Does anyone make "standing offers" on properties?

Question

Right now in my area, there are several properties on the MLS that would be great rental properties, but they are simply priced too high to make them viable. They either have unrealistic owners or realtors who do not understand how investors analyse and buy rental property. This shows because several of these properties have been on the market for 200+ days.

For example, there is a triplex that is in great shape and would be a great asset. However, I have run the numbers and given the size of the units and the market rents, it would only work if I got it for around $75,000. Problem is it is listed at $119,000.

I am considering putting an offer in of $70,000 and telling the realtor that this is my top dollar, but the offer stands, if and when the seller is actually ready to sell the property.

There are several other properties (different numbers obviously) that I have considered doing this on.

Does anyone use this technique? If so is it effective? What are the pros and risks?

Mike Cumbie · Answer

Hi @Bruce Clark,You could push out a standing offer, or one with a long "life of offer" clause.The reason I don't think it is very viable though is that if I was the listing agent and my client came back to me and said "I think I may take that 70K offer". I would say "Let me drop it 20K and list it at 99K for a week, Let me drop it 10K a week for a month and see if we can get you closer". "We held out for 200 days is it worth 20-40K to aggressively drop the price and get some people biting"?But the agent could be tired and the owner could be tired and it could work. At 200 days you putting in a low offer though would help me to get my client talking about dropping the price some.Good Luck!

Jeff B. · Answer

While you can find the numbers that work for you AND you're certain the seller is in dream land, that doesn't make an urgent necessity for the seller - - in fact, they sometimes just withdraw the listing.The knack of closing the deal is getting the agents to negotiate a price that fits all parties.

Bill F. · Answer

I think the point that @Bryan Wilson brought up is a valid one and the answer will vary state by state. I know that NC is a very buyer friendly state and the offer letter state the offer can be can canceled at anytime before due diligence expires for any reason. Your agent, if you use one, would be a source to answer the technical aspect of your question. As for the professionalism of doing it for multiple properties; its a balance of probability question. The longer the offer stands, most reasonable people would assume you will try to deploy your capital elsewhere. I have told the owners of one property in my area who have a property for sale to let me know if they consider lowering their asking price. I also plan on using the Brandon Turner tactic of having my agent send the exact same offer with the date crossed out every other month or so to remind them I'm still interested.

Joe Splitrock · Answer

@Bruce Clark I would never place a standing offer because it completely removes any sense of urgency. You can still tell them to give you a call later if they are willing to negotiate. In this market low-ball offers like this are probably a waste of time. If they were motivated, they would have regular price drops, like $5K per month. Why would they accept an offer for $75K when they could probably drop it to $100K and get multiple better offers?If it was 2012, I would tell you to go for it, but the reality is that in 2017 it is a sellers market.

David Dachtera · Answer

@Bruce Clark,I'd say put in the offer along with the supporting documentation to show that at the current rent levels, the property does not support itself given the available comparables (if any).Who knows - they may even look at your stuff and say, "Oh! THAT'S why we've been getting such low offers." They may not understand REI as a business.

Bruce Clark · Answer

@Jd Martin thanks for the insight. I appreciate it.

JD Martin · Answer

I don't know if it's a good strategy, but I will tell you that I have bought properties that a seller rejected my best offer and later came back to me, hat in hand, asking to sell me the property for that amount. I don't know about your state, but here you don't have to put an expiration on an offer. If you were to leave it blank, theoretically it could be construed as an "accept it anytime" offer. I'm not sure I would do such a thing unless I knew that I'd buy that property, regardless of any situations, at $X price.

Bruce Clark · Answer

@Russell Brazil Wow, I did not know that about the elevation certificate. The property is definitely high enough. It was built in the mid 90's and from the design it is clear that the builder did his research. It has like a 12 foot basement. When I looked at it, I could clearly tell that flood water would never realistically get to the finished living area, but I just assumed that a bank would require the insurance regardless.I am going to look into getting a certificate today. Thank you for this tip. I guess this is why it pays to ask questions.

Russell Brazil · Answer

@Bruce Clark Id probably consult with another agent on value to see what they think. At least no comps is better than the comps saying something completely different.On the flood plain.....one thing to look at is whether you think the flood determination is actually accurate. If the property is high enough above the water level, it can be exempted by getting an elevation certificate. I just did that with a property I sold last year. That can be a game change on the numbers

Bryan Wilson · Answer

My question I have is would you make multiple offers? Do you have a contingency to leave yourself an out if it is eventually accepted?I only ask because someone mentioned to me these same questions when I was asking about making multiple offers on properties in a different thread. You wouldn't want to have 10 standing offers all get accepted at once even if it is highly unlikely. I like the idea though because I personally have similar issues where the asking price is out of line with reasonable cash flow offer price that I can make.