Deal Structuring and Low Balling
Here’s what happened: Got MLS listings and found a SFR priced below FMV. According to our agent FMV is approx. $250 /sq. foot in our farm area. The SFR we were interested was priced around 295K and newly rehabbed by seller. Some yard work needed but not much. So we proceeded to do our own comps online and found some SFRs on the same tract that sold for average price of about 275K. The latest comp was from a year ago for 240K. Here is how we structured our offer FMV, what we planned to re-sell at=275,000 .80 x FMV=233750 Rehab=1500 Mortgage paymnt (2 months)=2600 Closing=2000 Inspection=300 Sum of=6400 233750 – 6400=227350 then we subtracted 3.3% for stupid new cali tax and another 6% for realtor. And gave an offer for $206,138. In a conversation with the realtor she said that a “low-ball” offer should not be any less than around 20K less the initial offering price. The SFR sold with less than 2 weeks on the market. I am thinking we made the right decision to offer our figure. Is my math wrong? And what about the comment on “low balling”? Should we proceed other offers by subtracting 20K + as profit instead of using 80% of FMV? Please help, I need to understand whether I truly lost a great deal! -Vis :-S
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Some questions, Vis, what did the property sell for compared to their asking price? Was the buyer an investor or homeowner? Also, you deducted from your offer the realtor's commission, but the realtor will get paid from the final sale price (unless you agree to pay her directly). I'm guessing the the tax is the same way.
Roger
Hey Roger,
Thanks for replying, it means alot
It sold at the asking price and has second back up offer should the first not get through escrow.
Aside from the tax and realtor deduction, was the offer structured right? Next time, should I take 20% or 20K?
Thanks again,
Vis
Vis, if it sold for the asking price in only 2 weeks with a backup to boot, then it was either 1. price too low to begin with or 2. Your in a hot market where anything habitable will sell or a combination. Also, just MHO, don't rely on online comps. They are almost alwasy out dated and some are plain wrong. If you can find out if the buyer was an investor, then you'll know it was priced to move.
As far as your offers, it really depends on how much profit you want to make and the repairs the property needs. Always allow for holding/repair costs, then your profit, plus a % to cover "surprises" Keep in mind, even through the MLS, you need to find motivated sellers, or your offers won't be accepted anyway.
Roger