Big Lessons Learned fron a Lost deal (long) - Posted by Phong
Posted by Phong on June 30, 2003 at 18:03:16:
About two months ago, I found an abandoned house near my house. After being able to successfully able to contact the owner, she agreed to look into the possibility of selling the house. We arranged a time for her daughter to show the house. The inside and outside was a mess. It looked more like a cabin than a house and looked to me more like potential tear-down candidate than a fixer (although it is structurally sound).
Here are the figures:
?h Land value $65,000 to $75k
?h Fixing cost would be at least 40k if someone decides to fix it up. After fixing it, it would be worth around 140k (this is a very small house)
?h My plan: to buy it at around 35k cash and quickly sell it for around $55k (very reasonable because I know of people who would jump at this chance) or just tear it down and build a nice house on it for a good sized profit.
I asked the daughter what her mother wanted to sell the house at. She said she know that it¡¦s worth about 120k fixed up but she knows there¡¦s significant work to be done. I told her the fix-up cost would be way too much and the best use for this property would be to tear it down. I told her that the land value for this would be around 65k, which she agreed. Big mistake #1-I shouldn¡¦t have mentioned the value of the land. I also told her that it would cost around 20k to tear this place down. After emphasizing the value of the land and the cost to tear down, we soon departed. Big mistake #2-I should have made it clear that I did not make an offer for $65k.
The daughter contacted me a day after our first meeting and told me that her mother accepted the offer amount of 65k. I apologized and told her that I did not make that offer and that my best offer would only be $30k (65k for value of land ¡V 20k to tear down ¡V 15k for my profit). Big mistake #3 ¡V I shouldn¡¦t have stated my offer amount before she stated her asking price. Obviously the 30k offer is much more smaller than the $65k so she was kind of upset. We ended the conversation with me apologizing for the mistake and her going back to her mom to relay my offer amount.
I called her 4 days after that and asked for status update. She said her mother would be ok with paying for the tear-down cost but she doesn¡¦t want me getting that 15k in profit. I told her nobody would buy this property and take on this complicated task of tearing down the house without compensation, especially when they could buy a nice piece of land in the area for pretty much the same price. I however told her that I¡¦d be willing to increase the offer amount to $35k if she¡¦s willing to take $20k cash and $15k in 6 months. Big mistake #4 ¡V I¡¦m not sure where I learned this technique from but 15k now or 15k later wouldn¡¦t make much of a difference because I do have the cash to cover this purchase and plus my intention is to never keep it for a long time anyway. We ended the conversation again with her going back to ask the mother.
A few days a later, I called the daughter again and she said that the 35k is kind of low and that her mother would want all the cash up front, not waiting 6 months to get it. I said I should be able to scrap everything together and come up with 35k in cash if she¡¦s will to accept the 35k.
Well, the daughter called a week later (last Saturday) and said her mom would accept the offer. I, not wanting to sound too eager, told her to give me a few days to make my decision. Huge mistake #5 ¡V I should have accepted this right away and get something signed since I know I could back out or haggle later. I don¡¦t know what I was thinking. Such a dumb, dumb move. I called last Monday but she didn¡¦t pick up the phone. She called back Tuesday telling me that she was to get somebody else to look at the house. On Friday she called back and said this person had made a higher offer (she wouldn¡¦t disclose the offering amount) and her mom accepted the offer. I called her yesterday hoping she¡¦d change her mind. she basically told me I changed my mind too often and didn¡¦t seem capable of going through with the deal and that was the end of it.
I¡¦m extremely depressed now because the house is only a block from my place. It hurts every time I pass by it. I could have made an easy 20k on it for minimal effort but my plan got stopped by my stupidity. I know I¡¦d eventually have to move on but this depresses me so much. Any advice for this beginner? Any story to share?