Our neighbor has many times expressed interest in selling his land which is next to our home. We have told him that we’d like to buy it. We asked his price and he has said make him an offer.
Just a few details about the property: first of all we are thinking of asking him to finance the deal, we are not able to make a cash offer. It is 1/2 acre, it has an old mobile home on it which is probably not livable, many shingles have come off of the roof and even he has admitted it rains inside, so our offer will not include the mobile home. Other than that it only has 2 very old sheds. There is someone in our town that sells lots, so I called just to get a price on what his going rates are. His lots are 1 acre 32,900 he finances with $5000 down at 12.75%. His area is just a little bit nicer than ours. We are considering offering him 22,000 with $5000 down and 10% interest. Is this a crazy offer too low or too high? I’ve never done this before so we would have an attorney draw up the deal. I just don’t want to insult him by offering too little but I also don’t want to pay too much.This is IF he agrees to financing it. Any and all feedback would be greatly appreciated.
It’s not an insult if he didn’t set the ceiling to begin with. He’s actually encouraging it because he said make an offer. The problem with being the first to give a starting point is that you’ve set the floor and the only place to go is up on the price. First, find out what the assessed value of the land is from the city and do a title search to find out what he paid for it. You might be able to negotiate from that standpoint or use that information later if says it’s too low again. Also, ask him how he arrived at his higher price. Ask him what his motivation is for selling. If it’s a real estate agent or appraisal, who gives a crap. Often I’ve seen appraisals a lot higher than properties actually sold for.
If you think the history and assessed prices are out of whack with today’s market, what I would usually do is if someone refuses to set the ceiling price is offer half and see what he does and have a number in mind and promise myself not to go higher than that. In your case, you offer $16,000 with terms. If he says it’s too low, say ok, what’s fair to you? It’s like chess. It’s his turn so now he has to set the ceiling price. He throws out $28K, you offer a little more from your floor price. Then you try to get him down to $22,000. If he won’t go down, tell him the best you can do is meet him halfway at $22,000. If not, explain to him why you can’t afford it and start talking about worst case scenarios or try to negotiate the terms down to 3% and/or have him pay for the survey, legal fees and property cleanup. But, if you think it’s worth $22,000, stick to your guns and walk and don’t go higher. Who knows. Two months down the road, he might have a big money problem and will accept your offer.
There’s been a bunch of times where stupid sellers have refused my final offer and a couple years later I see it for sale on foreclosure or some other distressed situation for a lot less than I offered. Let someone else be the fool in the greater fool theory.
You still haven’t mentioned what you plan to do with the property. IMO it’s worthless unless you have a plan for it to generate income within a year after buying it.
Thanks so much for your input, this was really heplful. We have studio apartments along with our home on our lot. We’d like to use this lot to build a small home and use the front portion for additional parking for our tenants.
have you made sure zoning of the lot works for your plans?
A few things:
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Be vague about your intended use. If he thinks he can get more for it he will. I might say something like “Well, I’d like to own it because it’s next to me, but not sure what I will do with it yet. How about $10,000?”
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You will likely get farther offering it with the mobile home on it. He doesn’t want to deal with it any more than you do.