How much to offer? (weird situation, no list price)

LeahRWHJune 29, 2012

I posted a couple weeks ago about an odd situation. I was looking at a HUD home, an investor won the bid, and I contacted the investor to ask if he'd be willing to sell it to me right away. I just got my reply, which was essentially "Sure, send me an offer." Now I'm trying to figure out exactly how much I should offer. I've been looking up comps, but there aren't really any direct comps, because it's an old house, not really in any particular neighborhood, on 6 acres. Here's what I found:

House I'm looking at:

4 br, 3.5 ba

~3100 sqft

6 acres

built 1972

has a barn (usable but needs work) and fences (posts okay, need new wire)

house is livable but needs a lot of work - replace carpets and kitchen/bathroom floors, take off wallpaper, fix falling-down molding around some windows, some shingles falling off (but roof in overall decent repair). One room in the downstairs has no flooring at all, just exposed concrete subflooring. No appliances, toilets/showers/etc are all original to the house (ie, VERY old and grubby).

Comp A (smaller, but I think this is the best comp I have - only a quarter mile away and similar in age)

sold for $158000

4br, 2.5ba

2468 sqft

4.5 acres

built 1978

has barn and shed, in good repair

roof, HVAC, and water heater all newish (well-maintained, but needs a lot of updating

Comp B (smaller but new and twice as much land)

sold for $218,000

4br, 2.5ba

2496 sqft

13.2 acres

built 2005

has barn, porch, and balcony

comes with new stainless steel appliances

Comp C (much more upscale neighborhood, not as rural)

sold for $249900

4br, 3.5 ba

2600 sqft

5 acres

built 2000

no outbuildings

wrap-around porch and back porch

Comp D (smaller, historic but nicely updated, in horse-y area)

sold for $222000

3br, 3ba

2180 sqft

10.3 acres

built 1930

very nice barn and fences

large stocked pond

newly remodeled, comes with new appliances

Comp E

sold for $201,600

3br, 2.5ba

2384 sqft

7.67 acres

built 1982

3-car garage, additional home-site with power/water/etc

newly updated - new floors, countertops, marble in bathrooms, etc.

I know the investor got the house from HUD for around 130k. I was thinking that, given the condition of the place, maybe $150k would be a reasonable offer? I just don't know how to accurately price it, since the comps are mostly newer, with more or less land, of wildly different sizes, etc. I'm alternately afraid of going too low and insulting him (thus ending negotiations) or going too high and paying way more than I need to. I'm okay with paying a little too much, honestly, because I really love the house and land, and the location is absolutely perfect for us, but I do have a budget to stick to. I just don't know. Any ideas about what would be fair?

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cas66ragtop

"Send me an offer" - uh, no, you tell me what the asking price is. Doesn't sound like someone I would want to to deal with. You are setting yourself up to be taken advantage of. By contacting him and expressing interest, that alone gives him leverage. I would be VERY careful..

    Bookmark   June 29, 2012 at 11:51AM
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LeahRWH

Yeah, I know we'll probably be taken advantage of, at least a little. The guy bought the house to fix it up and resell, but we'd like to buy it now, before he puts money into it, because I think it'll be out of our price range once it's fixed (and so that we can fix it to our tastes). I think the market value as-is is probably around 160-165k, so we'll maybe offer 150 and hope to get it for 170ish after negotiating. 180 is our absolute hard limit for the place. If he's set on getting more, then I guess we'll just wait another year or two for something else to come on the market. I'd just like to get some other (more experienced) opinions on what the place is worth before I settle on these numbers.

    Bookmark   June 29, 2012 at 1:14PM
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sweet_tea

when did the comps sell?

Start lower on the offer to him so you can go up.

Maybe offer $143k as so. You can creep up to $150k or $160k inch by inch.

I doubt he will end discussions with you. He would instead counter with a higher price. then you counter again, etc

    Bookmark   June 29, 2012 at 1:39PM
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GreenDesigns

For an investor on a home where he hasn't done any work yet, the "comps" are mostly irrelevant. His purchase price is what's important. Give him a decent return on his investment without him doing any work or putting any money into the home, and he'll likely agree to a sale and move on to the next project. And that's exactly how I'd put it to him in my offer. "Here's 15% over your purchase price without you having to lay out any more money for materials or swing a single hammer."

    Bookmark   June 29, 2012 at 1:46PM
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weedyacres

If he's an investor, he'll probably not get caught up the in the "offended" thing. So instead work on what's the lowest you can justify.

I'd probably say "I was going to offer $140K to the bank, but didn't make the deadline. I don't know what you paid for it (you don't know the precise number, after all), but I'll offer you what I would have offered the bank."

DO NOT change your offer until he puts something concrete back on the table. Don't let him pull the "that's too low, what's the highest you can go" game. Once he counters then you can proceed.

If he counters anything over $150K, ask him how he came up with his number and pull out comp A and say "look, this is a similar house that didn't need the repairs that this one does, and it sold for $158K. It'll cost me 10 grand to get it up to par with comp A."

If he uses any of your other comps, then reject those as newer, in a better neighborhood, on less land, or whatever, and thus not legitimate comps. And you can always pull the "we just don't have any more money than that" game.

I think you should be able to get it for less than $150K. And the investor should be sufficiently motivated to take it. Heck, 10-20K for a bit of paperwork? Not a bad deal at all.

Good luck!

    Bookmark   June 29, 2012 at 2:02PM
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DLM2000

cas66ragtop there is no asking price because LeahRWH is initiating this so I don't think the owner is necessarily being cagey or evasive by expecting her to start the negotiations.

I agree with GreenDesigns that the comps don't relate. Save him time, money and labor and a fast return on his investment with a reasonable profit with your offer.

Hope it works for you - sounds like a great place that can be personalized as you need over time.

    Bookmark   June 29, 2012 at 2:08PM
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stolenidentity

Fair? The only fair in this is that both parties don't feel they were or are cheating one another. Have you looked at the parcel data to see what the property value is and what the zone rules are? That might help you see what the investor has in mind to help you come up with a fair offer. Comps and comparing are one thing, but there is an assessed value and I'd start there. Keep in mind that the investor is looking at making a LOT more than anything you could offer - that is what they do.

    Bookmark   June 30, 2012 at 4:25PM
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ncrealestateguy

Most investors i have known like to make at least $20,000 profit after all expenses.

    Bookmark   July 2, 2012 at 7:21AM
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linda117117

Do you know what his bid was to "win" the house? I was going to say the same thing as Mike. Offer 20k above his offer. Its a nice profit for doing nothing yet.

    Bookmark   July 2, 2012 at 2:33PM
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cmarlin20

Does the current owner have any restriction on time of ownership?

    Bookmark   July 2, 2012 at 7:30PM
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