Hi. I am looking at a deal with an out-of-state owner of a 2bd, 1ba free-and-clear home, and I have a few questions. I had a realtor friend run some comps on the property, but he couldn’t find any properties with the same number of beds and baths (all comps were 3bd+, 1.5ba+). The home has a basement that I could add a bed and 3/4 ba to. The owner is asking $235K cash only, but it is worth about $260K (he wasn’t sure of the value). Should I present the comps to him? I couldn’t find any comps lower than $260K. The reason I ask is that I had a similar situation a few months back where I didn’t present comps, and the seller’s relatives in that deal, who live in the area, told her she was selling too cheap, so I lost that deal. I put together a cost-to-sell for the current home to present to the seller to further discount the price, so the price may end up close to where I need it to be.
My planned exit is to add a bedroom and bath to the basement and retail it. Here are the numbers:
2bd, 1ba - avg comp $260K
3bd, 1.5ba - avg comp $320K
Repairs/upgrades - $25K - I have a friend that can do a lot of the work
Planned to offer - $215K using conv loan
A couple other things…There is a tenant in the home now whose lease expires at the end of Jan - how should I handle that? Also, the seller bought the house in March of 2006 - should I mention anything about short-term capital gains to help him save money or is that being too much of a do-gooder? I can close sooner, so mentioning that fact would not benefit me in any way, except that it would save the seller about $40K and I’d look like a hero.
I can tell you this much, being an agent myself, the most important measure used by appraisers to determine value are properties in the same neighborhood or subdivision with similar square footage that have sold within the last six months. The number of walls within those properties, which might give one house more bedrooms than another, is irrelevant.
Also never give tax advice. You do mention something about $40k in taxes which would imply the Seller only paid around $100k for the property roughly 6 months.
Like previously stated comps run first on square footage however depending local buying patterns, a 2 bd room house could be a very tough sell in a slow market. I’m not so sure about the bedroom in the basement thing. You may spend a whole lot of money and not really increase the value an appeal of the property. Also, you have several other issues like are you going to pull permits (?) and also fire code issues as well (is there windows int he basement). You may not legal be able to call it a bedroom anyways.
You need to do more homework before making an offer. This smells a like money loser.
by showing comps, you say you are willing to pay FMV.
most people do not understand how to use comps correctly; it just give a range of value that is an estimate. in falling market, it can be misleading.
many Seller think their property is a palace and have an expectation of its value (right or wrong). If you are far apart in price, my experience says its a waste of time to try and convince them they way out of line.