How to Increase My Offer Without Outbidding Myself?

Question

I had conversations with a seller which have reached an impasse, so to speak. They are not financially distressed - quite well off really - but have two SF they have neglected and are unrentable as the roofs are beyond bad and sheetrock has fallen down inside.

I made the mistake of telling them the ARV is 250K (will never give an ARV again) and that each needs 100K of repairs and I offer 75K per house. They repled that they would like to see a listing of what I would need to do to the houses. Having painted myself into a corner with the ARV, I provided the lists. They then responded - was it 75K for each house for a total of $150? I replied that that is correct and mentioned one other thing I had forgotten on the list.

Communication ended there five days ago, and it will be up to me to re-establish conversation. As often happens, I will likely be told they have received many letters and have another offer, which is of course unconfirmable, but I"m sure they have recieved other letters.

How can I increase my offer without going higher than necessary? A comment such as "I have other projects I am considering and would like to resolve whether to pursue this one further" may be of help.

Would you go up on price more than once in a single conversation? Or perhaps a question such as "What will you need to get this deal done?" How can I best arrive at a sale price without going unnecessarily high and outbidding only myself?

I'm looking for the sequel to the book -The BP Cost Estimating Guide, which may be entitled "The BP Negotiating Guide" which isn't out just yet! Getting these deals will go a along ways towards being able to stay in this field - on a full-time basis anyway.

Brian P. · Answer

Yes you got them into the greed mode, they smell more money. ARV $250K Yeah maybe. Let say that holds up. Let me tell you a story of when I put myself in your position. I sat down and using your numbers I laid 250 ones out on the table and said lets pretend. I am hoping to sell the place for the $250k, now that isn't a sure thing, it may only sell for 95% of what I hope to get if the market doesn't go where I'm hoping it will, the 5% I can't get is $12 and a half bucks but I'll just take away 12. Now we need to cover the 10% that is pure air for closing costs, commissions I pay, and other costs, when it sells. That is $25 so Ill take that away.

Now I estimated $100k in repair and remodeling costs but I didn't include the wise cushion of 10% most investors use as a cushion for unexpected problems that arise, and there could be unexpected problems that show up or problems getting the work done at the estimates given and the timetable given by the contractors. So deducting the repair and remodeling equals another $100k or $100 leaves this pile. And I'm offering you $75k of this pile or $75, so If I take that away that leaves $38 in my pile if everything goes according to the plan, and if I am lucky then I have to give half the pile to the state and federal tax people leaving me with $19 to spend.

I really don't think that is to much to get for the amount of risk and time and money I'm going to invest  but if you think it is too much then I suggest you take over what I would do and spend the money and time yourselves and keep that extra $19 for yourselves. Would you be interested in doing that, or do you think you would rather just rid yourself of the problem and let someone else worry about it?

Burt L. · Answer

These are each excellent suggestions- to get something in return for going up, and to request owner financing so more can go to the sellers. When one has cash, it doesn't earn much now either.

As to being a written offer, it was only through emails, as they asked for and not in contract form. Where I am currently is that I"ve made an offer which has been ignored as there hasn't been a counteroffer and the seller has my list of repairs to shop around to contractors. Ouch.

James Vermillion · Answer

Negotiating against yourself is one of the easiest and worst things you can do.  Have you given them a written offer for the $75 each?  Perhaps actually handing them a piece of paper to let them know you are serious will be enough to at least get the conversation started again without you changing your offer.

Will Barnard · Answer

Burt, looks like you have identified your mistake already, so that should not ever happen again. At his point, your negotiating skills must be top notch. Keep in mind that price is only one factor in a deal. Find a way to give them something other than more money or perhaps, get something for going up in price. For example, what if you get owner financing? Now you have less of your money into the deal, you can go up a tad, plus they get more money in the way of interest. What other things can you trade or offer into the deal. Get creative, don't let tunnel vision of price restrain your negotiating powers.