When and How Much to Lower Price on Flip

Question

Hi All, so I recently purchased a house from a wholesaler as a flip project. The house is located in Effort, PA (Poconos area). It is complete now and was listed for sale on 10/01 for $259,900 which seemed about right based on recent sold comps.

The first week it was listed we only had one showing, so we dropped the price to $249,900 on 10/07. Since then we've had two more showings, and a verbal offer over the weekend for $235,000 which then became $215,000 because she's concerned there "might" be mold in the house, although when asked by her agent why she thought that she hasn't given any specific reasons...so not sure what to make of that as the house is completely mold free to my knowledge.

One thing that might be causing an issue is that the house has a cesspool (normal for this area) that's less than 100 feet from the well, so due to FHA standards we can't sell to FHA buyers, just buyers with conventional financing or cash.

The house has 1,235 views on Zillow and 82 saves, so it's getting eyeballs but not many showings. So my question is based on the lackluster response so far, when would you recommend another price cut and how much would you drop? The lack of showings after two weeks just has me a little nervous. I don't want to leave a lot of money on the table, but I also don't want to still be holding this when Winter rolls around. I'm aiming to get a bare minimum $225,000 for it to make it worthwhile to sell, otherwise I'd most likely refinance and rent it out for now.

Thanks in advance for any advice!

Christopher Robert Noland · Answer

It sounds like you're facing a typical challenge with a flip property where interest isn't quite translating into offers. Here are a few strategies you can explore to address the current situation:

### 1. **Diagnose the Problem:**

- **Market Conditions**: Check if other similar properties in the area have also seen slow movement. If other homes are selling slowly, this may be a broader market issue.

- **Feedback from Showings**: It’s important to get detailed feedback from potential buyers and their agents. If the lack of showings is due to specific concerns (like the cesspool or possible mold), address those issues head-on.

- **Address the Mold Concern**: If one buyer raised mold concerns, even without evidence, it might spook other potential buyers. Consider having a mold inspection done and include the report in your listing documents to remove doubt for future buyers.

- **Cesspool Issue**: While cesspools are common in your area, the limitation of not being FHA-eligible could be a barrier for many buyers. Highlight the benefits of conventional financing or cash offers, and ensure that the cesspool is properly disclosed.

### 2. **Reassess the Pricing Strategy:**

- **Current Pricing**: You’ve already made a price cut from $259,900 to $249,900, and while there has been some activity, it hasn’t yielded offers near your target. Look at how your property compares with others in the price range.

- **Time on Market**: After two weeks, it's a bit early to panic, but the lack of significant showings does suggest something might need to be adjusted.

- **Next Price Cut**: If you’re going to drop the price again, it’s important to make the cut meaningful enough to generate new interest. A reduction in the $5,000 range may not move the needle enough. Dropping the price by another $10,000 to $15,000 could help get it closer to what the market can bear.

- If your goal is to sell at a minimum of $225,000, consider dropping the price to around $239,900 or $235,000. This could open up a new pool of buyers.

### 3. **Marketing Enhancements:**

- **Highlighting Key Features**: Ensure that your listing photos and description emphasize all the positive aspects of the home (recent renovation, location in the Poconos, proximity to amenities). Consider hiring a professional photographer or even staging the home to make it stand out.

- **Addressing the Cesspool**: Since the cesspool is a known issue, consider including some language in your listing that reassures buyers this is normal for the area, and perhaps offer to cover some closing costs or provide a credit toward upgrading the system if necessary.

- **Attracting Different Buyers**: Look into alternative financing options such as seller financing for buyers who may not qualify for conventional loans, or market the property more toward cash investors. Airbnb investors could also be interested in this type of property, especially in the Poconos.

### 4. **Timing:**

- **Seasonal Market**: As you’re aware, selling in the winter can be challenging, especially in areas like the Poconos, which may slow down during colder months. If you don't get more traction in the next few weeks, you might want to decide whether it's worth holding and renting out or continuing with a sale at a lower price point.

### 5. **Plan B: Refinancing and Renting**

- If you aren't getting the price you want, refinancing and renting the property could give you time for the market to recover. Since you’re aiming for a minimum sale price of $225,000, if offers aren’t hitting that number, renting could help cover holding costs while preserving your long-term profitability.

### Final Thoughts:

- Consider a modest but impactful price drop to $235,000, which is closer to your minimum acceptable price, and simultaneously address any concerns buyers might have by being proactive with inspections and disclosures (mold, cesspool).

- Don’t hesitate to tweak your marketing strategy or even target alternative buyer groups like cash buyers or investors looking for vacation rentals.

- If you don’t get significant movement within the next few weeks, preparing for a rental strategy might be the safest way to avoid holding onto the property through winter at a loss.

Stuart Udis · Answer

@Tim Porsche I am not familiar with the pocono market but are you certain its a price issue? Did you complete any moisture tests to confirm there's no mold growth? Is this an area of the poconos that's most attractive to summer seasonal owners or winter seasonal owners? If summer, you missed the market and those buyers will look to buy before next season. Also, you mentioned the property is not FHA compliant despite being in a FHA priced sweet spot. You also  mentioned the cesspool condition is common in the area. Is it common amongst properties in your price point or is it common in the area with a greater emphasis on non FHA price point properties?  Just a few items that stood out reading your initial post.

Malcomb Stapel · Answer

@Tim Porsche just a little food for thought.

A price drop can have a stigma attached to it for a lot of buyers. People see it and go, hmm something is obviously wrong with that house if they had to drop the price.

Day's on market are trending upward in most areas of the country. A lot of sellers and agents think somethings wrong because the house didn't get multiple over asking offers on day one. They need to forget about the covid era DOM times and adjust to the new normal.

As others have said, price it competitively. If your product is in the top 10% of what's available and you are asking the same price, it should be flying off the shelves, hopefully for over asking.

The lady giving the verbal offer that says she thinks their might be mold is not a good buyer. She's going to be a pain in your ass if you go under contract for her. Unless she writes it as non contingent and as is.

Keyano Burgess · Answer

Hi Tim,

I am a realtor in the Cleveland market and anytime one of my listings doesn't sell I recommend a $5,000 price reduction every 2 weeks until the property sells.

In your case, you might want to reduce it a little bit more because you want to sell before winter.

I would also have your realtor list the house on Facebook marketplace. I was in a similar situation where I advised my buyer to list at 249 but he insisted on listing at 299. 4 months later we found a buyer after I had posted the listing on marketplace.

We ended up closing at 240, but I believe we could have easily gotten 260 if we had listed at 249 and created a bidding war.

I hope this helps! In the future I strongly suggest a similar pricing strategy where you list lower than what the comps come in at. This creates a lot of buzz around the property and has everyone and their grandmothers talking about it!

Peter Mckernan · Answer

1. Price cut till you get multiple offers (this would be the best move then it will go up to what the market feels is the best price for it)

2. Price cut to where you are still making a profit that you are okay with

For the future, make sure that you are getting deals from the wholesalers and running your own numbers on comps.. I'm not saying you are not doing that already... But running your own numbers and really knowing the numbers.. You are now 4% lower than what you are thinking and it sounds like you maybe 10% lower soon enough.. Your time holding the property and also not reusing that capital is another big issue that you need to look at too due to putting it back to use..

Tim Porsche · Answer

Thanks Peter, yes you're right, I want to get it sold soon so that money that's tied up can be reused on other deals. Also it's costing me about $1,000 per month to hold this property, which isn't that bad but isn't nothing either.

I definitely did run my own numbers on comps before buying this one and also had my realtor run comps as well. When I purchased it, we were only estimating the ARV would be $230,000. Since that time my realtor thought recent comps justified closer to $260,000 or $250,000 which is why we tried that. So thankfully since I based my numbers on $230,000 ARV we still have some room to go lower.

Tim Porsche · Answer

Thanks Keyano! I was debating this as well, but since this area is not a really hot market I wasn't sure if starting the price off low would work to create a bidding war or not. My realtor suggested offering up to 3% buyer assist to help buyers who might have a hard time coming up with that 20% down since FHA financing isn't available on this house, so we did that a couple days ago and also dropped the price $2,000 to push the listing more towards the top. So far no bites, but we'll see what happens.Another thing I'm wondering is how much of an effect rising rates might be having here. I noticed that since we listed the house on October 2nd, rates have gone up over 0.5%...so maybe a lot of people are waiting to see if they come back down again?

When and How Much to Lower Price on Flip

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