When is an offer not worth submitting?

Question

So I was looking at maybe putting in an offer on two duplexes both listed at at 104.9K a piece. Total $209,800

I have run the numbers of where I want to be and really the max I would want to pay is 75K a piece. Total $150,000

Should I even bother? There are 4 owners with these properties but they are all older and looking to get out of the REI game. Yet I asked them and they said that their asking price is what they think the properties are worth. I disagree. There rent is too low for the market IMO and the major expenses that these units need is pretty high (new carpet/flooring in all units, new hvac, and one new roof). I think the inspection may come back with more. These units have potential, but I feel the deferred maintenance and asking price seem way too high to me. Thoughts on how to approach this situation? I usually just make an offer on what the numbers say (ends up with no deal most of the time), but in this case we are very far apart.

When do you determine if an offer is worth submitting?

Jesse T. · Answer

I would start off an see if they could sell under 200K.  Otherwise I think it will take a lot of time and effort to get them close to making a deal with you.

One approach might be pointing out the amount of each share.  While the percentage is the same - going down to 37,500 from 52,450 might be easier psychologically.

Given how difficult it is to get yield these days seller financing could be a win-win.

Troy Fisher · Answer

Make the offer, they are the ones who determine whether they will take it or not. I wouldn't make assumptions about the seller(s), and they may not be getting any other offers either.

David Begley · Answer

Jim, 1st congratulations on getting to live in God's country!  I am from that area and lived in Lexington and vicinity 1/2 my life.  I'll let you take me to Keeneland the next time I'm up...

Are the duplexes listed individually or as a package?  If individually, I would only make an offer on one and negotiate from there - with 4 involved, you'll have a better chance of 1 of them being more motivated and he/she will influence the other 3.  Psychologically, the gap between ask/offer is less than if you were making an offer for both, and they may be inclined to believe ".. if we let this one go under our bottom price, we'll make it up on the 2nd one...."  Lastly, if you have determined that $75K is your max, don't play games and offer less thinking that the counters will land at $75K or better.  It is already a low bid, so present it as your "highest and best" offer and include as large ($10K-$25K or more) an EM check deposit as you can possibly swing.  If this is a cash offer, EM of $75K would make them think twice about rejecting or countering.

Once you're under contract with the first one, repeat the same offer on the second one.  They will have to sell it to you because you've now established the new comp for an identical duplex and asking for more will be futile.

Good luck!

Jesse T. · Answer

What is the amount of the mortgages?  That is your answer for how low a deal is too low :)  It is hard enough to get one seller to bring money to the table, if 4 of them have to - I think it is next to impossible.

With 2 separate units and 4 owners, I think your best approach may be to "divide and conquer".  See if they would be open to an arrangement where you buy one unit from the owners who will take the cheapest price.  Or depending on the size of the mortgage, maybe cashing out one owner and retiring the debt with the sale of one unit - may make them willing to sell cheap.

If you get one unit cheap, you are in a much stronger position.  The worst case is they get their price on the other unit and you should have a nice bit of equity.

James Wilcox · Answer

Thank you all for the help! Just with 4 owners and a larger disparity in the price I was second guessing myself. I am going to re-look over the numbers and make sure it worth the money I have in mind. It will take a lot of work/money to get this place into shape. I want to be working on my business not in it. I have a meeting tonight with an agent with 8 possible deals they are bringing me so my money maybe better put elsewhere.

@Jesse T. they have a mortgage and won't do seller financing or acquiring the lease. I made sure of that.@David Begley Yes it is some beautiful country here and I do like the way you are looking at the deal. They are listed separately but they seem to be partial to unloading both at once. Try to work a deal one then bundle, once a price is set. I also like the chances of one swaying the others (12 Angry Men scenario). I might modify this a bit and actually tell them they can't give me a yes or a no till 48 hours has passed just to force them to talk and think about it. Large EMD is a nice strategy. @Mark Gallagher you do have a good point. I will be doing my best to sell myself because I will be attaching a letter about myself and the values I have. It is a small town, tight knit community, but I went to school in this town and I think that will be to my advantage. I will meet with them if need be, but I feel this deal maybe one that the sellers will not accept at first. If it sits on the market longer, they may come back to me down the road like @Doug W. mentioned. It has only been on the market for around a week, so if they accepted a lower offer that soon would really surprise me.

Mark Gallagher · Answer

@Jim Wilcox

I've been in sales for what seems like forever and I've learned you're never selling a product. You're selling people. Unfortunately in this case you're pitching 4 different people on a relatively small deal. They're all only getting a small piece of the pie = low motivation perhaps. They're waiting for a "big" score but they're never going to get it if what you say is true.

You're going to need to become a salesman and figure out what motivates these guys. They say they want to sell, but do they REALLY want to sell? If they REALLY want to sell, you'll be able to make a deal somehow. You might have to put in some leg work, and a bunch of phone calls and face to face time, but they'll sell. Maybe not at your perfect number but somewhere close. If they don't really want to sell, you'll need to figure that out and move on. Friends buy from friends. Tired and true sales tactic. Too many people want to low ball and take all the personality out of it. I say bring in more personality. Create more dialogue. Have lunch/dinner. Create a win-win. It might not happen tomorrow, but if you know that you can make it happen, dig in and make the deal happen over time.

Good luck! Let us know how you make out, I'll be following along.

Doug W. · Answer

If you're not embarrassed by the price of your offer it isn't low enough.....

What is the worst that could happen if you offer $150k? They get mad? Offended? Ok, fine. Move on. A house is only worth what someone else is willing to pay for it.

If you're offering a price that works for your scenario then that is what matters. If they can find a buyer willing to pay more then good for them (the sellers and that buyer). If not you might find them coming back to you later and asking you if your offer still stands.

Mike Watkins · Answer

it is never.

I think the way you present the offer depends if on the price you want it at and the price they want.

If they want to sell for 209,800 then mail them the offer.

If you price is close to theirs offer it right there.

I deal a lot with SFRs owned by people. So I meet them and develop a relationship then present my offer and explain why it's so low. The high cost for repairs or the missing roof.

Offer them a rundown of the the costs and the comps to show them the value of the property and they'll see it all. Also being straight up with them will build report.

When is an offer not worth submitting?

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