Lowballing a fixer-upper

tracie.erinMarch 26, 2009

We are considering offering $185K, up to $200k on a fixer-upper. The house is currently listed at $250 down from $270, which is comparable for the area, but it needs a lot of work. We also know that the owner needs to sell asap (going into a home, poor thing..). They did get another lowball offer and the selling agent told our agent to "just get me something with a 2 in it, they will probably take it."

The repair list: electrical upgrade & possible rewiring, new appliances, possible slow drainage issue, new windows, possible insulation redo, paint/refinish floors, kitchen & bath remodels, clear out yard, finish basement. The only things that have any degree of urgency are the first 3 or 4 items. We can also DIY everything but electrical upgrade.

We are going through it with a contractor friend on Sunday, then want to offer. We may have him write up a work estimate and submit that with the offer.

This is the only house we are really liking in our price range.

Are we delusional in hoping they would come down to our asking price? Alternatively, are we crazy for taking this much work on? I grew up in a (lazy) handyman's house and I think I will be OK with dealing with it.

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I'm doing the same thing in about the same price range. The third walk through was with a skilled contractor and he really opened my eyes. On the surface the house looks like it needs expensive repairs but in reality they would be cheap and at least half the work I could do myself. So get the opinion of someone that remodels that type of home and really listen to what they say. I will add that other people I have talked to did not see things the same way - they thought it was too much work, but they were just inspectors and not remodellers.

    Bookmark   March 26, 2009 at 4:04PM
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Why the window replacement? Unless the window seals are broken it would be cheaper and easier to just fix what is there.

    Bookmark   March 26, 2009 at 4:36PM
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TJ, you are right. I did take my dad through it and his opinion was very negative. I am hoping the GC will say different. While the home is not his usual line of work, it is very close to HIS home, that he remodeled.

Carol, I believe the realtor did point that the seals were broken. Hopefully not on all the windows.. we will check that.

    Bookmark   March 26, 2009 at 5:03PM
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for instance:

The house I'm looking at has asbestos siding (possibly). They look like the type of siding boards that are made with cement and asbestos but no one has tested them to see what sort of fibers were used. Everyone assumes they are asbestos and evidently no one wants to buy the house because of it. There is nothing wrong with the siding. It looks as fresh and sharp edged as it did in 1950's when it was first installed and I only want to alter one section of wall so dealing with the siding is a mute point, but it scares a lot of people.

Another issue is the houses wiring, it is all original and has never been updated and does not support modern appliances. The cost of rewiring the house scares a lot of people away, including the advice givers. But the contractor pointed out that most of the walls are covered with paneling and how easy paneling is to remove - so rewiring will not be the problem that everyone seems to think it will be.

So some people may look at the house and see a money pit where others may bring a more realistic eye to the project. I think there are a lot of people that don't want to do any sort of work at all, they just want to buy a house that already meets their every need.

Good luck.

I will say that my low-balling experience has so far NOT landed me a house. Most sellers seem disappointed but not outright offended. I tend to keep my offers just over the edge of low ball. In the end they often end up selling at a price that is closer to what I offered then what they originally came down to. The current house is one I have been looking at and "negotiating" with for almost a year. The seller really expected to sell at a high price because of the location, but there are so many brand new homes in the area that no one wants a fixer upper (or so it seems). With every meeting I have had with the realtor my offer has come down which I'm sure frustrates her but I back it up with detailed information about what the repairs to the house will cost and those supplies were going up each month. Keep that in mind when you calculate what your house will cost to fix it up.

    Bookmark   March 26, 2009 at 9:30PM
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I had a client (investor) who lowballed a house that needed some work. He'd found out about the listing through an acquaintance. The listing agent provided the perspective that the client (going into nursing home) had to sell close to market price. His daughters were concerned that they'd be accused of Medicaid fraud if the price wasn't at market. Unfortunately market pricing (needing rehab or not) isn't a consideration my client appreciates ...

Cute house, very stable neighborhood.

    Bookmark   March 26, 2009 at 9:37PM
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I routinely purchase and renovate/restore 'old lady' type houses.

Many of the owners seem to have an inflated value based on sales of renovated (and maintained) houses, not realizing how much work was already done on them.

"Market price" will account for the required repairs/renovations.

Take a reasonable price for nearby sales and start down from that point with required repairs/renovations.

Depending on the conditions it can pile up very quickly.

Watch out for galvanized steel plumbing more than about 30 years old.
Even if it works it is on its last legs.

    Bookmark   March 28, 2009 at 4:27PM
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Does 90% of asking price count as a lowball offer? It felt like one to me, given the original asking price.

The fixer I bought was listed (for years) at $299k, reduced to $269, then reduced again to $239 (divorce sale).

We offered $215 and settled at $225. And were lenient with the inspections since we knew we'd gut it.

    Bookmark   April 10, 2009 at 2:18PM
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Offering 90% of asking price could hardly be considered lowballing. The asking price though, often has nothing to do with value. If you paid $225k for a house with a market value of say $225k you paid full price, and it doesn't matter that they started out at $299k.

Even in this market, many homeowners still believe their home is "the exception" and worth more than comps would dictate. I find it easier to deal with the banks REO inventory. They have no emotional attachments, are usually quite pragmatic, and relatively difficult to insult. Much of their inventory is listed on the MLS like any other home.

    Bookmark   April 10, 2009 at 8:32PM
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Yeah, what Jeff said, i.e. if you're looking for a "fixer-upper", almost ALL foreclosures/REOs fall into that category, and banks are THRILLED to get those lowball offers... hell, they're thrilled to get ANY offer, especially since these days most fail to sell even at auction!

So on the one hand, no emotions from getting harsh with someone's grandma, but on the other hand, REO fixer-upper often means vindictively trashed!

Watch out for galvanized steel plumbing more than about 30 years old. Even if it works it is on its last legs.

BINGO! Outstanding caveat! Even worse, unless original plans are available (uber-rare event!), the galvanized can be DISGUISED by converting to copper stubouts inside the walls! If your GC/inspector does not have a Borescope, or is not allowed to punch small 1/2" inspection holes in the walls (in obscure spots, e.g. under sinks), you might be victimized by the dreaded phantom galvanized time-bomb! It's an EXPENSIVE fix... especially when it "lets go" at 3AM! =:O

    Bookmark   April 11, 2009 at 2:46AM
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banks are THRILLED to get those lowball offers... hell, they're thrilled to get ANY offer, especially since these days most fail to sell even at auction!

I think this is kind of a blanket statement. It depends on the area you are in, it depends on the price ranges for that area. In my area of NY, of the last six offers placed by my buyers, only 1 has been accepted. All the others were lost to higher bids. Most foreclosures in my area have multiple bids within days.

    Bookmark   April 11, 2009 at 9:25AM
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True, my statement was applicable to/based on Miami-FLL local area.

So what area of NY are you referencing? I'm always trying to piece together the proverbial "big picture". Thanks in advance.

    Bookmark   April 21, 2009 at 4:02AM
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The 1950's farmhouse that I was talking about originally listed in the low $400K range. It was never worth that price, even if it was completely remodeled and in perfect condition but the location is prime. When I stumbled upon it he had lowered the price to the mid $350 range. I offered something in the low $300's or high $200's - I don't remember exactly, its been a year and many houses ago. I know I made two offers around $20K less than what he was listed at and that I came back lower each time I talked to them. I hear nothing and go on with my life. Last November the realtor calls and asks if I'm still interested and that they will consider any offer. I do a walk through with a remodeling contractor (I had it inspected before the original offer) and lowered my offer again to $210K and after four months the bank accepted my offer. I close next month. In my uneducated mind the house is worth around $285 in this market IF it is completely fixed up. So patience won out. I got a great piece of property for less than I expected to pay.

The things that make my story different than others is that I like where I currently live (10 minutes away from the new house). I didn't have to buy. I don't consider myself a hardened negotiator, I was only interested in the house if I got it for dirt cheap otherwise I can make some changes to where I am and be happy. In addition I was interested in things that most buyers care less about - the gardening potential, sun exposure, soil conditions, acreage etc.

Low-balling won in my case but it took almost a year.

    Bookmark   April 21, 2009 at 11:24AM
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Congratulations, John! Well done. As a gardener, I can relate to your sun exposure & soil statement. Stupid us somehow missed that little issue when we bought this place. We wonder now why it never entered our pea brains that living 100' from LIS would mean sandy soil that eats compost faster than we can shovel the stuff! :)

Enjoy your new property.


    Bookmark   April 21, 2009 at 11:56AM
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Thanks triciae! yep, I know what you mean. My current house is deep in the woods and I wonder why the hostas and ferns won't grow. It took me three years to notice that not even weeds will grow in the deep shade/sandy soil.

I've lived all over the world. I moved to Raleigh from the flat windy wheatfields of Oklahoma. I love it here but one of my all time favorite places on the planet is Long Island, NY. Pretty pretty farmland. At least you have the water.

I'll probably be hanging out over in the remodeling forums here on out.

    Bookmark   April 21, 2009 at 4:32PM
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