Need help, Evaluate my deal: How much over home's asking price would you pay?

Question

Hello, I'm in need of some help and I was hoping BP could give me some guidance.

I'm starting my family, and it's time for my wife and I to buy our first house. She's interested in a home-house in which we can live in, and have a good experience living in. (good neighborhood, good schools, good parks, etc.) I'm interested in those, but it's important for me to also build equity in the house from a financial standpoint. We've both decided we want to buy a house, that is a short sale, or REO property that needs some cosmetic updates (holes in walls, carpet and flooring needs changing, new kitchen and appliances are fine). But we want to buy a house under market value, so we can build some sweat equity while living in our home.

We've found a great 4bed 2.5 ba house in our area that's priced at 177k, and comps in the area are selling from the low to mid 200's. The Zestimate on the property is 230k (and I expect over the next few years, the value of this particular property will increase). It is an REO property that, from what we've seen, needs new kitchen appliances, counter tops, carpet upstairs, kitchen and laundry room flooring, and a new window, as well as some basic yard work (which we will do).

There is a problem though. The property has been on the market for only 6 days, and the bank is only taking offers til tomorrow night. Currently, there are 2 other offers on the properties. The bank will take the best offer, so I plan to go over the 177k asking price. So my question is: how much over the asking price should I go? And how can I calculate how much it'll cost to make the few known repairs?

Cindy Meyer · Answer

@Ben Curtin

Often banks attempt to sell to Owner Occupied buyers first and keep Investors out the first couple of rounds; therefore, you might be protected from investor offers. Ask your realtor if this is the case.

It appears to be a really good deal with the numbers given. Remember you will have an inspection contingency, so if there are any hidden repairs needed that are outrageous you can get out of the deal. Grade of appliances, carpet, countertops and flooring can all be adjusted to your budget. Go for a middle of the road window and do that first.

As someone that has been a female for almost 50 yrs I can tell you that your biggest variable will be how much your wife wants the house. Happy wife = Priceless. I probably paid more for my personal residence than I should have, but it was my ONE emotional purchase. Everything else is business.

Derek T. · Answer

This is your personal property so if you and your wife love it then make sure you get it. No need to come up low on a house you love and regret it for years from now. In my area $10k over list for a well priced REO to OO is not uncommon. Personally I would look at $187-190k with 3% closing help. Remember banks look at it from a net proceed standpoint so they factor in the net after the closing costs are factored in.

As far as the repairs, here is what I would expect to pay....

Appliances- $2k

Granite counters- $2k-$2500

Upstairs carpet- $1k

Laundry flooring- $250

Kitcdhn flooring- $500

Window- $200

Yard work- $200-300

These prices include installation and are only a rough guess as I don't know your size of your areas and all that. But you should be able to do all that for $6-8k.

Ben Curtin · Answer

@Ruth Bayang

we didn't get the house. Our agent let us know about 10 minutes after submitting the offer that the bank had already accepted someone else's all-cash offer, and she led me to believe the offer was lower than mine.

Oh well. On to the next one.

Great info thanks for the resources!

Ruth Bayang · Answer

@Ben Curtin Fellow Kent, WA resident/RE investor here :)

Did you get the house? I wish I had read your blog sooner. First and foremost, stay away from Zillow. Those Zestimates are wrong most of the time.
Get educated before you start investing. Join REAPS (Real Estate Association of Puget Sound) if you haven't already. There's a wealth of knowledge there and resources, as well as money to fund your deals.

Bram Spiero · Answer

Just to echo some of the things said here. Buying for investment is completely different from buying for enjoyment. That's not to say that the two can't mix but the criteria are usually different.

If you're not buying something overpriced and you intend to live in it for a while, make an offer that gets you the house you want to live in.

If you're buying to invest, make sure that you know your criteria and that you don't stray away from them no matter how much you want the house.

Good luck!

Justin Fernandez · Answer

if you still have timel listen to Will Barnard's strategy on buying REO's. Just make your offer as strong as possible.

Shorter inspection period, although he reccomends 0 since you have time between acceptance and signing and the banks may give you up to 17 days depending on bank addendums

3% EMD (Copy of check)

No weasel clauses, but use the inspection clause

Tell them you will be living in it since they do prefer Owner occupied

If you don't already have an agent go to their listing agent and let them know you'd like to use them on the front(when you buy) and back end(when you flip)

Offer the selling agent 1 commission point more

Also, deals of the year come by on a weekly basis. If it's a live in flip, I pull find another so make multiple offers.

Hope this helps.

Ben Curtin · Answer

alright I like all of the suggestions, I was thinking a straight 182k offer, but I like the idea of 187k with 3%. And if we get it, hurray, if not, we tried our best.

Thanks everybody for all of the help!

Ben Curtin · Answer

Okay, makes sense, Thanks for the reply!

Clay Manship · Answer

@Ben Curtin

Based on your provided info--it isn't really possible to say. If it is only cosmetic updates, then $177k seems right, unless it requires more work, more money, more time, etc. Based on your location in your profile, ANYTHING in the bed/bath range that you provided is a steal at 177k (from what I understand of the markets up there, that is). Also, probably worth mentioning that if this is indeed a good flip deal with "sweat equity" built into the price, investors are likely throwing all-cash offers on the table. You'll need to do the same in order to be competitive for deals like these.

If I am you, I am teaming up with an experienced contractor who will walk the property with you and let you know what it needs in order to make it marketable or build value as you stated. Unless you have this background, it is hard to say the net equity position of your new home, as you'll need to know what value to pump into it first. Hope this makes sense.

Need help, Evaluate my deal: How much over home's asking price would you pay?

Need help, Evaluate my deal: How much over home's asking price would you pay?

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