Orlando, FL · Member since 2014 · 38 posts · 5 votes
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.
Rental Property Investor · Manteno, IL · Member since 2009 · 2k+ posts · 2k+ votes
12y
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.
Rental Property Investor · Manteno, IL · Member since 2009 · 2k+ posts · 2k+ votes
12y
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.
Severna Park, MD · Member since 2013 · 7k+ posts · 7k+ votes
12y
I never liked the term "lowballer" . A low offer is simply an offer lower than the asking price , usually much lower . The seller can simply say "no" , or they can counter , emotions should stay out of the negotiation.
Residential Real Estate Agent · Cookeville, TN · Member since 2013 · 1k+ posts · 948 votes
12y
I'm a rehabber and Realtor (in that order). Most of my deals have been MLS listed REOs. And I often had to buy them at significant discounts compared to their asking prices. And the asset manager often accept my offers, but sometimes they don't. Here's a great example. One of my deals was listed at 75. I offered 45. The asset manager replied back and countered at 48. I took it seeing as how the ARV was about 100 with 15 or so needed in repairs. Also, my advice to you would be to become a Realtor yourself if you will be dealing with MLS properties.
Sherman Oaks, CA · Member since 2013 · 3k+ posts · 2k+ votes
12y
In my newbie opinion, it is your job as an investor to pay the lowest amount possible to create the most value possible. If it appears lowball so be it. My guess is a lot of times the perceived lowball offer is more realistic.
Guys offer low buy prices on stocks all day and no one ever says they lowballed....they call them smart investors.
I know of one older MLS listing my buddy offered 30% arv. Guess what, they sold a 69k mls for 20k cash. Was he perceived as low baller or smart? He does not care either way.
Investor · Canton-Akron, OH · Member since 2012 · 917 posts · 477 votes
12y
I personally cant imagine any successful rehabber writing offers 30-40% below arv as a strategy, instead of running a more analytical formula. Around here you could buy a lot of houses at those prices off the mls and agents would love you.
I just looked at the last two we got a contract on, and all of them were bought at larger than 40% discounts from ARV.
#1 ARV 229-239 bought it for 110,000
#2 ARV 189,000 purchased for 99k.
Last two we sold
Sell Price 105, 000 bought for 43k
Sell Price 124,000 bought for 32,000 ...what you dont see here is the amount of renovation required, this one needed new septic, roof, hvac and the list goes on.
If I would have offered 30% of ARV on any of these, I would lose/have lost money on all of them.
Real Estate Investor · Minneapolis, MN · Member since 2013 · 61 posts · 33 votes
12y
I'm a newbie and I'm for the so called "lowball" bids. You never know how low someone is willing to go unless you suggest low. And I've been told that if I'm not ashamed of how much I've offered then I've offered to much. And if the seller immediately accepts the offer... You've offered too much. Lol.
Rental Property Investor · Manteno, IL · Member since 2009 · 2k+ posts · 2k+ votes
12y
@Barry M. Well, I'm not sure I'd go with that theory. I don't think the idea is to throw out embarrassing offers every time either. To me, its all about whether or not the numbers work. If the numbers work, then step up and take it down.
In this market, things are so competitive that I think you'll be hard pressed to put in super low bids. To me, I target being all in (my purchase plus my rehab) at about 70% of the ARV.
That, to me, is a fair number but also a number I know I can usually make good money on too. I still have to run my numbers though because sometimes even that is too high.
I also know an investor in areas like romeoville where they could actually afford to pay 80% of the ARV and they would still be making a great profit. Its a crazy town because of how super low the taxes are there compared to where I'm at.
But I don't think your offer should ever be about getting the absolute lowest price possible. I think it should be about getting the house at the right price that enables you to make money. If you simply are trying to get the lowest price possible, you are likely going to be missing out on all the deals.
A few years ago, that may have worked. And that philosophy of embarassing offers may work if you're dealing with motivated sellers that are calling you direct. But when you're dealing with MLS listed homes where there's a bunch of competiton, you are much better off just putting your best foot forward on your offer so you have some semblance of a chance at taking it down....
Sherman Oaks, CA · Member since 2013 · 3k+ posts · 2k+ votes
12y
I would also agree with Barry and Dell. Every offer is circumstancial. My buddy looked at a 6 month old MLS listing in that above case. 99% would believe that 20k was a lowball offer regardless...including his realtor. What no one knew was that house was inherited and the folks just wanted the liabilty gone. They would have accepted 50k obviously and he would have never known he could have bought it for 20k if were not for his crazy lowball circumstancial offer.
Real Estate Broker · Mountain Lakes, NJ · Member since 2013 · 22 posts · 12 votes
12y
Lowball offers are ok, as long as you close every single time the offer is accepted. I hear people suggest that you offer on 10 to get 1. Which is fine. But what happens if all 10 get accepted? Are you ready to close on 10 units at the same time? Make offers as if they are going to be accepted.
If you don't close every single time, or at least 95% of the time, your offers will be meaningless and listing agents will brush them off.
Residential Real Estate Agent · Cookeville, TN · Member since 2013 · 1k+ posts · 948 votes
12y
@Troy Weygandt - I do NOT expect my offers to be accepted - at least not the initial offer. And I have at times had offers out on several houses at once. Probably not 10, but 4 or 5 for sure. And if all of those would have been accepted, I would know that I made 4 or 5 mistakes by offering too much. I've bought 30 something properties with most being MLS listed. Almost never has the initial offer been accepted right off the bat. And I've closed on every single one that was accepted. Only once did I re-negotiate because of termite damage that I found during the inspection, but even closed on that one after a small renegotiation to the price.
I have found homes at steep discounts on the MLS by working with a great agent that is also an investor. He gets the listing to me within hours of it coming on the market. These properties are primarily bank owned and come inline with the 70% Rule, but they are priced low due to the extensive work needed. The competition is high and cash buyers win.
Real Estate Broker · Mountain Lakes, NJ · Member since 2013 · 22 posts · 12 votes
12y
You're right. @Bryan L. Let me rephrase.
Offers accepted after negotiations. The point I was trying to make is make sure you can close. Expect all offers will end up under contract, with or without counter offers.
I'm pretty sure you and I are following the same model. :-)
I know exactly what you mean. I think I've mentioned on a previous post. When I hear "multiple offers and they need best and highest", I tell my agent that was my best and highest. And I rarely get it.
My best deals come on HUD deals where I tend to catch houses that pop back up into the system or where there is a price drop. I get my bids in that night so I'm really only competing against the people that were looking at the house that night.
I also like hud because they don't favor cash offers (which I can't make) versus ones that have financing.
Residential Real Estate Agent · Cookeville, TN · Member since 2013 · 1k+ posts · 948 votes
12y
@Troy Weygandt - When I first got into this business, it scared the crap out of me to make an offer on two houses at the same time. Now, I can make as many offers as I want. There's really no limit. I can comfortably do 2 or 3 deals at a time, but there's no problem in making 10 offers at a time. I mostly by MLS listed REOs, and the asset managers almost NEVER accept an offer without a counter-offer (assuming that I'm making the kind of offers that I should be making). As soon as they counter offer, I am free to walk away from it, counter it myself, or accept it. It's really no big deal. And I've not burned any bridges with listing agents. They all know that I buy houses and that I close on everything that goes under contract.
Orlando, FL · Member since 2014 · 38 posts · 5 votes
12y
I really want to thank each and everyone of you for taking the time in providing me your feedback. I have been talking it over with a few of my colleagues and going to put it to work.
@Bryan L., do you mind if I give you a ring? I respect your time as I do my own but had a few questions I'd like to discuss with you. No hard feelings if not. Thanks!