What should my max offer price be?

Question

I was driving around to day, and going door to door knocking in hopes of finding leads. I did find on really motivated seller. He purchased his home 13 years ago. The ARV of the home is $135,000, he owes $60,000 according to him. He wants retail value. I did however tell him that that wouldn't be possible due to the repairs the house needs, and the fact that I am giving him a cash offer and willing to close within a few days. What should be my starting price, and what should be my absolute max price, if I am trying to make about $10,000 on this deal? This is my first seller that we get this far with. I was working with another one previously but he ended up going to jail.

Peter Vekselman · Answer

In negotiations always try to get the price out of the owner first.  If you are not able to do that always go in low and then watch / listen for the owners reaction.  This will tell you if you are in the ball park.

The amount of work this property needs will also determine how much to offer.

The fact he said he wants a retail offer is an indication this is probably not a wholesale deal.

A few options:

make a low ball offer.  go all the way to 70% of the arv and in not a deal make sure to follow up every few weeks.

connect with a local realtor to whom you can flip these retail leads to.  and then once they sell they can pay you a marketing / referral fee for the lead.

Peter Vekselman

Walter Roby jr · Answer

I always try to defer all sales to an agent and if they truly dont want to do that then find out why and gauge that motivation. Only then do I decide whether to continue pursuing a lead if I can help solve their reason for motivation.

Roland Paicely · Answer

Don't get too attached to any deal.  Especially, if it's your first one.  Keep in mind that you said that he wants retail.  That's not a good sign.  Why is he selling?  That's key.

Chinmay J. · Answer

The rule of thumb is that you should not offer more than 70% of (ARV - Repairs).  That being said what are the repairs required? If you are an inexperienced investor (which you seem to be), you need a very detailed analysis of what repairs are needed for the place. Then probably add another $5,000 for surprises.  Once you have that number, then you can make an offer.  Good luck.

Aaron Almario · Answer

@Victor Barboza Listen to the Sean Terry Flip2Freedom Podcast. He explains every aspect of the process (ex: Seller negotiations), which has been very helpful. He's also in PHX as well. Best of luck!

Brian Pulaski · Answer

@Victor Barboza you need to account for your end buyers other costs.

ARV - Rehab Costs - Holding & Closing costs - profit for him - profit for you = max offer...

Also I'm not sure how long you wait for the seller. Personally if I was hungry for it, I would be over there trying to get in touch, and get a feel for rehab costs on the house.

Brian Pulaski · Answer

No one can give you the max offer on a house. You need to come up with a solid ARV (sounds like you have one), rehab costs (these need to be accurate) then determine the costs and profit the person you sell it to will want to see (some use the70% rule, I have never hit it) then subtract your profit ($10,000 it sounded like you wanted) and you have your offer... if he isn't answering the phone, go knock again!

Cara Lonsdale · Answer

I am a Realtor in AZ.  This market is solid right now with very few pockets that aren't moving.  Unless this property is in one of those slow moving pockets (if it is, why do you want it?), then the Seller will likely be able to get retail if that is where he is stuck.  If there is no further motivator (default, money issues, reason for moving), then he may run you around the block a few times before you realize that he doesn't want to sell within the range you are willing to buy.

I agree with the others....get to the root of his motivation.  If he doesn't have any reason to sell, why would he sell at a deep discount?

Roland Paicely · Answer

As was mentioned by @Peter Vekselman, always try to get the seller to mention a number first.  Unfortunately, some won't do that.  With that in mind, go for 70% minus repairs minus your profit.  That should start a conversation about price.  Then it's just a negotiating/follow-up game.

Victor Barboza · Answer

@Roland Paicely Okay, that is good to keep in mind Roland. I won't get to attached to it. What would you suggest be my max offer price? The house has very little issues with it and has been kept up very well. For the most part it is just exterior work that it needs such as painting, the yard needs fixing, however the roofing looks good and no mold, or nothing big.

What should my max offer price be?

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