I have been countered lol. 1st possible purchase though, advice?

Question

Thanks for taking a look..

Pre approved for 100k. 25% down

Property: 2/1 duplex upper lower, built in 1920. Has 1 tenant upstairs for 6 years, very clean tenant paying below market rent at 550/month. Lease is month to month.. Beautiful property really, needs some updating but no repairs. Electrical, plumbing, roof, windows were updated in 2006.

Asking: $98,000.  On the market since 11/2014 w/ an asking price of 124k. Came off the market for a month or 2 and now its back on.

Seller: 75 years old, trying to make his portfolio smaller and easier to manage. Motivated to sell. He has some experience on me lol (1st time negotiating)

MY 1st Offer: $77,500 BUT he countered after an hour or so to 95,000.  I am going to sit on it for the night and counter tomorrow morning.

I would love to get this property for 87,500 because even with the low amount of rent the upper is paying, it will pay for the mortgage/insurance and I can update the lower unit in the mean time.  Plus I will have more cash reserves which is a plus.  SO, any recommendations on a nice counter to get that seller closer to that 87-90k mark?

Thanks so much!

Cody B

Chris Mason · Answer

This is a TOTAL guess, but If grandpa countered within the hour and only moved $3k, he may want to do the old-timey haggling game and meet in the middle.

His asking: 98k

You: $77k

Him: $95k

You're supposed to go to $80k, then he to $92k, and hopefully you will meet at around your $87k number. If it were me, out of respect for my elders, I'd probably go along with it. I know it's silly, but sometimes it's best to go with the flow. Don't think on it overnight any more, just do it within the hour because that's how he wants to play the game and it'll take like a week if you keep sleeping on it.

Baby boomers and older often want to play this game with me on interest rate too.

"Given the parameters you've identified and the credit profile, we're looking at about 5.25% Mr. Smith"

"Pfft, come on, can't we do 3.25%? I heard it on the radio, I can just call this 1 800 number."

And so on. I know EXACTLY what Mr. Smith's rate is going to be, but Mr. Smith needs the drama or he isn't going to feel good. I quote 6% if I feel it's a customer with particularly high drama needs, and if it turns out there are no drama needs then I make a "good news, because I like you..." phone call the next day because in reality it would be very very illegal to ACTUALLY give him a higher rate because he's older. :P

Young guns, you just give it to them straight. Here's the rate sheet associated with a lender that can reliably deliver on the time-frame specified in the contract, here are fannie mae's loan level pricing adjustments, here's your fico score,  here's your down payment, here's how you price out your own mortgage, so boom here's your rate at no points with a slight lender credit, and we're done. Then present the higher and lower rate options based on break even points and how long they intend to own the property.

Your seller might very well have $85k in his head, which would be totally cool with you, but you gotta play his game.

Cody Barrett · Answer

Chris Mason thank you so much for asking, I think they are going pretty well for my first go around! I am actually enjoying it.  I really enjoyed reading your post because I put in a counter at 83k before seeing your response, so we were thinking kind of similarly lol.  80k would have been solid too.  I signed the counter at 10:45am and haven't heard anything yet.  So I am looking forward to seeing what happens tomorrow.

Chris Mason · Answer

@Cody Barrett how are the negotiations going?

Lisa Ryan · Answer

Unfortunately there's no magic or right answer. Guessing how someone is going to react to a counter (especially without knowing the market or what the property is truly worth) is a fruitless game. Just know your bottom line of what works financially and don't waiver from that.

Frank S. · Answer

Are you comfortable with your current agent?  Is this person a good negotiator? If not, you need to guide him/her. Do your homework and go get yourself a good deal!

Here is a great post from J Scott

https://www.biggerpockets.com/renewsblog/2010/03/2...

http://money.usnews.com/money/personal-finance/art...

I made a mistake once - or so I think-, when I "low balled" an offer that was countered by only $5,000 ( Note, this was over 100,000 spread!). Fortunately, this allowed me to study the deal in more detail, and realized this was not a drastic low ball after all.  I was not interested in buying that property at market value, it was a fair price, but it wasn't low enough for what I wanted.

Best of luck, and triple check your numbers. BPs have been able to give me great feedback on my assumptions and mistakes.

Congratulations!

Frank

Cody Barrett · Answer

Thank you so much, I hope so too! That is a great point @Frank Sanchez ! I will do that now and see what I can pick up. Really the numbers don't look bad at 95k but for my first property I want to gain some negotiating experience and see if I can get him lower and make this a great deal for me.  Seller did not specify final offer, or that he won't go lower so that is nice..  Thanks again! : )

Frank S. · Answer

First of  all,  congratulations! I hope it works out.

If you ran the numbers and this is good,  why wait? Google RE negotiation tips.  The listing agent may reach out to other buyers to invite them to bid. Make sure you ran the numbers,  repairs can be expensive.  Account for closing costs.

Cody Barrett · Answer

@Anthony Angotti

Owner kept the lower unit unoccupied to sell and prevent any possible tenant issues.  Which I don't mind because I can start updating it right away.. The owner lowered the rent for the upper unit tenant to keep him around after his Wife left him so he did not have to deal with an unknown new tenant coming in, since the upper has been there for 6 years and is very clean.

Thank you @Lisa Ryan I will do my darnest to get the seller down! lol

I have been countered lol. 1st possible purchase though, advice?

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