I have a question for you guys. I’ve been doing a lot of reading and research over the last few months getting ready to buy my first home, and get started investing. We are finally getting pre-approved tomorrow from a traditional lender, and the next step is contacting an agent, and then we’re going to start making offers.
We are definitely looking to buy smart, seeking out forclosed homes, or anything we can find that’s a deal, but in the interest of getting our feet wet, we’re planning on putting in a lot of offers on a lot of different properties to the extent we may even purposely lowball just to get used to the negotiating process. How do you guys go about setting up your offers though, so they are not right out rejected?
For example, we are looking at a 2,600 sq. foot duplex in a nice part of town. Based on rents in the area, property taxes, and PropertyManager’s advice on expecting 50% of gross rents in operating expenses I wouldn’t offer more than $160,000. The guy is asking $219,000 though. How do we go about this bid without it getting outright rejected? Would you guys suggest bidding like $180-$190k first, and then once the offer is accepted, bring in an inspector, go over the books and barter the price down to $160,000, or walk away? Or would you guys just offer the $160k right up front, and if it’s rejected just move on to the next?
I’m interested in hearing any opinions, and thanks in advance. This forum has been very helpful since starting my search.
Let me start by telling you that I’m a newbie that has been making offers for the last few months. My first deal is “pending” right now. What I’ve learned is that banks like transactions that are simple and quick. They prefer to sell properties “as is” and with no inspection contingencies to a cash buyer if possible. It is possible to do a deal with conventional financing. However, you’re agent will have to present you as a “strong buyer” who can close the deal. Make sure that you are dealing with a competent lender. Also, make sure your credit is good and that you have funds for a downpayment, closing, etc. I hope this helps.
If you wouldnt pay any more than $160,000 for it then offer a little less than that and see what happens. Like Mike says, if they are motivated they will sell. Don’t worry about pissing agents off by making lowball offers because it’s going to happen if your doing it right.
Is there usually a counteroffer involved though? Like if I bid $155,000 (is a non-REO by the way), does the seller usually come back with something of his own, or just outright reject it?
Sometimes yes, sometimes no. I have had low offfers accepted right off the bat and then some that were flat out rejected and others that they came down $100. It’s a fun game!
Don’t worry if your offers are rejected. This is a numbers game. Most of your offers will be rejected. You make money on the ones that are accepted.
I suggest you do not base your offers on what you think the seller will accept. You have no control over what they will accept. Base your offer on what makes sense for you.
If you know you shouldn’t offer more than $160K based off the numbers, I would start out with something below that. If you make the one offer that’s $59K below asking price and you don’t budge if the seller counters your offer, the seller may think you’re being arrogant and not want to work with you. If they’re desparate enough, that part won’t matter and they will have to decide if they can hold out for a better offer. The people purchasing these properties at their retail & non-cashflowing prices are speculators. They’re speculating that the price will go up in the next couple years and they think they’re willing to throw some money at the property to keep it afloat each month until that appreciation happens.
Remember: You buy based on the numbers as they are NOW; not what they COULD be in the future. You’ll be the one making the improvements and raising the rent. Don’t pay the seller for that potential if they didn’t do the work themselves.
Nothing ticks me off worse than a buyer who looks at a property, makes and offer, gets into escrow and then tries to renegotiate every term in the contract. As far as I am concerned they are liars and their word means nothing.
What I do is to make the offfer for about $5,000 under my final price and send a very polite verbal message with my agent that I love the propety, and I don’t intend the offer to be an insult, but I just can’t pay any more than that, but I won’t ask for any repairs.
I usually get a counter for about $5,000 over what I’ve offered and we are good to go.
It’s a lot easier to get through an escrow with a seller who doesn’t hate your guts, and glitches can usually be worked out in a polite manner.
My offers are all cash, no contingiencies except for inspections and verification of county final inspections. Throw in no repairs required and if the seller needs to sell, he’ll usually be happy to take a low offer to out from under the house with no additional work for himself.
Having a pre-approval letter from the bank isn’t as good as all cash, but it goes a long ways towards making your offer more attractive.
I don’t want sellers to do any repairs. They will do the cheapest job. I’d rather wait and do the repairs myself and have it done to my standards. Repair costs are built into my offer price.
Your question is all wrong. You should not be asking how to avoid having your offers rejected. You should be asking how to get your offers accepted at your price.
I have had five different offers on lender REOs in the works for nearly a year. I figure out the maximum price I am willing to pay and still have the property cash flow as a rental, then offer that price.
Since my price is about 60% of FMV, I don’t play any games with the sellers. I don’t raise my price either if the bank counters my offer. I tell them that my price is my best and final. When the property does not sell and the lender lowers the price, my agent resubmits the same offer.
My offers are all cash, no contingencies, waive inspection, no closing cost assistance, and settlement within 15 days. So far some of the bank’s agents have been telling me to keep my offer on the table and keep resubmitting as the prices drop. I figure that by the end of this month the lenders will start taking any deal that is on the table just to start clearing their inventory.
It is a game of patience and persistence. If you are making lowball offers, you also have to be willing to walk away if you don’t get your price. The last thing you want is for impatience to buy your first property turn you into a motivated buyer.
Dave - I agree 100% with your statement. I wanted my first deal so bad that I was very close to becoming a motivated buyer - second guessing my analysis, under estimating repairs, etc… Now that I have my first deal under contract I am feeling more relaxed and confident.
Some of you are replying that you make all cash offers. That’s great for you guys, and I’m glad you’ve had success in your business and personal lives to get you to that point; it gives me hope, but this is my first house. I don’t have enough money or assets to go in all cash. I can understand using an all cash offer as a bargaining chip - a reason your offer might be lower than expected, but it doesn’t apply here.
I am going through a traditional lender, and on that particular property offering some $59,000 less than the asking price. So, without the luxury of a cash offer, I’m just trying to NOT become a laughing stock here making offers so far below asking. I wouldn’t want to get labeled as not being a serious buyer or something. Thanks for the advice so far though.
Does not matter that you will need to use financing. Just get pre-approved for your loan amount so you don’t need a financing contingency. Without a financing contingency, your offer is essentially “all cash.” I think you are missing the point that many of us are trying to make. You asked
How do you guys go about setting up your offers though, so they are not right out rejected?
In a nutshell, here is the lesson we are trying to teach you
If you are trying to figure out exactly how much to offer, so that your first offer is accepted, then your offer is too high. If you are not getting your first offers rejected, you are paying more than you may really need to.
Ah I see. Lol, sorry you had to spell that out in bold letters Dave, but for whatever reason it was not sinking in. I was concerned with getting a bad reputation as a buyer, and less familiar with the offer / counter-offer process.
Anyway, based on this advice, I called my cousin today who is a Real Estate agent, and she’s going to try and find someone that is familiar with investment properties to give me a call. Hopefully they will be prepared for a lot of rejected offers this way. Thanks again.
The only way to guarantee that your first offer will be accepted is to offer full retail price for the property.
If your first offer is rejected you have a choice; resubmit a higher offer or walk away. If they make a counter-offer you have something to talk about.
It’s important that you develop thick skin and realize that rejection is an integral part of the process of buying real estate. If the seller is truly motivated to sell they’ll want to keep the conversation going because in large swaths of the country there isn’t exactly an army of motivated buyers beating down their door begging to buy their property.
Remember, seek out motivated sellers and don’t be afraid to walk away from a bad deal or an unmotivated seller. Both will drain your energy and waste your time.