How Do I Know If I Made a Low Enough Offer?

Question

So I am doing my due diligence and running a bunch of Wholesaling Calculator reports to decide on my maximum allowable offer ($53,260) in order to get my desired return ($10,000) and the flippers ($30,000). So for example, I have this property the County did an assessment on and the value came back at $67,800. When I ran that same property in BP (preforeclosure) it gave me an EMV of $71,003 but, also on BP, in the 'Find Deals' tab, it gave an off-market value of $116,660 and on Zillow it is zestimated at $93,600. Most investors I come across say you should make your initial offer at least 75-80% below asking price.

So I am asking which price should I take the 75-80% off before making my offer?

Don Konipol · Answer

Your approach is wrong. If everyone could sit back, find real values on line, and make offers based on those values everyone would get rich flipping properties. The reason values are all over the board is because valuation is an opinion. No formula can be accurate across the board because even “cookie cutter” properties next store to each other differ as to view, location to the street, topography of the land, lot size, physical condition of the property, past remodeling, quality of the mechanical systems, sunlight, utility bills, past use, etc. An investor needs to utilize their knowledge, expertise, and experience to be BETTER at assessing value than the 50 other investors chasing the deal.

David Ramirez · Answer

Hey Austin, Before trying to wholesale, you have to fully understand what makes a property a good deal for an investor (flipper or holder) to be able to reverse-engineer the process and come up with your MAO. Network with flippers in your area and simply ask what they’re looking for in a flip. Are they focused on a %ROI or a net profit per deal? For example, in Tampa Bay, I know I can sell a property all day at 80% of ARV minus repairs, so my offer would be that result minus my fee.

Bill B. · Answer

I mean the assessed values mean nothing. Sometimes you might need to offer 100% over the assessed value. Sometimes you might be able to get the, below assessed value. You’re going to have to comb through 10’s if not 100’s of previous sales in the last 2-3 months of nearly identical properties to get an idea of what your target properties are worth. Probably the best thing you could do is go work for a wholesaler for 6+ months. Currently you’re essentially a peewee football kid asking the coach how to run circles around the professional defense. If you tell a wholesaler the zip code, the SF, the bed/bath and condition they should have a ballpark in their head instantly. MAYBE they adjust that up or down 10% depending on outside factors but they’re not checking the assessed value. Ps. I HOPE you misread the advice saying to offer 75-80% below asking price. I HOPE they meant 75-8o% OF asking price. (20-25% off). But even that doesn’t guaranteed a deal. They could be asking 20% too much. Pps. Wholesalers can literally pay THE LEAST for any property. You have to find a property that isn’t for sale or nobody knows is for sale, or is in unlivable condition. Imagine a home “the market” thinks is worth $100k. You think you’re going to offer $30k or maybe $70k (if you misread the 70% off part of the bad advice you were given.). While the long term hold landlord would love to offer $85k. And the Short Term landlord might offer $95k-$105k because they’re going to make more income. But then in walks the owner occupant or the house hacker who “love the house” or the neighborhoods or the school district. And they offer $110k, or $120k. You will literally never get one offer accepted. (I was going to say except for the person who NEEDS to sell today. But you aren’t really a buyer, you can’t buy today. You can only promise to go look for a buyer.)Wholesaling is often sold as the easy way to get started. It is not. It is the cheap way to get started. As long as you don’t count all the hours you work for free that you could have been earning money and learning. I truly wish you good luck, but please be ready to pivot to something else.

John Teachout · Answer

I have multiple properties I would gladly sell for the county assessed value. They've gone up beyond the point of reasonableness around here. That said, who in their right mind would sell a property for 80% below asking price? I think you're going to be spinning your wheels and going nowhere with this strategy.

Bill B. · Answer

Picture you are selling your home. Your 2 neighbors just sold for $86k and $92k. Then somebody you don’t know offers you $68k. Do you think anything other than “What’s wrong with this clown, my neighbor just sold for $92k. I bet I can get $95k.” The only hint I can give is find homes that have been sitting for 60+ days. (You could look at 100+ days but usually those sellers are stubborn. Many people have already made them lowball offers they declined.)

Austin Williams · Answer

Bill yes you are right, the assessed value doesn't matter. What only matters is what has sold within the last few months in that area will determine what my property would sell for. Also, yes I misspoke, I meant to say they said to offer 80% of the total value, so if it is valued at $100,000 start off by offering $80,000 and not the full $100,000 price. So you're saying you have a home valued at $100,000 and a home next door sold last month for $80,000 and another home in that area sold for $92,000. So the average in that area is $86,000. Would it be a good idea to start off by asking for $68,800 to the seller then charge accordingly to the buyer for that property with the potential of selling to a house hacker for $110,000?I am not worried about buying right now and I am learning from talking to you as well, so all isn't a complete waste. I just don't want to be in a situation where I was not able to maximize the deal, where the seller and buyer potentially makes 50k in profit each, whereas I only get $500, because my initial offer was 'too good to pass up'. I'm not complaining, because it is still better than zero.

Austin Williams · Answer

Hello Don, yes I agree knowledge, expertise, and experience would help me in analyzing deals, the reason for my question is if someone is willing to sell their property at $30,000 I don't want to offer $29,500 and they accept it right away. So should I just wait until they tell me want they want for the house before telling them what I would pay for it?

Austin Williams · Answer

Hello Bill, so are you saying I should try to purchase a property 20-30% over the county assessed value, since the numbers mean nothing?

Austin Williams · Answer

Hello John, I am glad you would sell your property at the county assessed value. That just means for you I would need to make my initial offer below that. My goal is to not make my first offer so generous that the seller accepts it without making a counter offer.

Bill B. · Answer

The county assessed value means NOTHING. I don’t own one property I would sell for 30% over the assessed value. About 10 - 15 years ago counties got sick of people contesting their property taxes. So they lowered the values 20-30% and increased the tax rate enough so that year property taxes dropped a couple dollars and nobody complained. But it eliminated any chance of them losing tax dollars to people who contested the values.