How to talk seller down to half price?

Question

I'm working on a deal now for a very challenging property. There's an old house in very poor condition. Highest and best use is 25-50 apartment units, and the seller thinks so and has it priced as such. I have put in significant due diligence and, based on a myriad of reasons, high-density multi-family development on the site will be extremely difficult and very expensive based on the current zoning, the existing water and sewer and, most of all, an out-of-service Union Pacific railroad track. Based on this research and the obstacles that need to be overcome, in my opinion, it's worth about half of what the guy's asking.

Seller is out of state, I believe he's about retirement age. House is rented out but hasn't seen maintenance of any kind for a few decades. Property has been on the MLS and in the local paper for over 6 months, which, in this red hot market, shows it is overpriced or too challenging.

What is the best strategy to convince a seller to take half of what he's asking?

Seller is out of state, I believe he's about retirement age. House is rented out but hasn't seen maintenance of any kind for a few decades. Property has been on the MLS and in the local paper for over 6 months, which, in this red hot market, shows it is overpriced or too challenging.

What is the best strategy to convince a seller to take half of what he's asking?

Ned Carey · Answer

Don't waste you time on unmotivated and unrealistic sellers. The best thing to do is go out and look for other deals you can do.

While you are making money doing other deals maybe he will come to his senses and realize you have a fair offer. Just keep following up every now and then.

Brent Coombs · Answer

@Ryan K., MAO = your Maximum Allowable Offer (you heard it here first)...

Ryan K. · Answer

The house is 105 years old, 1.5 stories, maybe 2,000 sf plus unfinished basement. House is disgusting, nearly a complete gut and remodel. It's in an expensive area, between Vail and Aspen. Similar aged homes are selling for $350-450k depending on condition. This home requires $150-250k, so value as is (my offer) is $300,000, no higher than $350.

It's listed for $650,000. The seller believes he has a future development site for apartments, but the reason it hasn't sold yet and the reason I think it's presently worth 1/2 his asking, is that there are significant challenges to development that are unsolved, like zoning, utilities and access over a railroad crossing.

I think I'm going to write a reasoned and well-researched explanation to all the issues with the property and email the owner (we've emailed a few times and talked on the phone once but it was months ago when the property was first listed.

I presume Brent isn't talking about Chairman Mao? What is MAO?

Brent Coombs · Answer

@Ryan K., you can remind the Seller that because they are selling it as-is, you as the investor have to take all the risks associated with upgrade costs and the permit approvals. It will help your cause if you can find other low-ball comps that may have sold recently.

If you have done your own sums and know what your MAO is, you could lead with that, mentioning that it's valid for 3/6 months (you choose), after which you might no longer be interested(?)

Don't forget, stick to your guns. If you find out that someone buys it for just $5k more than your MAO, that will be OK, won't it? (Otherwise, how did you arrive at your MAO? Do you want a bidding war)?...

David Dachtera · Answer

Work up the numbers based on income at 90% occupancy for whatever density the community will allow.

25 to 50 units sounds like a mighty big "house", unless you're talking something like a single-room occupancy ("SRO") transient accommodation in a former mansion, industrial building or something similar.

You may want to rethink this. Can you post some info about the building? Sq ft? # of floors? Approximate dimensions (footprint)?

How to talk seller down to half price?

How to talk seller down to half price?

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