Interesting conversation with my realtor about making offers

[Kyle B.]

So I recently got off the phone with a realtor I have been working with to discuss a property I saw this past weekend and will more likely than not put an offer on. At the end of the conversation, I mentioned what offer price I will most likely make, which was well below list price (~30%). In response to that, my agent became a little apprehensive and mentioned how it takes 3 hours to write up a contract and it makes sense to make offers that have a realistic chance of being accepted. He said you can occasionally make low ball offers but we should be careful about doing that.

I clarified that it was not a low ball offer. It was completely dependent on a projected profit of about $20k based on a $100k investment, and I was making my offer without much concern for the list price. Admittedly, this is my first flip so I'm giving myself a cushion with conservative estimates on repairs and ARV, but going into the process, I didn't realize this would be an issue.

Am I out of line or off base for thinking this? My thought process was to put in a lot of offers and have a small percentage of them get accepted. This seems to be the philosophy of a lot of people here on BP. Does everyone else work with agents that are happy to put in lots of offers or is that not how the business works? I'm thinking my agent may just not be used to working with investors, hence not a good fit to work with going forward.

Really curious about other people's perspective on this.

Thanks!

[Account Closed]

What type of properties are you looking at? – REOs, Short Sales, Estate Sales, Traditional Sales, Reverse Mortgage REOs, HUD REOs, etc.

I am a licensed broker in Illinois. I make low ball offers every day, but my strategy differs greatly based the property type and who the seller is. For some properties, it is simply not worth the time to submit an offer significantly below list price, because the chances of it being accepted are slim to none.

For example:

- Fannie Mae REOs: I have never seen FNMA come down more than 30% from the current asking price. If my maximum offer is less than 70% of the current list price, I don’t bother submitting a contract.

- HUD REOs: Submitting an offer on HUD's website literally takes less than two minutes. I have seen HUD come down by as much as 50% from the current list price. Accordingly, I make offers on every HUD REO near me on a daily basis no matter what the list price is.

- REOs with Multiple Offers: Currently, most REOs in my area that are priced anywhere near fair market value already have multiple offers at or above list price. If an REO has multiple offers and my maximum offer is significantly below list price, it is often not worth my time to submit a contract.

- Reverse Mortgage REOs: By law, lenders are not allowed to sell a HUD Insured Reverse Mortgage REO for anything less than the current appraised value. These REOs are almost always listed at whatever the property appraises for, so the lender is not allowed to accept any offer below list price. If my max offer is below list price, I don't submit a contract.

- Estate Sales: Often, the family of the deceased just wants to get rid of the property ASAP. If there is a significant amount of equity in the home, I will submit an offer no matter how far below list price it may be.

So, for me it all depends on who the seller is and the property type. Your Realtor should be letting you know who the seller is and what type of sale you are dealing with before deciding whether or not it is worth submitting an offer.