Offer price vs asking price

Multi-Family and Apartment Investing
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Offer price vs asking price

Jeremy K.
Real Estate Investor · Lakeland, FL · Member since 2011 · 18 posts · 1 vote

Since I am about to make an offer on my first property, I was wanting to know if it seems way out of line.

The lisitng agent stated that the property had a NOI of $19,500 with a asking price of $249,000 for a CAP rate of 7.8%. If I paid the full amount, my Cash on Cash return would be 9.26% and a cash flow of $82 a month per door.

My figures show a NOI of $15,582 so I was going to offer them $146,182 for a CAP rate of 10.66%. My Cash on Cash return would be 15.78% and a cash flow of $99 per door.

I am basically offering him 58.5% of the asking price. I know the numbers are the numbers but S---, that seems low. All opinions are welcome!

Thanks!

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Brandon Nelson
Real Estate Broker · Bellingham, WA · Member since 2012 · 20 posts · 5 votes
14y

Jeremy, in my market offering 58% of list price on about 98% of listed properties will get you nothing but a lot of wasted time and angry responses. The SFR's and MF's sold in the past 30 days in my area show an average sale price to list price of 96-98%,and it's been that way for years.
But there are those 2% that go way low. The trick is getting the story behind the sale before you invest a lot of your own and your agent's time throwing out low-balls where they have no chance. There's always a story behind the deal, and if your agent is good they can sleuth it out -- or you can, too. Or better yet, help create the story, like Don Konipol's example of the $125K auto repair shop, with a seller willing to file bankruptcy once he was educated about it.
I've got 2 sales pending for clients right now that fit into that 2% category, a duplex pending for about 70% of list after only 3 weeks on the market (because the listing agent screwed up on pretty much all the numbers, and everyone else is apparently waiting for him to drop the price before they submit an offer), and a SFR listed at $279,900 -- the only house for sale in a super-desirable little neighborhood of 36 homes -- we now have pending for $195K, but only because we were intimately familiar with and helped shape the story.
As an agent, Yes it's my job to get my clients the properties they want, but it's also my job to avoid wasting ridiculous amounts of theirs and my own time chasing no-chance deals.

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  • Account Closed
    Landlord · Seattle, WA · Member since 2010 · 3k+ posts · 1k+ votes
    14y

    Your offer is significantly under the asking price. A seller would not likely consider it unless:

    The property has been on the market for quite some time

    The seller needs to sell it quickly and your offer is the only one they have seen.

    Even if this is a distressed sale chances are the seller will counter.

    0Reply
  • Don KonipolBusiness Member
    Investor · The Woodlands TX / Avon, CT · Member since 2009 · 6k+ posts · 10k+ votes
    14y

    The asking price may have absolutely no relevance as to what the property is worth - either to you in particular, or anyone else in general.

    I look at asking prices so that I don't waste my time getting tons of offers rejected. I figure that if a seller's price is way more than I'm willing to pay, the possibility of reaching an agreement is very small.

    However, in years past while I was trying to build wealth, I was much more amenable to making offers far lower than asking price. Yes, the vast majority were rejected, or countered too high to make a deal.
    But, on just a few occasions I was able to purchase a property far below asking price.

    The best one was an automotive repair facility I wanted. The seller told me he wanted to sell for $800K. I asked him what he thought it was worth. He said $400K, but he owed $800K against it. I told him I would offer $110K, and that he should consider filing bankruptcy to let the courts sell. He accepted my offer, filed bankruptcy and submitted it to the court. I ended up buying the property for $125K, and reselling 5 months later for $325K

    Private Mortgage Financing Partners, LLC
    WebsiteView Page
    0Reply
  • Jeremy K.
    OP
    Real Estate Investor · Lakeland, FL · Member since 2011 · 18 posts · 1 vote
    14y

    Thanks Don and Charles for your input. My gut instinct is pretty much what you both stated, that most likely the seller would reject the offer due to such a price difference. From what I have learned on here I don't think my cap rate or cash on cash return is out of line, infact it seems to be a liitle lower than what a lot of the investors shoot for.

    I'll take a look at my numbers again and see how much I am willing to tweak them but I like the approach you took Don earlier in your career on making lower offers. Maybe it will work on this one.

    Thanks again to both of you for your input.

    0Reply
  • Dennis Tierney
    Investor · Omaha, NE · Member since 2011 · 475 posts · 211 votes
    14y

    @Jeremy KraftWas the agent's NOI based on a proforma or actual financials? Never use a proforma. I always get 2-3 yrs of actual financials and the last month's rent roll, otherwise I'm just shooting in the dark on offers and the bank always needs these to qualify the property for a loan. I always tell the seller I can't make an offer without that info as I can't get financing without it and that usually prompts them to supply it.

    0Reply
  • Mike Jakobczak
    Real Estate Investor · Toronto, Ontario · Member since 2010 · 413 posts · 114 votes
    14y

    Well I would confirm all the numbers with the actual rent roll and expense. Then pull the comps for the area. Is a 9% cap rate a good return for the area?

    If this is accurate it may be a tough sell at 58% asking price. But you never know until you ask.

    0Reply
  • Jerry N.
    Real Estate Investor · Bristol, CT · Member since 2012 · 16 posts · 4 votes
    14y

    Jeremy,
    Knowing nothing else about this property this would have to be in good area for me to make offer with your numbers. DON'T try to adjust numbers to satisfy current owner, this is business deal needs to work for both sides especially you, you are assuming all the risks. Don't feel discourage that your offer may get refused, all sucesfull people most likely had more offers refused then accepted.

    1Reply
  • Michael Lauther
    Investor · Hampton Bays, NY · Member since 2009 · 907 posts · 258 votes
    14y

    another poster said that if he wasn't embarrassed by his offer he was paying too much. And I think It was K.Marie who suggested that deals and money was to be made by offering distressed owners solutions to their problems.

    When You know what you can pay for a property based on the numbers and the facts on the ground make the offer. Expect a counter and proceed from there.

    If your offer solves a problem for the current owner he may take much less than he would otherwise.

    1Reply
  • Manesh Hardeo
    Investor · Houston, TX · Member since 2008 · 167 posts · 44 votes
    14y

    I don't really worry about asking price as much as I focus on my offer price. Your expectation combined with what the market dictates for that particular deal is what I'd put your energy into.

    If the offer price is way under the asking price after determining your expectations and the market, then so be it....hold your ground. If it doesn't workout now, perhaps it will down the road. You said it...the numbers are the numbers. Either way, I wouldn't go outside of what you expect or pay more than market just to get a deal. There will always be another one...try to put the emotion aside.

    Good luck with it.

    0Reply
  • Brandon Nelson
    Real Estate Broker · Bellingham, WA · Member since 2012 · 20 posts · 5 votes
    14y

    Jeremy, in my market offering 58% of list price on about 98% of listed properties will get you nothing but a lot of wasted time and angry responses. The SFR's and MF's sold in the past 30 days in my area show an average sale price to list price of 96-98%,and it's been that way for years.
    But there are those 2% that go way low. The trick is getting the story behind the sale before you invest a lot of your own and your agent's time throwing out low-balls where they have no chance. There's always a story behind the deal, and if your agent is good they can sleuth it out -- or you can, too. Or better yet, help create the story, like Don Konipol's example of the $125K auto repair shop, with a seller willing to file bankruptcy once he was educated about it.
    I've got 2 sales pending for clients right now that fit into that 2% category, a duplex pending for about 70% of list after only 3 weeks on the market (because the listing agent screwed up on pretty much all the numbers, and everyone else is apparently waiting for him to drop the price before they submit an offer), and a SFR listed at $279,900 -- the only house for sale in a super-desirable little neighborhood of 36 homes -- we now have pending for $195K, but only because we were intimately familiar with and helped shape the story.
    As an agent, Yes it's my job to get my clients the properties they want, but it's also my job to avoid wasting ridiculous amounts of theirs and my own time chasing no-chance deals.

    2Reply
  • Michael Lauther
    Investor · Hampton Bays, NY · Member since 2009 · 907 posts · 258 votes
    14y

    @Brandon, Nelson, I appreciate as a professional you make the effort to price properties based on the current market. That being said my experience tells me owners, who have little knowledge of their market base their asking price on what their needs are as opposed to what the market would pay. Many real estate agents will try to manage their expectations but will take the listing regardless of asking price. This is understandable but the market is made up of buyers and sellers each seeking to get the best deal. If a buyer has assessed his needs and determines a price that fits those needs than that should be an offer.

    1Reply
  • Bill Gulley
    Investor, Entrepreneur, Educator · Springfield, MO · Member since 2009 · 21k+ posts · 12k+ votes
    14y

    If I make a significantly lower offer, I will try to communicate the reasoning, showing my work in my analysis of it. That usually helps instead of them giving a flat rejection, if it's presented well.

    Michael hit on something too, it's too bad that we have Realtors who are one, really not qualified to assess a good listing price but it's even worse when a Realtor agrees to almost any price to get a listing. Listings generate calls and they can be used simply as advertising keeping the Realtor in the Homes Magazine or similar publications. Then comes the switch to a better suited property for the inquiry made and they just keep the listing knowing it won't ever sell at that price.

    So, as mentioned, don't put much stock in what an asking price is.

    1Reply
  • Don KonipolBusiness Member
    Investor · The Woodlands TX / Avon, CT · Member since 2009 · 6k+ posts · 10k+ votes
    14y

    Part of the willingness to make offers far below asking price is dependend on just how active the buyer wants to be. If you are wholeasaling houses as a business, it may require a massive number of offers to insure enough inventory to keep your business running. If you are merely trying to round out and upgrade a portfolio like me, then you can wait until the right property comes along at the right price.
    PS - I have been buying selling and trading real property since 1978 - and I am not "insulted" by someone making me a low offer, nor am I insulted by their rejection of my low offer. sometimes the best offer a seller gets is the first one.

    Private Mortgage Financing Partners, LLC
    WebsiteView Page
    0Reply
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