Dear REI members,
Could you please answer my questions on the following scenario.
REO listed by agent - $139000
Realtor suggested ARV - $155000
Market factor in ARV - (-5%) - $147250
Repairs Needed - $46500 (The quotes are from big contracting companies)
Appliances - $3500
Closing costs (Buy &Sell) - $3000
Realtor Sell Commission - (7%) - $10307
Repairs & Expenses - $63307
Using the formula for Purchase Price = ARV- 30% (ARV) - Repais& Expenses
Purchase Price = $39768 
This sounds too low to me.
Does the bank even consider this?
The Realtor hired his contractors and doing cheap fixes to the property to get the best price for the bank. But it really needs a lot of work. Realtor mentioned that he had a verbal offer ( a low offer from a contractor) but they didn’t take it.
PS: The expenses I posted above are from custom home/remodelling contractors.
How to arrive at a more reasonable (attaractive) offer?
How do I compete with the contractor who placed the verbal offer?
Please post… your help is very much appreciated…
Thanks in advance.
Pawan
Hi,
Your deduction numbers are a investor discount minus repair cost's!
Although I may have carrying cost’s and overhead in the remodel (Rehab / Repair Cost’s) the appliances should be part of construction (Rehab / Repairs) and closing cost’s and commission are factored as part of your investor discount!
I come up with $50,800 dollars as potential purchase offer!
On a $147k purchase and rehab / resale you should take about 15% of this or about $22,000 dollars profit!!!
They except $50,800 or next deal, that’s the bottom line to it!!
Next deal please!!!
GR
Hello GR,
Thank you for your post.
Are you saying that the starting offer is $50,800? or the final purchase price if so where do I start ?
According to my calculations 147000-(0.3)*147000-50000=$52,900.
Could you please explain how you arrive at $50,800.
Thanks again… I am excited that I am placing my first investment property offer…
Hi,
Listing price $139k <minus> 30% Investor Margin ($41,700) <minus> repairs ($46,500) = $50,800
That would be my number, they either take it or leave it, but that’s it!
I don’t negotiate and I generally don’t offer less than my number as I want my best chance of success!!
GR
I have confronted this kind of problem few years back but thanks God… I have managed to get out of that with the help of a real estate agent. After that I have decided to be a real estate agent to help people losing their property.
The bank does not have to consider the buyer-supplied calculations when determining whether or not to accept a purchase price of a foreclosed property. The bank is most concerned with recouping as much money as possible from the property. The amount that the bank receives is based on what the market dictates. The bank will generally consider recent sales comps in the area and the cost of reasonable expenses. Reasonable expenses would include closing costs, agent commission and repairs necessary in order to make the house inhabitable.
Based on the figures that you provided here are a few suggestions: The cost of appliances is not something the bank considers because appliances are not fixtures of the property. That is a personal expense that the buyer would be responsible for once the home has been purchased. Additionally the real estate agent commission seems higher then normal. In this market most agents are receiving commissions around 5%. Additionally I would recommend that you obtain a few more bids from contractors as custom home/remodeling contractors are going to be priced high due to the materials that they use and the general nature of their business. Based on the abovementioned suggestions a fair price offer would be somewhere between $75K - $110K. Although an offer may seem fair please keep in mind that the bank maintains the final decision.