How should I deal with a delusional seller

Question

So for backround I own a retail store in a downtown. My store is on a corner with an alley behind me so the only way I can expand is into the building next to me. However the guy who owns it bought it as an investment property and he wants to make a profit on what he paid. The issue arises because he paid $80k for the building and the SEV is only $24k. So if you double the SEV it’s worth roughly 48k. The building is 125 years old and in bad disrepair which is why it’s valued so low. It also hasn’t been remodeled since the 60s. He offered to sell it to me for $125k on a land contract at 8% which I just can’t justify paying due to it only being worth less than 50k. He said if I pay cash he’d take 115k. I need some advice on what to do in this situation as I need the building in order to expand, but I also don’t want to grossly overpay for it.

Jason Wray · Answer

Wyatt,Sometimes you have to look at the bigger picture instead of the short side. If you purchased it for say between $100-$115K how would it benefit your business and sales. If you will increase sales calculate your cost recovery based on time frame. If this person knows you want/need it to increase business he does have the upper hand. Have a conversation and explain you found a better location that offers a higher traffic. Tell him you might be moving maybe he will rethink his offer if he thinks the interest has declined.

Joe S. · Answer

What properties worth has a whole lot to do with what a seller and Buyer agreed to. If he’s focusing on price, maybe you can get a lower interest rate, especially if he’s willing to owner finance the purchase.

Randall Alan · Answer

@Wyatt MinorA couple of thoughts.., first, understand that you are only considering what you think is the easy option - you staying put. If your neighbor is unreasonable on his asks, you have the option to move yourself and expand elsewhere nearby. Your argument seems to want to ignore his investment price and only focus on the SEV price. That doesn’t flow very well though when you put it like this: “I know you paid $80,000 for the property, but since the state only thinks it’s worth $48k, you should take a loss on future profits and sell it to me for less profit than you want.” An investment is an investment for a purpose. Maybe he is looking to future value? Hard to say… but the moment he rents it to someone else your options are going to be gone. I think you have to look at the future value yourself and weigh that against the option of moving yourself. You don’t say whether you own your store or just lease it, so it’s hard to know how tied to it you are. But if you do own your storefront, what is it worth to you to be able to expand there versus sell your place, and buy a bigger place nearby?I just don’t see where you have any power here. The other guy can set his price. If you don’t like it, I don’t see anything you can do… and while I don’t know Michigan tax code, I would imagine that if it is like other states, once the property is reevaluated for what he paid for it, the SEV would likely increase.You could maybe look to creative financing somehow to where you might be able to better afford buying it at the higher price. You could possibly try to negotiate your interest rate to be lower in the short term, or just anticipate refinancing it when property values when interest rates decline in the next two years. Just my 2 cents and some good for thought.All the best!Randy

Bruce Woodruff · Answer

I wouldn't let the SEV value of the property determine anything. Maybe the ARV......But really, to me, the value is in how much money can you make by expanding your business. If 'overpaying' by $50k will let you make $1mm over the next 5 years, then that's a steal. At least IMHO...

Eric Gerakos · Answer

The seller is not “delusional.” He’s seeing how badly you want his property. It’s called negotiating……

Mike Dymski · Answer

Offer somewhat above market value and then wait it out. If your assessment of value is accurate, he will not be able to sell it to anyone other than you.

Michael Smythe · Answer

Check public record to see if it has a loan against it.Even if he overpaid, if he has a high balance on a loan he may not want to bring money to closing to sell it.Otherwise, try to get him to negotiate against himself and lower his offer price. Ask him how much his bids came in to rehab it, what was his anticipated ARV?If you can get him to spill his guts, he may realize he's asking too much.If all that fails, make him an offer you are embarrassed to make, to get him to counter.If no counter from seller, wait 4 weeks and followup for a counter.

Theresa Harris · Answer

How much value has he added with the work he's done or has he devalued the building? Depending on your answer, go up or down from the price he bought it for.

Wyatt Minor · Answer

Thank you for taking the time to reply, I should clarify a few things to give you some more information. I do own my current building so moving would be a ton of work and then of course paying rent at a new place would be an added expense I don’t currently have. Also I do have a little power in the situation because he contacted me out of the blue asking to sell. Said he no longer has the desire or resources to rehab the property so this he wants to dump it off and move on. I realize he won’t take 48k for it but how much do you think I can negotiate him down?