LOW BALL OFFERS

27 Replies

i would like to get everyones opinions on having wholesale deals and getting crazy low ball offers 

do you consider these people to be real buyers ?

would you take time to find these people properties in your area?

all info would be greatly appreciated

well I have purchased several homes.  My thoughts are. If you are not embarrassed about your offer you asked to much.

(I don't think this will apply to new construction)

No and no.

I don't think what Brian posted is what he meant. That saying is pretty much from hustlers, not real RE investors. Kind of a fine line there and if the offer is justified.

There was some guru book in the late 80s about firing out low ball offers just to see if something sticks. These types get blackballed by agents, offers are presented on the phone with an owner with a few choice words and turned down, if presented at all.

Realtors are wise to this activity too, all you do at the listing is ask the owner the lowest price they will consider and make a note to reject any offer below that amount, that way Realtors don't have to fool with low ballers. 

Realtors are to present all bona fide offers not some ridiculous offer, from a bonafide hustler. Not only do they not have to be presented, they don't have to be answered. They can go straight to the trash.

While these guys may think they are being clever or smart investor types, they are really being pretty unaware they are making things harder on themselves. Names circulate quickly among Realtors, when your name gets around......well, you'll basically be ignored.

This is not to say you shouldn't make a lower offer that you can justify, but getting to a point where your justifications become unreasonable will put you in that same boat.

Without a Realtor, (or with one) you can tick off an owner to the point that they won't accept any other offers from you other than a full price offer.

Business wise, you can do 20 deals a year at a more reasonable and higher offer netting a smaller profit and being seen as an investor or you can do one deal as a hustler and make twice as much as one of the 20 deals that are possible and be seen as a hustler bottom feeder, hustling your way right out of business.

I've also seen many who ask way too much, they are unaware of the market and don't have a clue, so your low ball offer could be in line with the market, if the seller does have a clue and sees they didn't reel in a sucker or they get better advice, they may accept the offer,  but that really isn't a low ball offer if it's in line with the market.

You'll also do better finding those in distressed situations that may accept much less than by throwing out low ball offers. Those that toss out low ball offers are usually going to be unskilled in valuations and justifying the offers that will actually work.

Pretty much on how you want to be seen in the area you deal in.  :)   

I agree with @Brian Johnson  His statement has been around for a long, long time.  An offer is based on what will make you money, and not what you think you need to offer to make the deal.  The numbers don't lie, so don't argue with them...you'll lose every time.

That said, you can offer lower than what the numbers tell you is the maximum offer.  Here is what I use as my guild for making offers:

1 - Never feel guilty about your offer.  You don't make them to make the seller feel good.

2 - For every question never asked, you already have your answer, "NO".  So ask the question...make the offer.

3 - Deals are made when all parties agree (Win/Win)

4 - Offers are not made based on all parties agreeing.

Joe Villeneuve
REcapSystem
A2REIC

And, I agree with Joe, when your expectations of profits are reasonable in the market, if you just think you're looking for some double your money over night type deal, you'll have pie on you face. It gets to a point that you are not making reasonable offers. The flip side too is making an offer that isn't low enough to bring you to negotiation of an acceptable deal. I've never been embarrassed about an offer as they can always be justified and I never demanding some ridiculous profit and that works without ever having to lose your reputation over, there isn't a Realtor in my area that wouldn't work with me, so, what's that worth? Could be a lot, if you call someone and get the phone slammed on you or your call is never returned. :)

From my experience, it all depends on the state of mind of the buyer and the seller to how a low ball offer is viewed.  There are sellers that are emotionally attached and cannot fathom a low ball offer.  Then there are buyers who just throw offers to see what sticks.  And then you have everything in between. @Bill Gulley  have both valid points.  I think the main aspect here is that you are doing business.  You present a professional and courteous offer.  You stress that this is a business deal that you are trying to conduct.  If that person won't view it in that manner and won't move forward, cut your losses and move on.  Move away from the emotional aspect of the low ball offer yourself and show yourself to be a professional investor and you will get the respect needed.

Actually, I think the original poster is asking this question from a seller point of view.  In other words, he is RECEIVING the "crazy lowball offers".  

I would probably humor those offers once with a polite phone call to find out more about those potential buyers.  Who knows, you may establish a useful connection with SOME of them.  

Repeated crazy offers or an attitude that makes it likely they will continue the practice, would cause me to ignore them in the future. 

@Mark Brogan  - If you are receiving "crazy low-ball offers" on wholesale deals that you are trying to sell, then my guess is that your wholesale "deal" is not truly a deal.  Those of us who really buy properties (rehabbers, land-lords, etc) often get presented with "deals" from wholesalers that are not really good deals.  I had one recently.  This wholesaler had a deal at $170,000 (or somewhere in that range).  It was a duplex that was built in 1910.  Tax appraisal on it was 40-something.  No way this was a deal (not even close).

In the state of Ohio anyway, all offers have to be presented.  It isn't up to the agent to determine what the sellers answer will be, no matter how silly the offer.  

Low ball offer is a relative term.  Depends on a lot on the seller, and the motivation.  Is the home way overpriced?  If so the low ball offer becomes reasonable.  Is the home bank owned?  A lot of banks these days don't care about low ball offers, they simply systematically lower prices until someone buys.  

The point is that every deal is different, and whether or not to consider putting in a low ball offer should also take into account the dynamics of that individual deal.  Just throwing out 10 low ball offers generally wastes a lot of time.  

Originally posted by @Mark Brogan :

i would like to get everyones opinions on having wholesale deals and getting crazy low ball offers 

do you consider these people to be real buyers ?

would you take time to find these people properties in your area?

all info would be greatly appreciated

Hi Mark,

I actually wrote a blog about this topic for Bigger Pockets.

Please feel free to check it out as you mind find it useful.

http://www.biggerpockets.com/renewsblog/2014/07/05/getting-lowest-purchase-price-possible-skinny-real-estate-negotiation/

Thanks

Anytime I have ever made an offer, I pencil the deal out, what can I offer that is safe and profitable to me.  It never occurred to me to worry about whether an agent thought it was a low ball offer, too low, unrealistic, or whatever.  What I focused on was what worked for me.  I figured the seller would be able to figure out what was in his best interest.

The thing is that many realtors would not know a "deal" if it hit them in the face. You can get the statistics for MLS sales and what average percentage discount from list price they have actually sold at. This discount will vary depending on the market obviously, but I would say it might be 10-15%. Guess what? That discount doesn't work for me. And anything lower than that and the typical realtor is going to start saying "low ball", "unrealistic" etc etc.

When I think back to the deals I've done, yes, I've done a few through one agent, the listing agent. But a large number of my deals have been direct with the seller. Why? Because I spent some time trying to find "motivated sellers". Now this is a term we all bandy about, but generally speaking they aren't in the MLS.

Thinking about my deals, it's amazing how many were landlords, who were finally sick of it.  A tenant had just torn up their house, they had spent a few months evicting.  You know what?  This guy wants to sell, and in the condition this property is in, he can't sell it retail.  Now, can you find this guy?  I think you can.  When the eviction is filed sooner or later a list will be published.  Some of these are going to be sick of the business, and ready to sell.  They don't want to fix their property up. Maybe they don't even want to finish the eviction.

At one time I had a 2nd mortgage lender faxing me properties every day, wanting an offer for his defaulted note.  This was in a very bad time in the California market, so you may not be able to do this at this point....but I'm just saying that if you think about it, think about your market, you may be able to figure out who is motivated.

Animal damaged properties.  I've made some amazing deals here.  You smell that cat urine, that's the smell of money.  I can't tell you exactly how to find those, but I've had them referred to me by trash haulers, my lawyer, etc.  

So where I'm going with this, if you've really got a motivated seller, you'll never forget it. They want out. And there's going to be something wrong that the realtor really can't effectively help with. So if your only source of deals is the MLS, I'd say you're missing out on the best deals. You find them by marketing in some way or another.

And when you make your offer to this motivated seller, you're going to pencil the deal out, you're going to offer a price where you can be well paid to deal with that seller's problems.  After all, they can't deal with it, so they're turning to you .  That's worth a price.  They don't have to deal with you. If they don't, you just move on.

I would not structure my offers around what anyone thinks is "about right' for the market.  Are you kidding? How would anyone know what's right for you and your business?  Realtors not presenting your offer?  Well, that is illegal in every state I'm aware of.  But I know it goes on, some of these Realtors think they're on the deed.  But where you need to get is to the property where the realtor has had no offers, where she is just wanting something to take to her seller.

You know, I mentioned the second mortgage lender defaulted loans.  When they calculated what they're note was worth, the first thing they did after figuring out the fair market fixed up value of the property, was to haircut that price 10%, for a quick sale.  Then they haircut it another 6% for the realtor commission.  Then another 1-2% for various closing costs.  And they would also deduct something for holding costs.  Folks, these  4 numbers put the value of a property well below what any realtor typically sells a property for.  We're already looking at a 20% discount, and we haven't gotten to the repairs or your profit yet.  Food for thought.

Originally posted by @Bryan L. :

@Mark Brogan  - If you are receiving "crazy low-ball offers" on wholesale deals that you are trying to sell, then my guess is that your wholesale "deal" is not truly a deal.  Those of us who really buy properties (rehabbers, land-lords, etc) often get presented with "deals" from wholesalers that are not really good deals.  I had one recently.  This wholesaler had a deal at $170,000 (or somewhere in that range).  It was a duplex that was built in 1910.  Tax appraisal on it was 40-something.  No way this was a deal (not even close).

I get all kinds of seriously lowball offers on properties that I'm selling.  It's not because they aren't a deal at my asking price.  It's because the buyer wants to wholesale it to someone else.  Even when I tell the interested buyer that I'm another investor and it's priced for a landlord buyer I still get offers at 30% of my asking.  It's the rare property that I sell for less than asking.  Things have gotten better since I started listing the properties, even with flat fee listings, because the buyer's agents don't want to waste their time submitting offers on properties that are already priced to sell.

Originally posted by @Mark Brogan :

i would like to get everyones opinions on having wholesale deals and getting crazy low ball offers 

do you consider these people to be real buyers ?

would you take time to find these people properties in your area?

all info would be greatly appreciated

Are you getting multiple people offering way under your asking on places?  Are you getting interest from others at, or at least close to, what you are offering them at?

If you are selling your places to some of your buyers for what you want and just have a few people throwing out crap offers then just don't waste your time on those guys anymore.

However if you have several people offering way under and nobody showing interest at what you are offering it at, then you probably just have crap deals.

Kristine Marie Poe - So, are you listing your wholesale deals with a Realtor on the MLS? If so, do you have to actually get the deed first, or can you list one that you simply have a contract on?

thanks to everyone for all the helpful responses

i got the answers i was looking for 

Originally posted by @Bryan L. :

@K. Marie Poe - So, are you listing your wholesale deals with a Realtor on the MLS? If so, do you have to actually get the deed first, or can you list one that you simply have a contract on?

 I close on almost everything before I resell it.  So I'm the owner when I list it.

. I am actually a new investor and am fighting this battle right now. I currently have a place that I am interested in that is listed at $52K and is turnkey (recently renovated) with rent going for $800. At that asking price and rent the CAP rate is 18%. However, one of my criteria that I seek to achieve is 20% CAP which would put an offer price from me at $46K. Additional note, I am an out of state investor. Now, I know the individual seller the property and do not want to disrespect him or have him feel disrespected with my offer. However, I do want to ensure I have the best deal. Another note is the seller is also an investor and is currently trying to sell is 30+ properties he owns and move into retirement and a few other projects in HI.

Now you all, as experienced investor, would all advice to push the $46K offer?…Or possibly offer lower or closer to the asking price?

Thanks

PS- I apologize if this is the wrong forum for this question.

@Travis Washington

So are you keeping the home for long-term or planning to flip it?  $52k for a home that rents at $800 is actually a really good deal.  If you can get it cheaper yes thats better but that price is actually really good.

Good luck

@Curt Davis  

I plan on keeping it for long term.  The area it is in is actually building up so appreciation should see a pretty promising increase over the next few years.  Only neg on the properties in this specific area is age.  Most were build pre-to-early 1900s.  THis one in particular was build in 1908.

And yes, the deal is really good.  That's way I said I don't want to insult the seller….but $46K would be my dream price to secure the property.

Originally posted by @Travis Washington :

. I am actually a new investor and am fighting this battle right now. I currently have a place that I am interested in that is listed at $52K and is turnkey (recently renovated) with rent going for $800. At that asking price and rent the CAP rate is 18%. However, one of my criteria that I seek to achieve is 20% CAP which would put an offer price from me at $46K. Additional note, I am an out of state investor. Now, I know the individual seller the property and do not want to disrespect him or have him feel disrespected with my offer. However, I do want to ensure I have the best deal. Another note is the seller is also an investor and is currently trying to sell is 30+ properties he owns and move into retirement and a few other projects in HI.

Now you all, as experienced investor, would all advice to push the $46K offer?…Or possibly offer lower or closer to the asking price?

Thanks

PS- I apologize if this is the wrong forum for this question.

 Is this property in Indy by any chance?  You have the right to make an offer of any amount you want, and the seller has the right to refuse or accept or counter.  I suggest you base the price you settle on, based on the performance of the property (there should be a history, right?), the comparables in the area, and what kind of expenses you can expect in the future from capex; and less on meeting that ideal of 20%, which is probably not realistic in the long term performance.

@Larry F.

Indeed, the property is in Indy. Do you have experience there? And what is your best method of calculating CAPEX?

@Travis Washington

I was just in Indy for the first time two weeks ago, and spent several days exploring neighborhoods, meeting with turnkey providers, and generally getting to know the lay of land. I have been looking at the area from afar for some months now. As far as figuring CAPEX, it depends. I don't know where your considered property is located, or what kind of shape it is in, and what major updates it has had if any. My guess, judging by the price point and age that it is inner city, and is not had any recent upgrades. This area can be very tricky to invest in, and can depend on the immediate neighborhood a great deal, block by block. The 50% rule is a very common way here on BP to use in getting a starting point for calculating your long term expenses on a rental, but in this case it may be too little.

If I understand correctly, this property has been a rental for some time, and hasn't had a recent rehab.  That means you should be getting a performance history of expenses for as long as this seller has owned the property.  Start with that in creating a projection for future expenses and cash flow. 

Low-ball offers can be acceptable IF THEY ARE JUSTIFIED. Please don't think that you can submit 100 low ball offers to listed properties and think that is acceptable practise. If you have a seller who doesn't have an agent and does have a property that needs to be picked up by a rehabber, then it may be justified to submit a low-ball offer. But you'll also need to justify your numbers too in some manner.

@Travis Washington - offering $7k less doesn't sound that ridiculous [to me].

I don't think the seller would be too upset.  He may "yes" or come back with a strong counter.

Now, if you offered $15k on that $52k home that would be a "low ball" offer in my world!

As mentioned above, be careful with inner city older homes.

Be sure you get a good rental history to be sure it can be rented consistently for the stated amount.

Also, be careful with your [high] desired CAP Rate. I think you find it tough to hit that number without sacrificing quality homes, neighborhoods and tenants [ask me how I know!]

I hope the helps and let me know if you need any assistance in the Indianapolis Metro area.

@Travis Washington If you are using 'cap rate' as an analytic measure for your investment, just so that you are aware, you are not calculating it correctly.  In your calculations, you have not included any expenses - cap rate considers most normal operating expenses.  

A quick, back-of-the envelope calculation says that the cap rates you quote are overstated by a factor of 2 approximately, because you did not include any operating expenses.  They are closer to 9%-10% instead of 18%-20% you previously quoted.

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