Fooled by a high asking price - Should I continue or let it be

30 Replies

Hello together,

I am really new to the real estate game and even though I listened to hours of podcasts, watchedm many videos and webinars and read a lot of books in the last two month... I often have difficulty act to fully rational when I am out in the field making decisions. Especially when it comes to offers.

I am already on my offer number two and both of them got accepted. The first one was a great location in a up and coming but currently high crime are with tenants who trashed the outside and the inside of the place. I backed out. Even though I really liked the location.

Little bit further away from the interstate exits I found another duplex I really liked. Looked nice, had the viewing. Nice friendly tenants, both places tidy, nice fenced in yard, 2 tax IDs on the property and not having to deal with another owner when making decisions.

New roof, old HVAC and a asking price of 194K for both unit. I (thought) boldly offered 171K. I checked houses in the neighboorhood an saw the last sale in 2016 for 140K - which Charleston, SC has exploded since then. I thought 171K was a fair price. 

It was a multiple offer situation so I increased to 178K and got accepted. Rent is 1650. Raise to 1800 should be possible. Monthly expenses (financing, insurance, Capex 5%, Repairs 5%, Property MGT 10%, Vacancy 8%) 1550...

Now I found another property one street further down. Listed as condo instead of townhouse or SFH (half of the duplex) for 84K... And while it looks like its in slightly worse condition... that was their asking price. So offer likely 80K or even less.

I felt happy to win an offer for 178K for a listing with 194K... but I guess this was not doing thorough enough comp analysis...

I have the inspection scheduled for Wednesday. To make this a fair marked offer I kind of would like to offer 165K with the inspection report (no clue how bad it is... house looks really good besides both ACs) and then hope to end up with 170K again. But this that even realistic? My due diligence is till next Tuesday.

What do yall think... should I:

1. Walk away before inspection and next time do better

2. Try to renegotiate after inspection and walk and walk away over 170K

3. Be happy to get a decent property, with decent tenants and dont worry about 5-6K

Here is my calculation.

As usual any justified input is appreciated!

Thanks in advance

Wait until the inspection and negotiate to where you want it. It isn't the best approach and usually pisses some people off, but it is worth a shot instead of walking away now when it is still an option.

@Rene M.

I would try to renegotiate after inspection. If you can back up your request with evidence from the inspection you'll definitely have a higher chance of success. I recently did this on a property where crawlspace issues were discovered on the inspection and I negotiated an additional $6,000 off price. If the issues are legitimate they will either have to address them with you or with the next buyer. If the seller is not willing then you always have walking power.

@Rene M. This is generally bad form making a bunch of offers and then backing out of them. Also savvy sellers will see through the inspection negotiation ploy. As a seller I hate it when people do that. Small stuff is fine but asking for like 10k off because you know you overbid is absurd.

Get your comps right next time and make that initial offer or not

The list price is the least relevant number in this equation. Run your numbers, figure out what price makes sense for you, and offer that. Ignore the list price and multiple offer threats. You should be hearing a lot more no's than yes's.  

If you were happy with the numbers when you made the offer, unless the inspection comes back with major problems, stick to your original offer.  If the inspection shows big ticket repairs, then you can negotiate, but only for the cost of the repairs.  

You also want to make sure you have copies of the lease (signed) and get the security deposits from the current owner at closing. Let the tenants know who to pay the rent to and how. Also if you don't close on the 1st of the month, you will need to get the prorated rent from the current owner.

Before raising the rents, see when they were last increased and if there are caps on how much you can increase it by.  Then give them the proper notice.

Thanks everybody for the input!

So far I am counting;

1. Walk away before inspection and next time do better

@Tim Herman , @Caleb Heimsoth (+2), @Nick C. (+2/this one could also be for 3.) = 7

2. Try to renegotiate after inspection and walk and walk away over 170K

@Bryan Devitt , @Brad Baker = 2 for renegotiate

3. Be happy to get a decent property, with decent tenants and dont worry about 5-K

@Don Gouge , @Theresa Harris = 2 for stick to the initial offer

I did not realize that negotiating after inspection was a frond upon thing to do... Well next time I know better. In the Rental property investing book it seems to be a common strategy.

So it seems I will back out of the deal and cancel inspection for tomorrow morning.

I got to do so by 5pm today. 

Any other comments/advice is greatly appreciated.

Thanks!

Rene

We ALWAYS use the inspection report to negotiate our final & best offer then walk away if not accepted.

It's been very effective for us for 30+ years.

I agree with negotiating after inspection, however it is frowned upon if you intentionally bid high to lock in the contract, and then try to negotiate down with little evidence of non-obvious repairs needed.   You will likely just piss off a seller and I wouldn't blame him/her.    

I bought a duplex in West Ashley a few years ago with an original cash offer of $174,500 and a final price of $140k after inspections.   They had disclosed the mold and asbestos issues (both were easy to deal with) but they didn't mention the foundation issues and a host of other things I called out.

Of course you should never pay more than you're comfortable with but how you get to that final offer price can vary with property.   If you inspect a property with nothing wrong with it, it won't be easy to drive the price down afterwards.

@Rene M.   I think the best way to look at it is how would you feel if you were in the seller's position.  John S said it well "t is frowned upon if you intentionally bid high to lock in the contract, and then try to negotiate down with little evidence of non-obvious repairs needed".

You are putting 20% down so the $5K-$6K you are suffering angst over means $1,000 to $1,200 out of pocket.  Seriously?  Do you want the property or not?  That's the real question you are asking.  If you want it, negotiate honorably IF you see a genuine basis to ask for a reduction in the purchase price.  if not, walk away now.  

   

Thanks @Pat L. , @John Semanchuk , @Darius Ogloza !

Well I did not intentionally bid to high!

I thought that this was a fair value until I checked the comps with more detail and found past selling price for the individual units (each for 60K in 2016 - here is a strong growth area & I don't know about the condition), one of the same units one street down currently listed for 85K...

I still really like the location, the house, I guess I will see what the inspection brings tomorrow and will then make a decision. Yet I already know that I will be asking for at least my initial offer price (171K if the inspection does not find any major issues)

click

As usual any further advice is appreciated!

Thanks!

Rene

Just had a friend make an offer & the inspection revealed septic issues that will be expensive to bring up to code. That's reason enough for them to adjust the offer significantly. 

As stated by others, finding issues during and inspection and negotiating to compensate for those is standard, going into the inspection knowing you are going to try to drive down the price no matter what is frowned upon.

Originally posted by @Rene M. :

I did not realize that negotiating after inspection was a frond upon thing to do... Well next time I know better. In the Rental property investing book it seems to be a common strategy.

Rene

To be clear, negotiating after inspection is not frowned upon. What is frowned upon is BS negotiating after inspection. In other words, if your report comes back with $6500 worth of potential fixes, and you ask for $4500, the seller offers $3k and you settle at $3500, that's fair. On the other hand if you go back and ask for $10k off, you're not serious. Back when the market was improving and there were lots of bank-owned properties, an investor I worked with got blackballed by several REO agents because he kept doing that. It ended up costing him deals. Integrity matters.

Thanks @Tchaka Owen

I mean I get it! Now if there is 5k of actual issues and I ask for 10k off it's going to look bad.

But it was not my intention to snag the deal of the market with a high offer and then put in a lower offer after inspection. 

It just turned out that I didn't do my research thoroughly enough (my bad) and thus have second thoughts about my offer...

Is it now better to try to cancel the inspection and back out... Or can I ask for a lower price even when there is nothing wrong with the house?

Originally posted by @Rene M. :

Thanks @Tchaka Owen

I mean I get it! Now if there is 5k of actual issues and I ask for 10k off it's going to look bad.

But it was not my intention to snag the deal of the market with a high offer and then put in a lower offer after inspection. 

It just turned out that I didn't do my research thoroughly enough (my bad) and thus have second thoughts about my offer...

Is it now better to try to cancel the inspection and back out... Or can I ask for a lower price even when there is nothing wrong with the house?

Do you have a due diligence clause that would let you out of the contract with no penalty?    

Unless it's close to new, it's a rare house that I can't find something wrong with.     

Well my first take is that with all of those 7's it's got to be a lucky place!  :-D

Seriously though, I don't know the North Charleston neighborhoods very well.   I did sell a condo last year in Charleston Park, right up the road and that complex seemed decent.  I don't know Forest Hills at all.     

I like brick, I like a slab as long as flooding isn't an issue, it has a new roof which is a big plus, I can't tell about the windows... It doesn't look bad from the few undersized pictures they have posted... have you walked around the house and looked hard for cracks in the brick veneer?   Do you have a good inspector/contractor to look the house over for you?

Also, aside from the house, flooding issues, and neighborhood issues (crime, bad neighbors) could be legitimate reasons for walking away or getting a price reduction.   For flooding issues, I like to talk to the neighbors.  You can learn more than from disclosures and neighbors love to tell dramatic stories! ;-)

Many thanks for the input!

Flooding is no problem as the property is on the top of a Hill + zoned X (which means not much these days)

The neighborhood feels pretty safe - also crime index is low. I would move there, what I wouldn't have said about my first offer.

Windows were fine, can't tell about pluming & wiring. Both units were nice and clean. One still had carpet - but I can do that on my own. Fenced in yard per side. Realistic rent should be 900-950 each side

AC units looked very old though... I guess something will pop up there. 

Using Cardinal home inspections per two independent recommendations.. I hope they are good.

Don't really know what to expect - I'm not from the US so all this is really new - keeps it interesting :)

As usual any advice is welcome!

Thanks

Rene