What should you offer for property

Question

I want to make an offer on a multi family and the assessed/market value is low, should I offer less than assessed/market?

Mitch Provost · Answer

@Jackie Griffin, first we should clarify what 'multifamily' is. By normal (and agency lender) definitions, it is any building or property with 5 or more units. Most of our responses are referring to many more than 5 units and is applicable to any number (hundreds) of units. Larger units need preliminary underwriting to prepare an offer.

(Preliminary) underwriting is normally the very first thing that is done by the purchaser to help screen properties. It helps to put a price on the property that you may be willing to offer based on its potential for earnings.

Most multifamily brokers provide full financials for available properties. This usually (should) include a memoradum, T12, and rent roll. These, along with basic tax and local comp data, are used for preiminary underwriting to determine an offer amount.

Part of that underwriting is getting details from a lender (typically larger properties are leveraged with debt) on loan options. The lender will also do his own preliminary underwriting to determine estimated loan terms which would go into your underwriting.

After an offer is accepted, detailed underwriting goes along with due diligence (audits, etc.) to confirm any risk that may have been unknown during the preliminary.

Jackie Griffin · Answer

Good Morning Chris, Michael and Mitch,

Thank you all for your replies.

1. This will be my first deal and I have not made an offer yet.

2. All of you replied with Underwriting. Correct me if I am wrong, wouldn't the underwriting process come in once I have offered, seller accepted and I go for funding?

Mitch Provost · Answer

@Jackie Griffin, if you are referring to the tax basis assessment, that is always going to be low. Otherwise, I assume that you or someone else made this assessment through underwriting.

Underwriting is simply said, but pretty difficult to formulate. I have found at least 42 variables that go into underwriting multifamily. Each of these influence the calculated value and your decision on what each value should be is based on your own risk assessment.

It helps to have some industry and market knowledge to give you more confidence in your underwriting input. BP has plenty of great resources to help you gain that confidence. Don't be afraid to reach out for that help.

Michael Reyes · Answer

@Jackie Griffin.  As @Christopher Hunter asked, have you run the property through an underwriting process?  The underwriting process will tell you what it’s worth and a reasonable offer price.  If not properly evaluated, you could over pay and/or leave $$ on the table.

Christopher Hunter · Answer

@Jackie Griffin  Hello Jackie.  Did you run the property through your underwriting process?  You offer what the property is worth, with a little room to negotiate with.