how should you educate a seller when their price is too high?

11 Replies

I should have asked this before Thursday but, oh well, I’ll ask it now!

This past week I found a potential duplex in a decent part of town. I asked the listing agent for rent, costs, remaining loan, etc. she returned all the information I needed along with the home inspection done by the previously interested buyer.

That inspection is where things went downhill fast. Just from reading that document I am surprised the place has not been condemned. There are foundation issues, roof issues, plumbing and electrical issues, all of which apparently have not yet made it unlivable. This was the first home inspection I’ve seen so maybe all are infused with such doom and gloom for the property.

After reading the inspection I ran the numbers on the two legal units. There is a illegal studio sitting on the roof that had been rented out, including to section 8ers, supposedly. Being illegal its numbers were not factored in. anyhow, after running the numbers through the biggerpockets rental calculator I realized the property does not work at the price. I actually ran it at 20% down, 50% down, FHA's 3.5% down, 0% down via hard money+ 6 month refinance, 100% down and FHA 3.5% at a price of $115k. the second FHA calculation is where the property would begin cash flowing at $15 a month for the entire property. As for the other calculations, only the 50% down and 100% down produced any cash flow.

Sense I knew I could not acquire the property, and knowing it had been on the market for well over a year, I told the listing agent that I was backing out of the $150k price. In addition to backing out I emailed her the numbers I ran as well as other factors that I felt the seller should consider. Supposedly the listing agent has tried to get the price lowered, but apparently they seller will not budge even though the remaining loan is supposedly around $70k. (I have trust issues and tend to use "supposedly" or "they claim" a lot.)

Below is the actual email I sent…

From the numbers Ive ran the seller needs to find a buyer/investor who can make a down payment of at least 50% or more for the current $149,900.00 price to work. The following are examples of 4 conventional financing options, a basic creative financing option and what the price needs to be for a FHA loan to work.



To make it clear I am not making an offer, I just think the seller should see these. I would have liked to try the FHA or the refinanced hard money but they both end up with horribly negative cash flow at $150k and FHA barely cash flows at $115k. Obviously, if the new owner raises the rents the numbers will improve. However, having not gained my first property yet, I have no idea what a reasonable increase would in order to run the numbers.



Additionally, none of these take the studio into account. I am personally not willing to take the risk of the city having a fit over it without talking to a lawyer first. 



Finally, none of these examples take into account the potential work needing to be done on the property which, from the sounds of it, could be very costly.

I am interested in the property, I just cant do the price of $150,000. So until they lower the price enough, I wish them luck...

So did I educate the seller correctly or could I have done it better? Should I have not even wasted my time?

In my opinion, you educate a seller best by making an offer. You might send some repair costs, along with a couple comps as well so they see where your numbers are from.

I think you would really educate seller by sending Repair estimates and the inspection report. Recently, I sold one apartment complex and after inspection we asked for a credit of 80k. After negotiation, by client received the credit of $60k. Sellers won't budge on the numbers or calculations. Hope it helps.

I would make my best offer and possibly explain why you think it's not worth any more. 

The seller is either going to take it or they won't. The seller is likely not concerned with what the BP calculator numbers are. They appear to have a number in mind and at least for  the moment are going to wait it out to try and get that number.

When your looking at duplexes comps are going to be the most accurate way to determine value. Rental income not so much.

Originally posted by @Mason V. :

Sense I knew I could not acquire the property, and knowing it had been on the market for well over a year, I told the listing agent that I was backing out of the $150k price.

everything past that was a waste of time.  The fact that it's been on the market over a year just proves my point. Do you really think you are the first person to tell them their property is overpriced? 


Your email reads like your patting your self on the back for being able to do basic math. The agent probably didn't read it past the "I am not making an offer" I know I wouldn't have!

Have you ever been in any other business besides real estate? 

Move on, the seller obviously has the  price they want, and is hot 'feeling enough pain' to want to sell cheaper.

Don't ever get emotionally involved in a house,,,numbers are numbers,,when you start wanting a property too bad, you make mistakes.

Often if you watch a property in a few months it will either be a short sale or REO property, or the seller will come down, but not always

andy

Originally posted by @Verna M. :

Your email reads like your patting your self on the back for being able to do basic math.

Have you ever been in any other business besides real estate? 

 I pretty much am patting my self on the back and the program did almost all the work.  With my horrid social skills getting this far is am improvement for me so I am taking any small victories I can to boost my motivation.

As for other business, no. I started putting more effort into this sense about November and it feel like I am trying to climb a 90 degree cliff. On the bright side I have already gotten farther than the vast majority of the American population ever will.

Use the biggerpockets calculator and then print the pdf colorful report for the owner. Get neighborhood comps and repair values. If these don't work take your emotions out of the deal and solely go on the math. There will be other properties in the future. Good Luck!

Originally posted by @Mason V. :
Originally posted by @Verna M.:

Your email reads like your patting your self on the back for being able to do basic math.

Have you ever been in any other business besides real estate? 

 I pretty much am patting my self on the back and the program did almost all the work.  With my horrid social skills getting this far is am improvement for me so I am taking any small victories I can to boost my motivation.

As for other business, no. I started putting more effort into this sense about November and it feel like I am trying to climb a 90 degree cliff. On the bright side I have already gotten farther than the vast majority of the American population ever will.



here's a nicer way of putting it.  You're not telling them anything they haven't heard before.  And by spilling all your numbers to them, in essences  shows you are an inexperienced investor.  Why show them your hand?  And if you do end up in negotiations now they know too much.  

It's not your job to educate people, and perhaps it's not in your best interest either. Part of running a business is not being emotional and having thick skin.   


saying you've done better then the vast majority of americans is basically saying you have a positive net worth. Which while fantastic is not why we are on BP!

My experience is that for every 20 houses I look at, I might make an offer on one.

90% or more of the time I put an offer in on a house, it won't be accepted.

When an offer is accepted, nearly half of the time my inspector or foundation person will find a problem that makes the deal not work, or some other problem will present itself (like having the house go into foreclosure while I have it under contract.

You have to keep looking at more and more properties, knowing tomorrow might be the day you find the 'right one'.    Just keep plugging along and you will do great, just remember its a business, its not personal if they reject your offer.  

andy

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