House been on market for awhile, how low can I go?

Question

I'm looking at a SFR that has been on the market exactly 162 days (5.5 months) as of today. It has a tenant in it and I will be purchasing as a rental property (investment). My question is- the asking price is at 74K but my realtor told me a -10% offer which is (66.6K) is low balling it and most likely won't be accepted in a seller's market. I was thinking of putting in an offer for 68K (which is about -8% off asking price). How likely will my offer be accepted and should I bid lower or higher? It's hard to believe that a cash-flow property such as this is not selling in this market- any thoughts?

Craig Curelop · Answer

@Peter Kim - Try to understand the seller's motivation to sell. If he's not in a rush, then he may not budge for $74k.

If you offer $68k and he is willing to go under $74k, I'm sure he'll counteroffer and maybe you end up somewhere in the middle?

Never hurts to put an offer in man. I say go for it!

Max T. · Answer

Look out for deferred capex items.

Angela Yan · Answer

Seller usually has a sale price in their hearts for what they would like to get.  In your ball park in price, I would start asking for kickbacks such as items you would like to replace, closing costs etc. if you really want this property.  This way he will certainly jump for this offer.  But give him the numbers in the $7-,--- range so it doesn't really look like you are low balling him because you won't be much off plus closing costs etc.

Account Closed · Answer

How likely??  I say put the offer!  I'm surprised your realtor is not following your instructions.

There are only 3 things that are likely to happen in an offer, accept, turn down, or counter.  Check the waters, what do you have to loose?

You're realtor can also get an inside scoop as to what the seller is thinking.  Perhaps other offers where tuned down and you want to learn at what price if that was the case.   Get your realtor to get a feel for the property and the seller's needs to sell.  You'll get a lot closer to an acceptance that way.

Vivek Khoche · Answer

@Peter Kim- if you are investor then don't get hung up on this house. There could be zillions factors right or wrong. Reminds me of our first purchase where our offer was $25K more then the offer that was accepted during the  2002 time when very few were buying. I wish I could have informed the seller. I did confront the agent of the seller in another open house and got weird reasons, I don't ever repent loosing that house as we got much better house.

Good Luck Investing

Vivek

Matt K. · Answer

I'd assume (could be wrong) that if the property has been on the market that long it's already been reduced multiple times. You coming in with a low ball offer might be a tough "sale" because of the multiple reductions already.I'd attempt to feel out how firm the seller is on price by asking how much interest there has been and if another price drop was on the horizon. Hopefully that'd get you a more realistic idea of what the actual selling price could be and open up the conversation for making an even lower due to the repairs or rehab needed etc.

Jon Q. · Answer

It depends on market conditions and at what price you can achieve your target return.  If it's a hot market, I generally would take the following approach:

Offer whatever the seller is asking so you can tie it up as soon as possible, SO long as (1) the list price is within $5k of what I will close them for.... and (2) the price you offer minus $5K will be a purchase price that will enable you to achieve your target return

I know that I will negotiate the price down after inspection and most sellers are unwilling to drop the price more than $5K after inspection unless something is seriously wrong with the property.  Since this deal has been on the market for 5.5 months, I'm willing to be that there is... something seriously wrong with the property... So, I would do whatever I could to just tie it up (offer $74K), then have my agent go and find out what the serious problem is before I spend a dime on an inspection.  Chances are once you find out what is seriously wrong, assuming you want to continue, you'll lower your offer price by the cost of repairs needed.

If the agent can't find anything wrong, then you'll have to decide if you're willing to spend $400 (on an inspection) knowing something major is is wrong with the deal and even your inspector may not find it (inspectors don't check for lead, in walls, so even they might find everything).

To answer your question, it's sitting on the market because either (1) something is seriously wrong with it OR (2) it is overpriced.

Either way, I don't really care what the seller wants... I'll make any offer to tie it up, so long as the price is within ~$5K of what I can close it for and still achieve my target return.  What you pay is based on your goals and target return.  And if you can't get it for the price you need to achieve your return goal, walk with no regrets!

Peter K. · Answer

Great advice all, thank you all very much.

Mindy Jensen · Answer

@Peter Kim , if it was worth $74 in a seller's market, it would have already sold. I don't subscribe to the theory "If you aren't embarassed by your offer, then it isn't low enough," however I have made my share of lowball offers. Some work out, some don't. But it gets the conversation started.

Tell your agent to write up the offer.

House been on market for awhile, how low can I go?

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