Fair Offer Price for multi-million dollar deal

Member since 2021 · 18 posts · 3 votes

Hey Family,

So, I've watched every single youtube video and ready every single article; I'm talking months on end regarding wholesaling a property but most have been on properties valued at $150,000k or less.

Today, I got a real live deal, in the millions and have no idea what a fair offer should be.

The property is valued at $2 million, the rehab budget is $600,000 the ARV is $4 million and my desired wholesale fee is $200,000.

With this info, what should a fair offer be and can you kindly break it down? Thank you so much in advance.

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Jonathan GreeneBusiness Member

Real Estate Consultant · Madison, NJ · Member since 2016 · 6k+ posts · 7k+ votes

I don't know about the community, but I would say that you sound too green to take on this deal. Does the $2m seller understand you are a wholesaler? How many wholesale deals have you done? If any, what is the highest price point you have wholesaled? Who on your list can come in hot with this much in cash to do the deal? And who came up with the rehab numbers on this? Answer this: why is this seller even talking to you? Do you have a proof of funds or a vetted million-dollar buyer list? It seems like the ultimate reach and very unlikely to come through if you don't have experience at this price point.

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Bill B.
Investor · Las Vegas, NV · Member since 2013 · 8k+ posts · 10k+ votes
4y
What's the earnest deposit with the offer? $100k? MAYBE they'd take an offer with a $50k EMD as long as the seller is sure they can keep it if you back out. Otherwise if it's worth $2mil it will go contingent within 10 days at $2m, you might need to offer $2.3+ if you're going to have contingencies or a deposit under $50k?
In this market you’re going to need a large deposit, a pre-approval and very few if any contingencies to get it at market price.
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Russell BrazilBusiness Member
Moderator
Real Estate Agent · Washington, D.C. · Member since 2012 · 17k+ posts · 30k+ votes
4y
"The property is valued at $2 million"....
Seems like a fair offer would be $2 million then right?

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Jonny Mcknight
OP
Member since 2021 · 18 posts · 3 votes
4y
What I'm trying to analyze/figure out is:
1) shouldn't my offer be less than the listed price as my buyer would want a deal?

2) Given I'm going for a $120k assignment fee, I'm trying to get it lower than the listed price.

My problem is my math isn't adding up (I think).
If I did $4 million ARV x 70% - $500k - $120k The offer price is around $2.1 million. Does that sound right?

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Jonny Mcknight
OP
Member since 2021 · 18 posts · 3 votes
4y
Would the community say I calculated the above correctly?
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Jonathan GreeneBusiness Member
Real Estate Consultant · Madison, NJ · Member since 2016 · 6k+ posts · 7k+ votes
4y
I don't know about the community, but I would say that you sound too green to take on this deal. Does the $2m seller understand you are a wholesaler? How many wholesale deals have you done? If any, what is the highest price point you have wholesaled? Who on your list can come in hot with this much in cash to do the deal? And who came up with the rehab numbers on this? Answer this: why is this seller even talking to you? Do you have a proof of funds or a vetted million-dollar buyer list? It seems like the ultimate reach and very unlikely to come through if you don't have experience at this price point.
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Jonny Mcknight
OP
Member since 2021 · 18 posts · 3 votes
4y
Jonathan, I'm sure your intent was to help but honestly, you did not answer my questions, at all, and your line of questioning is more so personal than seeking info to actual answer the premise of what was asked. But for clarity, I have a longstanding professional and personal relationship with both the real estate agent and the buyer. They have many reasons to trust my judgement.

That said, back to the matter at hand, the specific questions I asked are:

1) Did I use the correct formula and is my math right on the offer price?

2) If yes to both parts of question one is correct, my offer is coming back to the original asking price, is this normal? Should it not be less by a hew hundred thousand?
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John Teachout
Rental Property Investor · Concord, GA · Member since 2015 · 3k+ posts · 3k+ votes
4y
You stated you read every article and watched all the Youtube videos but joined the forum yesterday and then want to know why people are questioning whether you can pull off a multi-million wholesale deal that many experienced wholesalers wouldn't be able to pull off.
If you have acquired that much knowledge from your studies, it seems the questions you're asking would have been covered and leaves readers wondering if you have a clue as to what you're doing.
The members that responded each have thousands of posts and have been on here a long time so don't prematurely discard their comments as not being valid.
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Jonny Mcknight
OP
Member since 2021 · 18 posts · 3 votes
4y
John, again this post is not about what I can nor cannot "pull off;" that is up to the buyer or seller, neither of which you are. I asked two very specific questions. If you cannot or do not know the answers, it's ok to scroll in silence.

The specific questions I asked are:

1) Did I use the correct formula and is my math right on the offer price?

2) If yes to both parts of question one is correct, my offer is coming back to the original asking price, is this normal? Should it not be less by a hew hundred thousand?

1 Reply
Bill B.
Investor · Las Vegas, NV · Member since 2013 · 8k+ posts · 10k+ votes
4y
Why would your offer be less than the original asking price? He original asking price was one persons original opinion. If the original listing price was $2.3million would you feel better that your math was saying to offer $2.1m? What if the seller was in distressed and offered to sell it for $1.8m? The math is simple. If YOUR numbers are right you know the answer.

$4m at 70% is $2.8m minus $600k rehab minus $200k assignment fee is $2m flat. Exactly what you say you can buy it for. Done deal. Put in a healthy EMD and get it under contract.

You’ve said $600k rehab and $200k assignment in original post. Then you changed it to $500k rehab and $120k assignment in your last post. That’s why you came out at $2.18 and your numbers didn’t add up.

So the answer to your questions are yes you did use the formula right (even if I don’t think it’s valid in todays market and 80% is amore reasonable number) and no, you didn’t do the math right.

YW
6 Reply
Jonny Mcknight
OP
Member since 2021 · 18 posts · 3 votes
4y
Thank you so much Bill! Bless!
0 Reply
Bill B.
Investor · Las Vegas, NV · Member since 2013 · 8k+ posts · 10k+ votes
4y
NP. I thought of another idea/plan. If you are truly a trusted friend/ally of the seller/realtor. Offer them this deal. You’ll loan them the $500-$600k for the remodel and oversee it for them. Then when it sells for $3.8m-$4m you get your $500k back and you each split the higher sales price.

IE. You’d have $600k max in the deal and they had have $2m going in.

After remodel They sell for only $3.8m, you get your $600k back plus $600k (much bigger than your assignment fee) and your friend/seller gets and extra $600k in their pocket making you buddies for life. Of course the realtor gets and extra $50-$100k so maybe you have to split that with seller but now the realtors also your buddy for life.
6 Reply
Mary M.
Rental Property Investor · Portland OR · Member since 2018 · 2k+ posts · 3k+ votes
4y
I know you didnt ask - but commercial RE is wayyyyyy different than SFH RE..... for a purchase that large the buyer will (most likely?) be using agency debt..... that makes things a bit more complex.... if I had something like this fall in my lap, and I knew it had not been shopped prior, I would contact several commercial RE brokers and see if I could get a finders fee to hook them up with the seller.... having sold ad bought multi million $$ properties - its not simple.... ever.....
ok, I am editing this because it sounds like you are taking this deal with a RE broker.... I have soooooo much more to say but I will just say good luck.
4 Reply
Jonny Mcknight
OP
Member since 2021 · 18 posts · 3 votes
4y
Bill, excellent idea! Will note for future deals.

Mary, this is a house, fix and flip.
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Mary M.
Rental Property Investor · Portland OR · Member since 2018 · 2k+ posts · 3k+ votes
4y
my bad - good luck to you! (i assumed multi million meant commercial )
0 Reply
Jonny Mcknight
OP
Member since 2021 · 18 posts · 3 votes
4y
Haha, no worries. Nope, just a million+ dollar home! Thank you so much!
0 Reply
Steve K.
Realtor · Boulder, CO · Member since 2016 · 3k+ posts · 5k+ votes
4y
@Jonny Mcknight depending on the property type (commercial or residential), the offer price should be based either on recent comps or cap rate. Whether the number is above or below asking price is somewhat irrelevant (except in that the closer to asking price you come in, the higher the likelihood of success). You should first determine fair market value regardless of what the sellers are asking for. Another factor is what the average sale price vs. list price is for the area. In most markets right now, properties are selling for above ask.
1 Reply
Jonny Mcknight
OP
Member since 2021 · 18 posts · 3 votes
4y
@Steve K. thank you and blessings, very insightful. You've helped tons. The area the house is in, most of the properties have already been "fixed" / rehab'ed and sold. There's literally only two other comparable houses within a 3 mile radius, that's actually for sale, both are selling between 3.5 and 4 mill.

Given other homes in the area have not sold recently (I went back as far as 4 years!), and the ones that did were way back in 2014 before my guess is they were fixed / rehab'ed it makes it harder to determine it's true value.

That said, it's definitely a deal given it's one of the last homes, that's not been renovated in the area up for sale.
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Steve K.
Realtor · Boulder, CO · Member since 2016 · 3k+ posts · 5k+ votes
4y
@Jonny Mcknight sounds like a healthy spread, I’d lock it up at asking price. Perhaps you could try starting a little under ask depending on the situation (if there aren’t any other offers, sellers are motivated, etc), but if your numbers are correct and there is that much meat on the bone, I wouldn’t lose it over trying to be too greedy on the offer price. One thing though: the two houses nearby that “are selling” for 3.5-4… are they under contract, recently sold, or just for sale? Ideally comps would be recently sold or at least under contract. If they’re just for sale, how many days on market? Either way if you’re looking at a 1.5-2M margin, that’s very good. Bill had some great advice earlier about partnering on the deal for a larger piece of the pie, that could be the way to go rather than just wholesaling it for a fee.
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Jonathan GreeneBusiness Member
Real Estate Consultant · Madison, NJ · Member since 2016 · 6k+ posts · 7k+ votes
4y
@Jonny Mcknight when you come into the forums with no activity, no photo, no bio, and no evidence of actually doing anything, and then also wonder why some of us don't just conflate your post, but actually ask you some harder questions than the ones you are asking, you just don't get it. If you can't answer my questions, I can't answer yours because why would I answer your over-arching questions with no context. If I did that, I would be pouring gasoline on the fire of your false hope that you can pull this off. Playing with a multi-million dollar wholesale deal as an unlicensed, inexperienced wholesaler is asking for trouble. You aren't getting 120k or 200k in this deal because one who would avoid all the reasonable questions back is one who is not nearly as close to this deal as they think.
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Jonny Mcknight
OP
Member since 2021 · 18 posts · 3 votes
4y
@Steve K. The offer is in and the agent is excited about it! Thanks so much again for your thoughtful, helpful and insightful advice and comments.

@Jonathan Greene in contradistinction to you, I'll keep it classy and simply quote an eloquent writer; “the man who says it cannot be done should not interrupt the man doing it.” Again a word to the "wise"; scroll by, quietly.
1 Reply
Jonathan GreeneBusiness Member
Real Estate Consultant · Madison, NJ · Member since 2016 · 6k+ posts · 7k+ votes
4y
@Jonny Mcknight did you just now say the agent is excited about it? Do you mean this is an on-market $2m listing that you think you are going wholesale? Yeah, I will be waiting for your success story and your 200k spread on this one. GL.
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2 Reply
Peter Jin
Rental Property Investor · Philadelphia, PA · Member since 2019 · 39 posts · 33 votes
4y
@Jonathan Greene
It is well said. I feel the same way he is not ready for 2m deal. When your skillet is ready, you will now that you are ready.
1 Reply
Jonny Mcknight
OP
Member since 2021 · 18 posts · 3 votes
4y
Jonathan, you're three posts in and have yet to answer the specific questions asked At this point it's evident you came on this post to be a condescending troll rather than constructively contribute. It clearly backfired.

Others have responded, offered great advice and because if them I got an offer out with an excited agent and seller, to them I say thank you. To you I say scroll in silence, in case you don't know what this means, it means don't reply.

I'm securing million dollar deals, less talk and more action and perhaps you can too.
1 Reply
John Teachout
Rental Property Investor · Concord, GA · Member since 2015 · 3k+ posts · 3k+ votes
4y
What we have here boys and girls is an excellent example of how not to start out in the Bigger Pockets Forums. This is a great place to give and receive advice and information but it's not for everyone.

2 Reply
Jonathan GreeneBusiness Member
Real Estate Consultant · Madison, NJ · Member since 2016 · 6k+ posts · 7k+ votes
4y
@Jonny Mcknight we aren't here to give you an echo chamber. Anyone who does it making it worse for you. Asking you real questions isn't trolling you. Look at my experience versus yours. What is my reason for asking you questions? It's to try to prevent the disaster that is coming for you. This deal is not happening.
You have an offer out of $2m to an "excited agent" who can not think you are going to wholesale the deal so what proof of funds or approval did you send? Yeah, I am sure you are securing million dollar deals. Why don't you drop the contract in here as a PDF and we can let you know what it looks like.
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