Seller's counter-offer. I really hate the terms!

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Seller's counter-offer. I really hate the terms!

Amanda Lee
Brooklyn, NY · Member since 2013 · 6 posts · 0 votes

Hi guys,

this is my first ever post to BiggerPockets. I want to say I love this site, the podcasts, and all the great advice.

So, I'm trying to purchase my first investment property. I'm really excited to have found a 2 family that isn't a piece of junk and just needs some cosmetic touch. so here's the deal. I made an offer, which I thought was extremely fair for both us and the seller, and the seller's counter offer sucks! I gave him an offer based on the comps in the area but I'm just really boggled at his terms.

(keep in mind this is seller financing)

Here's my offer:
Selling Price: 20,000 (It's in an up and coming area in Virginia)
Down Payment: 5,000
Interest: 5%
Duration: 5 years

Seller's counter-offer
Selling price: 22,000
Down payment: 10,000
Interest: 5%
Duration: 5 years
CREDIT REPORT (my credit is good and I have plenty of disposable income each month)
$500 of warranty (which is $640 yearly)

My OBVIOUS or OBLIVIOUS (haha) questions are:

1. My deal makes him more money, WHY is he asking for 10K?
2. if I had 10k to put down, I could buy a WAY better property in the area, is he insane?
3. How do I negotiate the down payment to be lower and get him to accept my terms? We are communicating through our realtors.

A little about the house:
2 family, as stated earlier
Kitchen: no stove, no oven, needs complete update, it's hideous
PAINTED HARDWOOD FLOORS. UGLY.
horrible paint job overall
no heating system. gas heater was taken out (which makes me wonder, because it's not foreclosed)

I have not yet had the inspection done but I have an AWESOME inspector who will rip this place apart (figuratively) if I tell him to give me every detail to deduct from the selling price.

A little about me:

1. was just approved for a $15K line of credit I was going to use as a reserve to pay for updates and appliances (I want to pay most out of pocket though)

2. 5K to put down.

3. another property I want on the same street is 9,000, needs about 25k in repairs, but is really nice, but one family. My partner and I like that one too and were considering tapping into the line of credit to pay for it.

Please help me guys. This has the potential to be my first baby. I have dreamt about investing in property since I was a little girl. I don't want to give this 10,000 AND my credit report!

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Michael Wagner
Specialist · Victor, NY · Member since 2013 · 823 posts · 844 votes
13y

He wants the 10K down to protect his interest in the property. This is also why he wants the credit report. I think you will likely have to give him the credit report (I wouldn't hold paper without requiring that either). The best success I have had in negotiating a lower down payment is to make it clear to the owner that while you understand that 5K down might be a bit thin for his liking, the truth is that you will be investing 10K or more into the property immediately upon closing (5K down and 5Kplus in rehabs). He doesn't have to know that you might be able to do it for less than that. And make sure he knows that while you have good income the 5K plus 5K is ALOT to you and you would never walk away from it. I think that if he is really a motivated seller that sales pitch could very likely get your down payment to where you need it. Give him the credit report as "his win". Hope that humble two cents helps!

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  • Michael Wagner
    Specialist · Victor, NY · Member since 2013 · 823 posts · 844 votes
    13y

    He wants the 10K down to protect his interest in the property. This is also why he wants the credit report. I think you will likely have to give him the credit report (I wouldn't hold paper without requiring that either). The best success I have had in negotiating a lower down payment is to make it clear to the owner that while you understand that 5K down might be a bit thin for his liking, the truth is that you will be investing 10K or more into the property immediately upon closing (5K down and 5Kplus in rehabs). He doesn't have to know that you might be able to do it for less than that. And make sure he knows that while you have good income the 5K plus 5K is ALOT to you and you would never walk away from it. I think that if he is really a motivated seller that sales pitch could very likely get your down payment to where you need it. Give him the credit report as "his win". Hope that humble two cents helps!

    2Reply
  • Joel OwensBusiness Member
    Moderator
    Real Estate Broker · Canton, GA · Member since 2010 · 15k+ posts · 11k+ votes
    13y

    You didn't say if the interest rate is fixed or not during the 5 year term. You also did not mention if this is a personal guarantee on the loan or if this is a non-recourse or recourse loan.

    Difference being if the LLC was on for recourse and LLC went insolvent then unless a personal guarantee on the loan it usually stops there. Depends on how everything is structured.

    There is no mention of what the amortization rate on the loan is??

    How does your offer make him more money?? His deal he gets 2k more on sales price and 5,000 more down. Even if he pays the 640 yearly on your behalf for the warranty that is 3,200. He is still getting 2k more on price and 5,000 more today and paying out 3,200 over 5 years which eh can grow that money between now and then.

    I do not see at all how your deal is better.

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    1Reply
  • Joel OwensBusiness Member
    Moderator
    Real Estate Broker · Canton, GA · Member since 2010 · 15k+ posts · 11k+ votes
    13y

    If the foreclosure process in your state is lengthy then the seller could spend more than 5k getting the property back if you default. Do you have any other property they can lien with you putting less down??

    Has the seller owned this awhile or did they recently buy it?? If so they might be trying to get back what they bought it for and the rest is a profit income stream they create by holding the note.

    You have to understand where the seller is coming from and what they are trying to accomplish before creating a solution for both parties.

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    1Reply
  • Account Closed
    Investor · Central Valley, CA · Member since 2012 · 6k+ posts · 3k+ votes
    13y

    A counter offer never sucks. It means the seller hasn't given up on working with you. Counter offers are everything.

    Clear your head, stop worrying about what the seller is thinking and then make an offer that still works for your purposes. Is the $22K purchase price a deal breaker? If so, then you were probably going to lose money on the deal anyway because $2K can disappear in blink of an eye in homeownership.

    I wouldn't accept your offer of $2K down either. At at a $20K purchase it's not about the % but about the actual cash you put in. $2K is no skin in the game and most people will walk from a $2K investment when they hit a $3K repair.

    No offense, but it's the rare "up and coming" area that has $20K duplexes. Rents will be low. Unemployment will be high. And unless it's in an area that missed the memo about the profitability of meth, crime will be high.

    I say counter with $21K and $5K down. The seller will likely counter again. If he does that means you might have a deal. Or that you are over paying. Be careful and be thorough in your due diligence and inspections. Happy negotiating!

    2Reply
  • Matt Devincenzo
    Investor · Clairemont, CA · Member since 2011 · 3k+ posts · 2k+ votes
    13y

    I think his offer is pretty decent, how about look at this from another angle:

    You can't finance the property any other way!!

    It is a rare bank that will finance anything under 50K and that would be if it didn't need work. So you are looking at an all cash purchase price normally, instead you found owner financing, which is just about the only thing you could get.

    You say you have great credit and disposable income, but how does he know that? Did the bank run your credit for the 15K line of credit? I bet so, so why is him giving financing any different? I run the credit on my tenant applicants, and they don't even owe me money or live in my property yet.

    So that being said reevaluate and figure out what you can offer that he would be willing to accept. I personally would try 21K with 7K down 5% with a 7 yr term(assuming with such a low amount this is also the amortization schedule) and your credit report(this would be a non-negotiable deal killer if I was the seller).

    Hope you can work this out somehow that will be good for you. And remember if this one slips by there's always another.

    0Reply
  • Jeff Rabinowitz
    Investor/Landlord · Farmington Hills, MI · Member since 2011 · 1k+ posts · 1k+ votes
    13y

    He is agreeing to carry seller financing at 5%. Assuming you are sure about the price point that seems like a very nice offer. He wants the extra money down because that makes him much more secure. I don't see how showing your credit report is a negative for you, especially if it is good. You say you are planning on rehabbing the property. What do you think that will cost? $3K-$4K? If so, why not come up a bit on the down payment (maybe $1K) to show you are listening and offer to set up an escrow account to hold most of what you are planning to spend on rehab. You will need an escrow agreement that allows you to take draws to do repairs. If you are making the property more valuable that is also increasing the seller's security. You could be getting very close to the what the seller is looking for this way.

    0Reply
  • Ned CareyPro Member
    Moderator
    Investor · Baltimore, MD · Member since 2008 · 17k+ posts · 13k+ votes
    13y

    You haven't mentioned rental rates so we have no idea if this is a good deal or not or what the cash flow will be.

    Consider higher interest for a lower down payment. 5% interest is dirt cheap money.

    You are being totally unrealistic and naive to think anyone will give you credit without a credit report.

    You haven't said why he needs the large down payment. My guess is his security in the deal.

    The problem with this deal is the owner has NO SECURITY. He simply cannot foreclose becuase the property doesn't have enough value. The cost of the foreclosure will eat up most of what he would recoup. If that is his concern you might offer a confessed judgement for your personal liability.

    However he may need the $10,000 to pay off other debts or judgement against the property. It sounds like you are close to a deal. Question him about his needs and concerns and you may find a middle ground that work for you both.

    Good luck - Ned

    2Reply
  • Savannah Leigh
    Real Estate Investor · scranton, PA · Member since 2010 · 174 posts · 14 votes
    13y

    On the foreclosure question....2 options. Both bad for you if you screw up but good for him

    . Letter of judgement in the agreement. You screw up, game oover

    or. WhaI do w my lease options .... it is a rental lease. Last payment llet's them take ownership. Tenant owner screws up before then...it's mine with a quick eviction.

    0Reply
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