Lowballing offers on the MLS to get deals

[Richard Rodriguez]

Hello,

I recently read an article that a successful rehabber/wholesaler wrote on sourcing deals from the MLS. Basically, what he was doing was selecting certain properties that fit his criteria and submitted an offer which was about 30-40% below ARV. He has been successful for years doing this and I've heard of others doing this.

However, others have forewarned me about lowballing offers on the MLS because I will create a bad reputation amongst agents. It's a small world out there and my name will get around as a "low ball" investor.

What do you all advise? Is anyone doing this? If so, please share your experience.

Thanks!

[Mike H.]

I think there are two different things in play here. To me, there's a difference between "lowball" offers and putting in offers at 60 to 70 percent of the ARV.

A lowball offer is offering 40k on a house that is worth 100k and needs 10k in rehab. But an offer of 60k on that same house is not a lowball offer and the agent shouldn't have a problem. If they do, then find a new agent. You're an investor, not a retail buyer.

I really believe it depends on a lot of factors (i.e. area, price of homes, etc). But, for me, I need to be all in (purchase plus rehab) at 70% of the ARV of the home. I might go to 75% if its a really great house or something and I just want to be able to take it down.

If an agent doesn't understand where an investor needs to come in at on their deals to make money, then you need to find a new agent. You aren't going to create a bad reputation by putting in those offers. You'll get some accepted. Just be sure you can close on the ones you get accepted and you'll have a great reputation. They'll think of you as an investor that is getting good deals and that takes them down when they find them.

60% of ARV seems a bit low to me so that may be lowballing just a bit. In this market, I just don't see anything being taken down where the purchase plus the rehab is 60% of the ARV. But be sure you include that one factor in there (purchase PLUS the rehab).

If you have a 100k house that needs 30k in rehab, you can't put in an offer of 60k. That would be silly. Your offer needs to be around 35k to 40k tops. Maybe 45k. The offer and the house's estimated value should never have a direct correlation. It should always be the offer plus the rehab against the houses' After Repair Value.

Explain that to the realtor and you should be fine. If not, move on. They don't know a good client when they see one. When I first started, I was buying 40k houses at a rate of about 3 a year and was looking at tons of them. My realtor was super responsive back then and stuck with me. Wasn't make much in commissions but she saw the potential. Now I'm doing 80 to 90k houses and I just did 6 last year. I'm one of her best clients now.

Good realtors will work with you. But I'd also look at doing hud homes if I were you. Its far easier to put bids in there. You don't have to sign a 10 page document to put an offer in. Only need to sign something if you get it.