Help me decide what to offer?

Question

We are looking to buy a "starter home" to live in a few years, fix up and then either rent out or sell (depending on the market) and buy a bigger house when we are ready to start a family.  We are looking at reo's so we can get a good deal, put some sweat equity into the house, etc.  Found the following listing the other day:
The listing price is 175k  - it was originally listed as high as 219k and has been on the market for about a year.  the 175k price drop occured in the last week.  Homes in that area that are nicer tend to sell for about 210-230k.  This one is in much need of fixing up - it seems structurally okay but needs all the normal cosmetics along with a missing toilet and shower in one bathroom.  What do you feel would be a good starting offer price based on the scenario?

Kim Rock · Answer

Didn't end up making an offer at all.. Ended up finding a different house all together that we like and are still negotiating the details on.

Ana Hyler · Answer

Did you make an offer on this property? What happened? Give us an update.

Greg Schickedanz · Answer

I would research what the other REO's are selling for compared to ARV (after repair value) and how long they were on the market. Sounds like it may still be to high, especially if it needs a lot of work. My history with asset managers, tells me they generally don't accept or counter at more than 10% off of current list price, so it may need to drop more to get a better deal.

The low ball offer does have value though - place an offer at 30 to 40% under - it will likely get rejected, but tell the listing broker to get back to you when the seller gets serious - you might get a call sooner than you would expect! Especially if they are getting no other action on that property.

Good Luck!

J Scott · Answer

Keep in mind that if you would have offered 70% of asking price when the house was listed at $219K, you would have offered $253K.  You could likely pick it up for that amount if it's now down to $175K.
            
            In general, I don't see a lot of 70% offers being accepted on REOs in my area (Atlanta), but if there are no other takers, the price will eventually drop.

Ana Hyler · Answer

Well, my experience is that you usually want to start an offer at about 70% of the asking, specially if it has been on the market for so long !  This is after you do your homework and know for sure that the asking price is within reasonable levels (I mean make sure the house is not over priced!)  Once you know for sure itâ€™s priced correctly, then offer 70% of that and wait for a response.  And after thatâ€¦. Itâ€™s game time â€¦ just play a little and you will get to the right number with them.  I hope this helps.

Ana Hyler · Answer

Yeahâ€¦ just offer 70% of asking but donâ€™t expect to be accepted at that price right away. I mean, you will have to negotiate and end up probably paying more then 70%, but this will be a good starting point. If the house has other offers coming inâ€¦ then at that point you have to decide what you want to pay for the property and stop playing games with the bankâ€¦ but if itâ€™s only you making an offerâ€¦ then you have room to speculate.

Kim Rock · Answer

What is the asking is actually below market value?  Still stick with 70% or adjust accordingly?