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Updated about 2 years ago on . Most recent reply
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What is “too low” of a offer on a home in todays market?
I recently made a offer to a home that needed a little more then TLC. Besides painting, property needed whole new flooring, updated appliances, some cabinets repair, AC unit is on its last leg, water heater almost 15 years old, and whole lot of cosmetics like windows, old plumbing and the yard front and back completely neglected. I submitted a 25% offer off the listing price. My realtor told me the following Monday that they responded with “Seller was insulted by the offering and will not be countering”.
can I get some advice on what is a low offer? Is 25% too low? Is 15%?
Thanks
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Quote from @Dustin Allen:
The right price would be based on how much the repairs actually cost to get this to a condition that matches the best homes on market. Too many times, we see clients who say “Thays a lot of work, I want $100k off”. When the work only costs $50k, sellers won’t be happy. Dig into the numbers and get accurate info and pricing on your repairs. This will allow you to make accurate offers that the listing agent can explain to the client.
If you want to just shotgun offers at everything with 25% under list price, be prepared to be ignored by a lot of sellers and looking for new agents frequently. There are agents who will write these offers regardless, they are probably the less busy ones. The more experienced agents will want to know that there is at least some thought being put into the offers so that they can back it up when talking to the listing agent.
>clients who say “Thays a lot of work, I want $100k off”. When the work only costs $50k, sellers won’t be happy.
For a $50K cost of value add, my minimum expected return is double (so at least $100K value increase for the $50K cost). That is the minimum! This is because 1) these value adds take time and effort 2) The time of these rehabs typically have zero income. 3) If I am doing a BRRRR, I only get 75% of the added value. In this 75% refinance LTV, I also want to recover my initial investment. This implies that if the $50K effort only returned $75K of value I would not be getting any recovery of the initial investment. 4) any significant value add has risk. An expected project of $50K can easily turn into a cost of $75K.
If you do not get at least a $100K discount for an expected $50k project, you will not very successful with your value add effort.
Sellers of course want to price to take advantage of the value add of the buyer. They should not expect this. If they want to do the work to obtain the benefit of the value add, they should do the work themselves. Any investor who does not at least expect a doubling of value, compared to the value add cost, is underselling their efforts.
BTW I have done quite a few BRRRR and so far in every one, I have achieved a value increase of at least double the value add cost.
>The more experienced agents will want to know that there is at least some thought being put into the offers so that they can back it up when talking to the listing agent.
I may share my offer logic with an agent, but if they are expecting it they will not be my agent for long (or they can discount their commission for what I am teaching them). As an RE investor, I do not expect to pay retail. I also desire to make as much profit as I can. If the agent does not want to make my offers, there are plenty of agents that will. I have purchased $4M in RE in the last year; I suspect there are many experienced agents that would like to represent me.