negotiate: Is a 30% discount on the listing price unreasonable?

Question

Hi everyone, any insight is greatly appreciated on this property I am trying to make an offer on:

List Price: $229,900

Offer Price: $161,329 (~70%)

Earnest Deposit: $5,000

Date to close: 01/30/23-03/03/23

Mortage Type: FHA (3.5% down)

DOM: 75 Days

Location: South Jersey (Woodbury, NJ)

Motivation: Seller just wants to sell and not manage this specific property anymore. Multiple alternative properties, lessen the total properties to manage.

This would be my first real estate investment and I am actually trying to house hack this duplex property. The agent I am working with thinks that the offer might not get a response, but I wanted to incite negotiations. My concern might be with that fact that I am using an FHA loan, so maybe I may not have as much leverage in being to negotiate with the type of financing. Or do I? I understand the Market I am in plays a major factor, but based on my evaluations (with Pro-Forma data), I know the list level price that will allow me to positive Cashflow, break even (live rent free), and negative Cashflow. As have been repeated in all real estate educational points, "you make money when you buy, not when you sell". With that any advice to keep in mind when working with the seller, seller agent, and my buyer agent?

Jon Puente · Answer

Hey Ying,

I do not think your offer is far off from what I would offer.  The biggest factors to consider are days on market (75), earnest money deposit (5K), and how motivated the seller is to sell.  Now, depending on the condition of the house, he may not take an FHA loan because an FHA appraisal might pick his property apart and add more cost to sell, so you may need to increase your offer from there.

However, you wont know until you try!  No response is a response, so just adjust from there if this is a property you are seriously willing to purchase.  If your agent is not wanting to put that offer in, then find a new agent.  It's not his choice.

Great Question!

Russell Brazil · Answer

I wouldn't respond to your offer at all if I was on the listing side.

Russell Brazil · Answer

You're using an FHA loan, which means you're the weakest buyer out there that exists. Which is fine, but the weakest buyers dont get big unrealistic discounts.

Now if you were all cash, no contingencies and closing in 5 days, youd have more power to throw out a lowball.

Joe Biscaha · Answer

Great advice Russell, its the same advice I give to my buyers who want to house hack with an FHA loan and they try low balling the seller.

Ying- sounds like you have an agent representing you, see if your agent can feel out what the seller wants. The property you buy today will be a “deal” in 5 years.

Jevon Shaw · Answer

Assuming the property needs absolutely no repairs, a 30% discount is a little aggressive. But with that many days on the market, you should still try. At 75 DOM, the seller should definitely know that there’s some sort of discrepancy between their expectations and reality.

Ryan Thomson · Answer

@Ying St.Cerny worth a try, but probably not gonna work. You'll most likely have to do a lot of these 30% discount offers to find one.

Trying to find an offer price based on whether YOU will cashflow year one on a house hack could be a LONG process. That number will probably be much lower than the actual value of the house. Why?

House hacking is tough to cashflow in year one (with current house price run-ups and interest rates) for a couple reasons:

1. You are living in one of the rentable units

2. You are only putting 5% down so your loan amount is much larger and therefore your mortgage payment.

How much effort and time will it take to find that deal? Is it worth passing up something else that will allow you to significantly reduce your monthly housing cost? If you are renting currently, don't forget to calculate how much you are throwing away every month in rent while you try to find a house for 30% discount.

With ALL that being said, maybe the seller is very motivated. Worth a try. But consider the opportunity cost and if your expectations are realistic.

Eric Yu · Answer

As others have mentioned, 30% is pretty steep. The best I helped a client get off of a property was ~20%, and that was due to extenuating circumstances with the seller.

I think you'd be better off trying to find a creative finance approach in this case. You can put 2 offers on the table:1) 3.5% down FHA at a 30% discount to get the monthly payment you want or

2) 5% down seller financed deal at list price with a 3% rate with a balloon on year 3 or something. Or whatever you want to make it more favorable to you.

I think your monthly payment would be roughly the same at this level, but it gives the seller options & lets them know that you're at least trying to find something creative that would work here.

Carlos Ptriawan · Answer

LOL, 30% with FHA ? I would not even pick your phone call if I was the seller.But if the property inspection is good and DOM is 75, then there may be something else you need to find out why. Have you figure it out ?

V.G Jason · Answer

If you offered me that, I'd have your real estate agent feel the pain.

Holly Barrett · Answer

What price range does your agent reflect on the CMA?

negotiate: Is a 30% discount on the listing price unreasonable?

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