How Low Until It's Insulting?

Question

Long story short, I'm looking into my first foreclosure purchase to rehab and flip.  This is all hypothetical because I don't even know if I'll be making an offer yet.

Potential property is listed with an agent I'm friendly with. I know she can't give me much information on the seller's situation.  This hasn't gone to the sheriff sale yet, so I have no hard number what's owed.  Luckily all mortgages deeds and tax liens are online in my county for pennies a minute to access so I have a rough idea.

Purchased for 46,000 in 1983 (41,000 mortgage). That Mortgage was paid off with a 2005 86,000 refinance ARM at 9.125% that got adjustable last November.  Just spit balling (assuming she's 60 days late and paying penalties as such), I can't see her owing much less than 85,000 after 28 payments.

I haven't been inside the house yet (it just came on my radar this morning and I did a drive by to make sure the roof wasn't caving in and the windows weren't falling out), so I have no idea on repairs.

Even the worst houses in the area are going for 150,000-160,000 on the actual retail market.  She's asking 180,000.  That's not going to happen with me on a foreclosure flip in a soft market.

My question is this: When I pin down mathematically what she owes (and get a title search done to make sure there's nothing I missed), how low can I go without getting blown off and ruining my relationship with the agent?

Say she does owe 90,000 and it also needs some repair.  Am I a jacka** if I offer $110,000 or 120,000?.  She gets a nice chunk of change even after commission and tax despite her bad financial decisions, and I take on a property that needs repairs in a depreciating market.  How about $100,000?

I don't want to pay too much just to save someone's feelings or maintain a friendly relationship with the agent, but I also don't want to come across as a low balling joker either.

Do you guys totally disregard the asking price when determining the offer?

Jeremy Hardy · Answer

Heres an additional idea, if there is room after the rehab is complete, maybe you allow that same Agent to list your property? I bet she wont think that is insulting! If she has a chance to double dip a client then she will work hard for you. 
It is a business and she needs you as well you need her. But try and stay on her good graces :D

Frank Adams · Answer

Sounds like it "may" have some potential, but you're falling into a trap;

This is a business, treat it as such. If you've already got a relationship with the agent then low-balling isn't going to hurt that. The best relationship I ever had with an agent (bought 6 houses from her in 14 months) often referred to me, as did her broker/owner as; "low-ball Adams".

As long as you can justify the offer price; "here's comps, here's my expected repair cost" she won't be insulted. However if you're just pulling a number out of your butt, she SHOULD be. Of course with that kind of number you're just jerking your own chain too.

With an owner that's already asking above comps I'm not too sure you're not wasting your time anyway. However, if you're pretty sure the owner's in "trouble" try to determine her "zero out" price on the house, when you view the property look on all closet shelves and kitchen drawers to see how many late notices from the light company, cable company, Sears, Master Charge etc are sitting around. Open the envelopes and add up how much she owes. Add that to the zero out price, then add everything up and make your offer a TEN THOUSAND DOLLAR PAYOFF (after all bills are paid), and SELL IT AS THAT.

If you have to go up from there I'd add enough for moving and security deposit on an appropriate apartment. Sell it as solving HER problem, not yours.

all cash

Frank Z · Answer

From one Frank to another, thanks for your guidance.

I should have been more clear about "ruining my relationship" with the agent. We have no personal relationship beyond a "Hello" when seeing each other around town. I worked with her in buying my first residence 10 years ago. She has been working in the foreclosure realm for many years, her agency gets a lot of the distress property listings in the area, and she has expressed willingness to slip me leads before they hit the public realm.  She knows I'm green, and I don't want to ruin my chance to be known as reliable.

Point taken, though.  This is about me and my ability to make money now. The future will take care of itself, and I need to focus on the present situation.  I have a tendency to think too many steps ahead.  I think it's one of the ways I talk myself out of success, and I will work on that.

Thanks for the other investigative and salesmanship advice, too.  Just what I needed to hear.