"Just Get it Under Contract" - True of No

[Romeo Jeremiah]

REO property (Fannie Mae) listed for $144k in my area but needs work. Comps come in at this price but are move-in ready. I know this because I recently had an appraisal done on a house, with the same floor plan and in the same subdivision less than 2 weeks ago.

The subject property's "bonus" room over the garage was likely completed without a permit, has water damage stains on the ceiling's sheetrock, has a trip hazard immediately after entering the room (has a 6" blind step") and likely will have to be redone. The room just looks horrible. This is on top of the fact that the house needs the standard clean, paint, carpet, and appliances, and a few replacement windows.

While the ARV may be $144k, the real offer should be $120k or lower based on what I think I need to but into the house. Thing is, the seller's agent countered at $142,900. Yeah, right.

Question is, How would you handle this situation?

Would you still put the house under contract, schedule some appointments with the city inspector and home inspector, and then reduce the asking price to $120k or less AFTER the proof can be sent to the seller? The financial risk would be the price of the home inspector and loss of earnest money? In short, does the phrase "just get it under contract" hold in this situation?

Rent for this property will go for at least $1350 once cleaned.

[Robert Smith]

In my experience with homepath they are not usually willing to do any work or reducing of a price once you are under contract no matter what you find on your home inspection. They used to do this however they have gotten away from that for the most part, not saying it wont be done. For me this would not be a deal. If the numbers are coming in at asking price and you are still putting $20K into the home before you even get the first income check that could be a problem. This would be a pass for me. Unless you are on a time constraint to spend the money such as a 1031 situation I would keep looking. For this one to be a deal they will need to accept what you are ultimately willing to pay up front. Once under contract not only will you lose money one inspections and such, you could lose your earnest money and make the "no-deal" much harder to walk away from now that you have a vested interest in the home. Just getting under contract only works when there is plenty of equity in the home and you are deciding if you want to purchase for yourself or wholesale, or when you know something major is coming to the area that will instantly increase the value of the home or you can owner finance a property with no money down and it has cash flow. This situation doesn't sound like any of those scenarios.