Newbie With Questions On Possible First Deal
First of all, I've been reading posts on this forum for several months and have learned so much from everyone here.
Situation: I'm looking to buy a house for myself, my wife and son. Within the next year I'm interested in either selling it or renting it.
Someone I know is trying to sell their house to join his wife in Missouri, we live in Texas.
Here's what I know:
Asking Price - $169900
Past offers - $50,000; $75,000; $107,000; $155,000
Seller Reactions - Seller countered on the $155K offer with $162K. Seller hasn't heard from the guy in months
What Seller owes: $125,000
What Seller is willing to take from me: $135K (Since the highest offer in months has been the $107K)
Monthly mortgage payment - $1200 (not including taxes or insurance)
Insurance/ year: $850
Taxes/ year: $2713.59 (Tax appraisal @ $119,900)
History: Title is clear according to the seller
Seller is willing to take $5-10K upfront to refinance the $125K @ 5.5% and work out a lease/ option or subject-to
Comps: Considerably lower than $169,900, 2 for around $110-115K in the last 6 months, although seller says homes in the area have sold for more I haven't seen any paperwork supporting the claims
My Question: How can I make this a win-win situation for the both of us?
Let me know if I missed something here
Any comments about how to structure a deal would be appreciated
I am a newbie also, but why would you want to buy a house for $135k that comps at $110-$115?
Ryan
Sounds like 110 to 115 should be your final offer if comps are there why would you go any higher???? :-?
First things first---it is not the sellers job to give you the value of the home. Would you believe a used car salesman that an 88 honda is worth $15,000?
Learn the neighborhood. Run comps. Figure out what the home is worth.
Then only then can you decide what to offer.
I did make the same mistake when I was starting. I was so excited to find all these deals that I could buy with no money down that I forgot to make sure the deals were profitable. Luckily I realized that before I closed on any of them.
Couple of strange things going on here. From first glance, I'd say pass and find a different deal. Why is a 125k balance $1,200.00 per month? Can he even get a refi at 5.5%? If so, why hasn't he bothered to refi for himself? Second thing, get a realtor to do a sales analysis, or pay for an appraisal. Why has there been such disparity between the offers? A $100,000.00 swing between offers? A tax assessment of 119k when comps are 110-115k? Brings up some questions, putting it mildly. Where's the positive in this deal for you?
Good Luck,
Shawn(OH)
Of course the seller's willing to accept $135K for a house that appraises @ $115K.
He's smart. He's looking out for himself.
You, on the other hand, are worried about finding ways to make it a "win-win" situation for you both of you.
Before you dive into the world of REI, take a cue from the seller and worry less about the other guy and more about yourself.
Put you and your family first.
Call me cynical, but that's the only "win-win" situation in my book.
Take care.
[addsig]
I wish I could help the seller get out of his house I just don't see how I could gain from the situation. I agree that he's asking too much. If he owes $125K on the house, do I offer lower than that and he has to cut his losses
He has another 3 months with his agent, I might check with him again and see if he wants to do owner financing and understand he's not paying 6% to realtors.
Anything else I'm missing here, I'm going to talk with him later in the week and wanted to be armed with the best info
Thanks for all your help
I have to concure with Monkfish. The only win you should be worried about is yours. Something to keep in mind - there is always another good deal heading down the road. Don't fall into a trap of "loving" the property or area. Work the numbers.
At this time the numbers say no. I want to put myself in a position to benefit from the situation. The seller isn't quite motivated enough, maybe a couple more months away from his wife might change his perspective.
What is the best way to ask someone to eat a loss on a property?
As I stated above, don't "love" the property. I think you have the right idea to wait it out - he may find someone to buy it for his asking price - who knows?? If he does, good on him. Just don't be the one the buys too high. Are you looking for other deals - I would be. You need to take action in REI, but not foolish action. It was stated on this site before..."I would rather miss 10 good deals, then get get stuck with a bad one." Lots of deals out there - keep looking.
Bravo.
Now you have the right attitude.
Remember: Eye of the tiger, baby.
Eye of the tiger.
All kidding aside, here's a simple formula:
High need = low power
Low need = high power
In REI negotiations (hell, in any negotiation), advantage is everything.
In your situation, the seller needs to sell. Beautiful.
Understand, this is every investors dream scenario: a highly motivated seller. And by needing to sell, he’s put himself in the unenviable position of "low power."
Therefore, you hold all the cards. You have all the power because you don’t need to buy right now.
So wait, be patient. Time is on your side, not his. Use it to your advantage.
And remember, try like hell to never put yourself in a position of high need.
Look for deals, like this one, where you can control the situation.
[addsig]
Why would the seller counter on $155K, but agree to settle with you for $135K?
It doesn't sound right?
I am pretty new at this, but I know that my county offers a website that gives you the taxable value of a home. Call me crazy, but I would never even come close to paying close to tax value if I was trying to buy this house and sell for a profit later.
I think he is lying to you about the $155K in order to get you to bite on the $135K.
Just my gut!
if he is in a bind ask him to get an apprasil and give you a copy, and you will then see what you can do to " help him"
Thanks for the replies. Deep down I thought the numbers didn't quite add up, now I have some additional points to bring up with the seller such as:
-Getting an appraisal
-Not paying over tax value
-Verifying comps
-Determining if he has a second or if there's any liens, clearing up the title
-Determining if in fact he's had the said offers
-Waiting a little while longer until he's near foreclosure (if it comes to that) and than making an offer more in my favor
-Stating that it's difficult to have a win-win situation if he's the only one that wins.
-Making sure I cover my self and not get involved with a poor deal.
Thanks again for the responses
Appraisals and tax values often have nothing to do with the market value of a property...sometimes they do, but most often not.
Here in California for instance we have that little proposition 13 on the law books. The assessed tax value of a home is only allowed to appreciate at a certain low percentage per year. In an area where there's been a lot of market appreciation of property values it doesn't take long before the true market value greatly outpaces tax value...escpecially if the owner's been there awhile.
Most appraisals often come in unjustifiably higher than market value...after all, the appraisal is just one person's opinion of value. Banks and brokers often put pressure on appraisers to come back with the highest value possible. This situation sounds to me like the guy got an over-market appraisal and refinanced all of the equity out of the property and quite possibly spent it all in Missouri. If the guy is making two mortgage payments (Texas and Missouri) then he's probably stretched pretty thin and won't want to pay for an appraisal anyway...and don't you dare pay for one either.
So, the only thing that really counts in determining market value is comparable sales. If you know a realtor have them pull a list of comparable sales in the same area to see what similar homes have sold for. This tells you what people are willing to pay for a home like the one you're looking at. When you get the list, drive by each address and look at each home to see how similar they are (neighborhood, condition of home, etc.). Since you won't see the inside of the homes recently sold you'll have to rely on the list to tell you configuration (bed/bath count) and square footage. If you find two or three similar in style, age, condition, sq ft, and configuration, then you'll know how much the home is worth. From your post it sounds like you already have an idea of market value.
Learn how to do a preliminary title search yourself. That way you don't have to pay money if there are deal killers lurking in the title records. You'll still want an official search done, but only after you're certain that this is the deal to pursue and all other due diligence is done. Bribe a title abstractor at the records office with $50 or see if your local real estate investor's club has someone who can teach you.
You might insult the guy if you ask him to prove he's had other offers. Guy could be telling the truth just as easily as he could be lying through his teeth. He could be making up false competition in order to get you to pay more. If you're intent on determining this you might play it like "By the way, do you have a copy of those other offers? I'd like to see what kind of contingincies that other guy had to justify offering way over market value." It could be that the guy really did get the offer several months back and really thought his home was worth more. Now, with hindsight, he's regretting it. Although, we could come up with a hundred scenarios and still never know the truth.
Again, you might insult him if you have to point out the need for a win-win. Just explain that the numbers don't work for you and that it's nothing personal...heck, you even like the guy so you're going out on a limb and offering a little more than you'd normally offer. You might show him the list of comps you got from the realtor. People often believe what they can see in writing. Explain that in a depreciating market this is the best you can do.
I probably wouldn't explain the short sale concept to the guy. He might figure that's his only way out and intentionally stop making payments. Now, this might not be such a bad thing except that he'll likely be counting on you to be successful with the short. And if you're not, then the guy is going to be foreclosured on unless another investor steps in and can rescue it. Since you're still pretty green I'd say keep that bit of knowledge to yourself.
I think my next move would be to ask him if his payments are current and to have him sign a release so you can talk to the bank about his loan. If you can get a signed release to obtain information on his loan from the bank on your own, you'll know the true story about the status of his payments. If you find that he's already in arrears, then and only then bring up the short sale scenario.
And sometimes a win for the owner might just be a way to stop the bleeding of having to pay two mortgages.
Now you have some ideas of what to pursue...go get some more data and get back to us. By the way, what's the going rental price for a home like the one you're looking at? Also, is the house listed for sale with a realtor?
[ Edited by wannabe21 on Date 03/31/2004 ][ Edited by wannabe21 on Date 03/31/2004 ]