Posted by phil fernandez on December 31, 1999 at 16:46:56:
Alex,
There is no formula as to how much to offer. Every property is different and the motivation level of each seller, whether it a bank or individual, can vary. The motivation of one seller can change over time.
Do your homework on value and what you can pay for a particular property and stick to your guns. Don’t let a realtor sway you to up your offer if you feel it is not in your best interest. Remember, realtors get paid to sell properties. For all you know the realtor who said that there are other investors and the bank would not accept anything less than $125,000, could not exactly be telling the truth. Hey they’re realtors.
I am a rookie to the business and have been trying to create a little momemtum for making offers and getting one accepted. However, I seem to be somewhat apprehensive on what amounts to offer on any given property and possibly paying to much or offering to little and not having a chance. Ex: My wife and I made an offer on a house that fixed upped, would have resold for approximately $150,000. We offered $100,000 and close when the bank wanted to. The Realtor said that the bank he was representing would look at nothing less than $125,000 at the moment and that he had other investors coming to look tommarow (today) and that it would probably be gone by the weekend.
I realize that this is his job to get as much for the property as possible but I guess I would like some input on, is there a common rule of thumb for making offers, possibly a formula of sorts or is it a question of throwing a whole bunch against the wall and see what sticks as long as I am in control?
Thanks for your time and energy.
This web site has inspired me to go after a life long dream.
HAPPY NEW YEAR, MANY CLOSED DEALS AND MOST IMPORTANTLY HAPPINESS!!!
Posted by wilton on December 31, 1999 at 21:11:03:
Some years ago, I looked at a house listed for $119k
(i believe it was 119k, not absolute but the amounts to follow are correct.)
finally came down to 100K rock bottom…I offered, thru realtor 76K…realtor said he couldnt offer such a bid…I REQUIRED that he present the offer.
I BOUGHT THE HOUSE…(bank owned)
Alex,
I tried to locate my copy of LeGrand’s “Fast Cash” book to list the components of the offer. I wasn’t able to locate it, so I’ll wing it based on how I make offers.
1.Start with FMV or ARV(after repaired value)
2.I like to subtract 3 to 5 percent off the top of that to get a SFV(sell fast value). This is optional. It’s a fudge factor of sorts that I like in there to market “below FMV” to move it faster.
3.Then, I subtract a Realtor commission. This is regardless of whether I actually use a Realtor or not. If I don’t use one, then I pocket this component. If I do need to use one, I’ve got it covered.
4.Subtract your fixup costs. Pad this figure by at least 20% for breathing room.
5.Subtract your estimated closing costs.
6.Subtract your estimated holding costs-the cost of your financing. Plan on 3 to 6 months depending on the market activity in that neighborhood for comps.
6.Then, subtract your desired profit. Only you can know what figure you’re comfortable with.
Some people offer lower than end result so that they have room to go up if necessary in the negotiations. Personally, I don’t mess around with it. Whatever the figure comes out to is my offer. If it’s not responded to, move on to the next offer. If they counter, and it’s reasonably close(within a thousand or 2)I’ll re-evaluate and see if I can make it work. It’s more imporant for it to fit your numbers than it is for your offer to fit their numbers. You’ll regret it sooner or later if you lose sight of that. I hope that helps you a bit. Good luck.
kf_az
P.S. That formulation is assuming you’re retailing it after you purchase it. If you plan on wholesaling it, you’ll need to factor in both your profit(much smaller typically due to risk, cost and time dynamics) and the investors profit.
Did the Realtor present your offer? They like to say that the seller will never go for your offer-but they are still legally required to present all written offers.