, submit these line items, corresponding cost & overall price reduction back to your agent and see how the seller responds.

If the seller does not concur/will not budge on the price, you should be able to withdraw your offer based upon your inspection clause.

**This is how my agent relationship and purchase contracts work for me - again, be sure to perform your own due diligence with your agent or local representative and ensure this will work for you**