Good people of Bigger Pockets,
My market is pretty hot and I have been looking for a small multifamily value add opportunity. I have found a situation where I can buy a duplex for a great price. The owner inherited it, owes back taxes on it and lives out of town. It has been vacant for a while, the city is threatening fines due to broken windows that have now been boarded up and the owner just wants out. It's listed, but not attracting very much attention as the front door is boarded up and no one cannot gain access. I really only want to pay half of what the seller is asking, but I’m thinking about offering full price so I can get the deal tied up. During my inspection period I will have the place inspected and negotiate the price down to what I want to pay and justify it using the information that I learned from the inspector. If it needs too many repairs, I can always back out and I’m only out the inspection fee. My question to you all, is it (wise, dumb, ethical, unethical) to use the seller’s desperate situation to my advantage by offering more than I intend to pay just to tie up the deal, gain access to the property, have it inspected and reduce my offer?
@Cappy Jones LOL. You must be really new to REI. What you just described, and questioned the ethics of, is what all REI dream for. The motivated seller.
Don't be a skaggbutt.
The unethical part may be offering full price and then exaggerating costs to bring them to half, that may be very hard to do, as there will be obvious issues that can turn into "baiting the owner" and not dealing in good faith.
Now, if you make a lower, reasonable offer and it's accepted, adjusting your offer to costs of deficiencies discovered is done everyday and not a thing wrong with that.
It's not unethical to understand the weaknesses of the competition and use that to your advantage in negotiating. It becomes unethical if you mislead them attempting to extort value and putting them in a position of not having a choice. That can be a thin line. Consider dealing in good faith, try the golden rule in being reasonable. :)
Don't make a full price offer, its not wise or ethical. You are getting the sellers hopes up needlessly. Once you cut your offer, they are less likely to accept your new offer than if you had been more upfront with them... umh.... upfront.
If its been sitting and not moving they will take a low offer, and you will get your access. If its listed you don't even need to get it tied up to gain access, just set up a showing with the realtor. And if its been sitting, it will continue to sit.
I don't know about your market, but if something is sitting on the MLS there is a reason and its likely not a good deal for a new investor.... not always the case, but very very often if a house sits on the MLS you shouldn't get your hopes up, they wont take what it takes to make to have it be a profitable deal.
Originally posted by @Cappy Jones :
Good people of Bigger Pockets,
I really only want to pay half of what the seller is asking, but I’m thinking about offering full price so I can get the deal tied up. During my inspection period I will have the place inspected and negotiate the price down to what I want to pay and justify it using the information that I learned from the inspector. If it needs too many repairs, I can always back out and I’m only out the inspection fee. My question to you all, is it (wise, dumb, ethical, unethical) to use the seller’s desperate situation to my advantage by offering more than I intend to pay just to tie up the deal, gain access to the property, have it inspected and reduce my offer?
If your best guess at the condition puts your offer at 50% of asking, then make that offer with the explanation of why you have to be so much under the asking price. They probably won't counter an offer without an explanation, but they may be willing to if you explain a basis for your offer. If the seller is really motivated(which seems to be the case), they may allow at least an informal inspection without a contract in place, especially if you can provide proof of funds to be able to close at your initial offer price.
When dealing with humans, one should always try to be upfront, honest and deal in good faith. Anything less than that will catch up to you somehow, someway shape or form.
"Ethical" defined by webster is: following acceptable rules of behavior, morally right and good
"Moral" defined by webster is: considered right and good by most people, agreeing with a standard of right behavior
"Negotiation" defined by webster is: to get over, through or around something successfully
"Motivated" defined by webster is: to give someone a reason for doing something
Bottom line...not advised to prey upon the weak or those of less knowledge than you. A Motivated Seller should be approached with dignity and not ignorance.
The idea behind a motivated seller is that when the seller acknowledges the challenges faced in a certain situation (and sometimes it may be up the Real Estate Agent or Investor to help them become aware of the challenges) and they are assisted by someone who can help them with that challenge, then a mutually respected deal can be done and everyone can feel good about it together./
~Do unto others as you would have them do unto you~
You didn't put him in his position, he did. If you have a solution to his problem that he accepts and keeps him from stressing over it and then ultimately walking away with nothing, as would happen in a foreclosure, then I don't see how it's unethical as long as you don't lie to him about the condition or your ability to follow through with the contract. The inspection report will either win your battle or it won't.
What you didn't say is what is the owner's price is 25% - 50% higher than the actual FMV. Is it unethical for him to ask for that much? Is it then unethical to offer him 50% less?
I offer what I think is reason in the condition that is acceptable to the naked eye. Than I deduct what ever comes up in the inspection off of the price! I have lost deals where I have offer what it is worth (with the repairs that I have knew during I inspection) because someone else offer the value and than asked for repair later!
If there is too much of a value difference you will probably lose the seller later!
No, Guy, but then, that's not what Cappy is proposing. He wants to make a full-price offer to get the property under contract and off the market (with the added delay very likely placing the owner in a worse position) then use deficiencies that may or may not actually exist to re-negotiate the price. You know damn well that is unethical.
1. Home is listed and as stated, is garnering little attention. Hmmm....overpriced perhaps?
2. Seller accepts full price offer (presumably without a gun to his head) and said offer has an inspection contingency. How dare the buyer include an inspection contingency in a contract...what a scumbag
3. Inspection may or may not reveal deficiencies. If so, seller and buyer can renegotiate or buyer can terminate.
Oddly enough this sounds an awful lot like a traditional real estate deal.
How many traditional buyers and how many investors renegotiate once they have a house under contract? I almost always do, so I guess that makes me unethical?
Geez Rich....let's not make a mountain out of a mole hill.
I never have an inspection contingency. I look over a property, and decide if I am interested, and make a cash offer. And if accepted, I buy the property.
Knowingly putting in an offer for full price to "tie it up" with the clear intention of paying 1/2 that price is not dealing in "Good Faith", that could conceivably get you into trouble. Not Likely but it is conceivable.
Why are you worried about "Tying it up" Since it has gotten little attention no one else is going to jump at it. Put in a reasonable offer based on what you know now, and adjust as appropriate. I am not saying you shouldn't negotiate. Just don't pay silly games. I probably wouldn't even want to pay the 1/2 price you want to pay.
I am not disagreeing with Guy but I think you will get farther being realistic with the agent then by playing games.
Originally posted by @Cappy Jones :
My question to you all, is it (wise, dumb, ethical, unethical) to use the seller’s desperate situation to my advantage by offering more than I intend to pay just to tie up the deal, gain access to the property, have it inspected and reduce my offer?
The way you've framed the question, I think you already know the answer. Of course it's not ethical. The key to the answer is in your intent.
Karma is a *****.
Ethical or not, getting 50% off in escrow won't work!! Now, imagine getting into escrow at 70% of LP and working down from there. Now you have a chance.
Why not get it in escrow as cheap as you can. Start low and see where you end up. Then do your inspections and see how it goes. If you need more of a discount, you can ask for it based on a, b, c inspections and written estimates. (I got $85,000 off of 2 deals last year this way, while in escrow). Good luck.
Shhhhhhhh....let's keep this little secret between us Cappy. My intent is to solve someone's problem and make lots of money doing it. You know...kind of like doctors, lawyers, CPA's....
Think win-win when negotiating. I'll just leave it at that.
I would look the property over to get a ball park idea of what renovation costs might be and then make an offer subject to inspection. The offer has to be made on the basis of what is profitable to you. I assume your inspector is a professional, who wants to get paid. It can get to be very expensive having professional inspections done on a lot of properties that you can't bring to a deal.
Unreasonable and unrealistic sellers are a huge road block in this business. I recently came across a property that had been inherited and was on the tax sale list. Rather than sell to me at a discounted price, the owner let it be sold for taxes. On the other hand, the first income property I bought was almost exactly as you describe yours. My offer was accepted with no negotiation.
Neither owner had any skin in the game. One took what ever she could get as found money, the other held out until the end, looking for a windfall. You never know!
Whatever you do, don't lose any sleep over it. Just keep plugging.
I bet this is all a mute point as it is "listed" therefor been combed over by 400 other investors. There's a reason why it's still active on the market. Feel free to post the deal up for analysis. You'll have some professional opinions in a matter of hours.
But, to answer your original question, your proposal with the intentions you posted seem unethical to me. Ethics are subjective. Are YOU ok with doing this to gain a deal? If so, carry on…if not, don't sacrifice your integrity for a few thousands bucks.
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