What to offer seller in a hot market?

Question

Hello,

Just starting out in San Diego, which is a difficult market and I'm looking at my first REI in a condo. Mostly because this is what I can afford in this area and because I take some comfort in knowing that my exterior maintenance, some utilities, and amenities are taken care of for me. I'm analyzing a deal and come up with different answers because of what the property will potentially sell for. Meaning, do you always offer below asking price? If so, how much under? I feel like you should always offer below, because you might get lucky. However, units in this area are flying off the self within 5-10 days and seem to be selling within a few thousand or for the asking price. I happen to know that this unit was in a "pre-forclosure" state and is now on the market and vacant. I don't doubt it will go quickly. It needs slight updating (refinish cabinets, a new refrigerator, maybe paint). Seems like other condos in the area that sell at asking price are completely redone. I can offer the seller a conventional loan that I am already pre-approved for, along with my 20% down in hand and a quick close...but probably a lot of people can. Depending on where the price lands, I stand to be anywhere from $200 cash positive/month to breaking even. After listening to the Webinar today, it seems like that's not bad for your first rental. Homes in this area have been appreciating on average 6% over the last few years. Thanks in advance for any advice on this matter.

Kenneth Garrett · Answer

@Summer Noyes

I pretty much disregard the asking price. I acknowledge they have set a price, but in my mind it’s irrelevant. Your offer should only be based on what your willing to pay for it, which is all based on your numbers. I never purchase based on appreciation since you can’t count on it. I recognize the fact the California market is much different than the Midwest, but it’s speculative if it’s based on values increasing 6% each year. Look at your long range plan. Are you going to hold it for 5 years and sell based on appreciation. I would encourage you to not buy if it doesn’t cash flow. No negative cash flow investments in my mind.

Theresa Harris · Answer

Look at what fair market value is for the house and work towards that. Some may be over priced, so you don't want to offer market value. In a hot market, places will sell closer to asking; but as you said it also depends on the terms of the offer (financing, conditions, closing date, etc).

Twana Rasoul · Answer

in Month of April properties (attached and detached) in San Diego sold on average for 99.1% of asking price. However, there are a variety of factors to consider before making an offer or deciding on what price to offer. A good agent should be able to help you navigate all the factors and help you determine how to move forward.

Donald E Appleberry · Answer

@Summer Noyes

Hey Summer,

You’re not wrong when talking about the market times right now. San Diego has a pretty low inventory and the COVID situation hasn’t helped. Buyer demand however, hasn’t seemed to be affected to much. Slightly less than normal but you could argue that’s due to the competition in the market.

Depending on your area, 6% isn’t unrealisti. And with the low inventory and high demand I wouldn’t doubt it to stay there. San Diego market is a long play and usually you don’t cashflow day one, so I’d be curious on checking out your numbers with you!

In most areas, finding renters isn’t an issue at all either, even during this weird time. I’ve helped 3 of my most recent clients fill their properties quickly with plenty of potential tenants to screen from. So as long as your #s are on point I’d say take it and run. Like yesterday. Haha. Especially since it’s so competitive right now.

Feel free to pm for some other info and id love to see the deal you’ve put together! Keep up the great work and I hope this helps. Talk soon!

What to offer seller in a hot market?

What to offer seller in a hot market?

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