Contract / Price strategy

4 Replies

hello BPers! I'm working with my team to find the next right opportunity and curious about y'alls purchasing strategy. My initial offers are typically low ball, but those low ball offers make the math work to help us achieve our RE goals. Doing this I've lost a couple of properties in a multi-offer situation, so my question is this:

Is your initial offer always a low ball offer to make the math work or is your initial offer always full ask and then you utilize the home inspection to negotiate to your target price?

What are pros/cons of each strategy?

#AskBP

Sometimes full price is a wholesale price in disguise. Everything revolves around the ARV. (After Repair Value.) There are almost always astute investors competing for deals. Don't let asking prices be your benchmark. Know/learn the value of the finished product, back out your costs and desired margin, and that will dictate your offering price.

Originally posted by @David Zamarron :

Sometimes full price is a wholesale price in disguise. Everything revolves around the ARV. (After Repair Value.) There are almost always astute investors competing for deals. Don't let asking prices be your benchmark. Know/learn the value of the finished product, back out your costs and desired margin, and that will dictate your offering price.

 Thanks for the reply David, but I think you missed my question. Let me rephrase.

I always have a target price calculated (with the help of the BP Calculators - biggerpockets.com/calc ) and I hardly ever agree to anything above that price, but in a competitive market, as I'm sure we are all in,   should step 1 be getting the property under contract (for list or above list) and then step 2 is to negoitate down(or up) to your target price? Citing ressons that are derived from a further deep dive inspection of the property. I'm curious to know the pros/cons of each from people who use this strategy. 

Does that make sense?

@Jay Helms

It is more difficult to negotiate down an accepted offer, than to simply offer a number which works in the first place.  

Intentionally offering more than what works with the intention of shutting out competition only to turn around and try to beat the seller down is not going to fly as a long term strategy.  It is one thing if you have a building inspection which uncovers something major and return to negotiate a remedy, it is quite another to put pressure to lower the price simply because you offered an amount over your comfort threshold.  In a competitive market, the vendor is just going to wave you off and move on to one of her backup offers.

I agree with Roy.  I don't think your strategy will work long-term.  I think it is a matter of offering a price consistent with your wholesale acquisition price and if it is accepted, good for you, if not move on to another property.