In Agent We Trust - How do you know?

Question

My wife and I are just about to make our first offer on a  couple of BRRRR properties. We have completed the prep in reviewing comps, using the amazing BP calculators!, walkthroughs with contractors, and reviewing our financing options. We are ready to offer....

The offers will be significantly lower (30%-40%) below asking. My questions to those with the experience.

1. We have the data to support the offer but how can we ensure our offer will be represented well with the justification? I know there are success stores of talking directly to the sellers but how do you handle this with agents?

2. Both properties are listed with the same agent but different owners. Would making a package offer on both provide any advantage in pushing the listing agent in selling the sellers? (which we would love both)

In the end I'm trying to position ourselves in having the highest confidence that our offers will be sold well to the sellers.

Any recommendations and or feedback would be greatly appreciated!

Andrew Johnson · Answer

@Joshua Tikal I'm winging it with my "analysis" so take this for the three penny's that it's worth:

So for Property #1 I wouldn't overthink it, just make your offer and move on.  If it's been off and on the market for 2-3 years then you really have nothing to lose.  I'd be curious if there's "price history" that will tell you the prior listing prices.  I wouldn't bother with trying to educate the seller or the seller's agent.  I would guess that the owners have a price and if it's not met they will just keep running it in the current state.  I wouldn't waste time overthinking anything, just offer and see what happens.

I really don't have any idea about Property #2.  I'd just make sure that everything is permitted and that you can rent 3 individual units.  Those basement units can sometimes be a little weird.  And there are more than a few ADUs (like your stand alone structure) that might get thrown up unpermitted.

Bottom line (from my perspective) these sound like dumps.  I don't mean that they have to remain that way but if $30K is 40% of the asking price of a 3 unit property...well...it is what it is.  If I were in your shoes and confident with my numbers I'd make your 40%-60% of list price offer, all-cash, and waive contingencies.  At that point, if they pass, just walk away.  But that's me.  I'm not big on massive rehabs of old properties so I'd pursue this a lot less aggressively that a lot of other people on here.

Bill F. · Answer

@Joshua Tikal it all depends on the relationship between your agent and the selling agent and/or the relationship between the seller and their agent. Like @Andrew Johnson pointed out, who the seller is and where they are in their lives can make a difference. How long have the sellers owned the properties, are their any outstanding liens against it, if so what are their balances, have any permits been pulled for the properties since they owned them. All of that data can can clue you into the sellers motivations and limits.

A lot of SFRs around me are listed at above market, but when you do a little digging you find that the listed price correlates highly to the outstanding loan balance. I still offer my price on those homes, but 9/10 I get told rejected. If the seller wanted to do a short sale they would have or let it go into foreclosure, but since they have listed the property at their price they are sending a signal to the market: they want to get out of this property, not take a hit to their credit. Said another way, they value their credit/reputation more than they do the cost of their monthly mortgage payment.

Control the controllable in this situation; you can't really make anyone do anything, but if can figure out why the ugly duckling has come on and off the market for the past three years it could help you tailor your offer to solve a problem the seller has or it may tell you to ditch the deal and run.

Bill F. · Answer

@Joshua Tikal Congrats on finding homes and putting in the offers, a lot of people don't make it to where you are.

Are these owner occupied SF homes that you've found on the MLS? If they are, sadly all the data in the world usually doesn't convince a seller that 'their' house isn't worth what they have listed it for.

Most sellers look at how quickly closing will occur( Cash helps over a loan), the final price ( for some reason sellers don't look at who pays closing costs all that they care about selling amount), and the due diligence time you require.

I'd make the offers at your price. If they take it, great! If not,  let them know the offer stands and move on to your next property.

Good Luck!

Joshua Tikal · Answer

Thank you @Andrew Johnson. I would be very curious how many offers over the three years. I'm sure plenty have seen the age on the market and just throw a number in the pot. Another factor is the seller, so we are not very optimistic but the numbers are the numbers so we will see.

Andrew Johnson · Answer

@Joshua Tikal Don't get me wrong, there's a group of sellers that probably would appreciate the reasoning but you do end up with a game of telephone: you -> buyers agent -> seller's agent -> seller.  And then reverse that to get the mutated version of the seller's actual thoughts.

And given your data about the properties I really wouldn't be worried about a rejected offer.  If a property has been on and off the market for 3 year it's not like it's going to sell tomorrow ;-)

Joshua Tikal · Answer

Thank you @Andrew Johnson. We are probably spending and thinking way too much with these properties. Being our first we just want to make sure our t's are completely crossed. I'm sure as we get more offers under our belt we will streamline our analysis and thought process. Sounds like we are assuming there is way more thought and reasoning with the agent and seller than reality.

Joshua Tikal · Answer

Thank you @Bill F. After spending more time with my agent and now walking with the contractors I am finding the consensus is the level of unknown and cost due to the age of the home and the lack of maintenance from the owner. This is absolutely fair but the town is full of homes that are over a century old so this risk is not uncommon. The lack of demand is also something we will be leveraging.

We are concerned about the relationship and interaction between the agents and seller due to the lack of control. We are trying to find ways to proactively mitigate but we're not sure if this is possible.

Joshua Tikal · Answer

@Andrew Johnson thank you for the feedback. Both properties are  multi-tenant and are not owner occupied.

Property #1 has been on and off the market for 2-3 years. There is lots of work as the property is over 100 years old and the owner looks to have put the minimum into the maintenance in order to just keep tenants. The property has two units 1x1 and 2X1 which the 2 bed is occupied. The rent is 30% lower than what the market value is with rehab. This also brings in lower level renters which we are wanting to change.

Property #2: This is a 3 unit which is also partially occupied. The primary level is a 2X1 which has clearly received the attention. Only 10% of the rehab budget  would be allocated to the unit. The remaining 90% would be split to the other two units one in the basement and the third being a standalone structure. They are in significant need for rehab through both properties.

The rehab for each will be 30k-40k which is 25%-40% of asking to give an order of magnitude. Also, we are learning very quickly how "creative" owners are when describing the number of bedrooms. Our definition of a bedroom is more than just a room with a closet. We will be providing rooms that have doors and do not act as a pass through to the remaining areas the property. Crazy I know!!!  We just want to offer a good honest product and hopefully have a reputation as such.

What are your thoughts?

Joshua Tikal · Answer

@Bill F. thank you so much. We are motivated and ready to move forward. We know this is our future and are ready to work hard and grow! Both properties are multi-tenant, none are owner occupied. Bother are partially occupied but with low rent rates with lower level renters which we are looking to change.  #1 has two units and #2 has three units.  Both are on the MLS which one has been on and off for 2-3 years. This property is the ugly duckling that no one wants which is all the more reason why we do!

Do \ can the agents provide influence on the sellers? I ask because quite honestly we have an agenda and are not influenced as the buyer. We essentially just need to the agent for keys but we need to agents to push the sellers.

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