I'm planning on submitting an offer on a short sale and I wanted to get the community's advice on the best strategy for getting the offer accepted while not going over my budget. I made a conservative estimate of what I think may be needed in terms of repairs and upgrades and based on my desired profit, my max offer is about $50,000 lower than the list price. My assumptions are really just shots in the dark because I haven't seen the property in person and there are no interior photos of the house. So it's possible that I could offer more if the needed repairs are less than my assumptions.
$50,000 less than the listing price is a significant discount over a house that is already listed about 10% less than comparable properties.
If you were to make an offer on this property, would you submit an offer higher than you were actually willing to pay and then request seller credits once the inspection report comes back?
Or would you submit a conservative number in the hopes that it gets accepted and you don't have the back-and-forth that comes from requesting seller credits?
If this property is in Orange County it is probably already very competitive, so I would recommend submitting your best price the first time if you want to have a chance of getting it accepted (in general for CA depending on property price; $50,000 under list price isn't going to cut it) Also if this is in Orange County and at a reasonable price they likely have many offers with no contingencies that they could easily accept and move forward with instead of giving you seller credits.
This property is not in Orange County. It's in the Antelope Valley/Palmdale/Lancaster area. Good points all around though. At the list price, the property won't cash flow with less than 30-40% down and you're not going to make anything on a flip after repairs. I guess investors buying these kinds of property without any discount are just speculating that the market will keep going up.
A seller in Lancaster is probably more likely to reject an offer that is $50,000 off of the list price because of the lower overall prices. Even in Lancaster there are going to be quite a few investors and unfortunately there are two types of investors who offer high prices and are willing to accept low returns on flips.
1. Professionals who have found ways to reduce rehab costs (buying wholesale materials, having contractors on payroll instead of hiring by contract etc.) and are large enough that they can take a lower return on a per property basis due to economies of scale.
2. Investors who do not know what they are doing and may very well lose money on a property.
I still stand by offering your best price the first time, especially on properties that need work, if it turns out it doesn't work out at least you won't be thinking what if and you give yourself the best chance of success.
Also the middle ground for your offer may be to write the offer with your best price contingent on interior inspection.
Thanks Aaron, I called the listing agent and he informed me that they had several full price offers. Unfortunately, I don't fall into category 1 of your earlier response (i.e. I'm not able to buy wholesale materials or keep contractors on payroll) and I don't want to be in category 2, so I let this one go. Based on what I learned today about the market in Lancaster/Palmdale, it looks like it's time for me to find alternative ways to get deals.
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