Offer with lower price?

10 Replies

I am a new multi-family investor and ready to submit a LOI. However my math calculation has pointed to a lower sell price than the listing price. Is it normal to submit an offer with a lower amount? From what I've seen with other completed transaction deals, the closing price is always the same as the listing price.

Market is hot so usually it doesn't sell less than list. I'd get a feeler on activity and then go from there. Doesn't hurt to offer lower just verify your numbers are align with what the area is doing. 

Your offer needs to reflect "the numbers". What the listing price is shouldn't be the determining factor. If it doesn't work at list, make an offer of a price it will work for you at and be prepared to walk if they say no.

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I see it 2 ways you can stand by the numbers and make multiple offers until you get a yes which is generally not a bad idea personally I would rather take a slow approach than fast and clumsy. Second you could buy for appreciation if you ran the cal and you lose idk 200 a month but next year you break even and the year after you make 200 in a highly appreciating market it could be worth it but it is a gamble. Many folks with means are willing to take a loss today for gains in the future of both rents and appreciation.

It's common for the buyer's offer to be lower than the listing price. There are many reasons for selecting a list price, but here is one of them: sellers need to balance between listing a property for so little there would be no profits, and listing the property so high there will be no buyers. 

It's difficult for sellers to find the ideal list price exactly. But sellers who list low will have their properties snapped up and go off-market quickly. Sellers who list high will have fewer buyers since investors like yourself will not be willing to pay list price, and the properties will go off-market slowly. 

As a result, high list price properties will simply be on market longer, and therefore make up a larger percentage of listings. So offers below list price will be appropriate on average for a majority of listings. 

@Samuel Lee Many listed properties are selling at asking or higher. These same properties will be based on future projected incomes based on rent increases and value-add. Some will tell you to analyze a deal based on actuals and buy on actuals, but this won't get you very far in today's market. Perhaps run two analyses, one based on projections and one based on actuals. 

Decide which price is comfortable to you. In my experience though, if you don't have an existing relationship with seller/broker OR solve their problem, you better be willing to offer a competitive offer.

@Samuel Lee if they don’t have any other offers and the property has been for sale for a while, the seller might entertain your low offer. However chances of success will be much higher if you are able to logically justify your number, or offer them something else they might want such as cash, quick close, few contingencies, etc. MF properties usually sell at the prevailing cap rate for the location, so if your offer and the asking price are off by a lot, either the asking price or your offer is likely not in line with market pricing.

I dont think the sellers are interested in your numbers , unless it has been on the market a very long time .It is very much a sellers market , buyers are offering over asking to get properties . 

Thanks for everyone's reply and I have read all of them.  One thing that stuck out from your feedback is depending if the property is in the market for a while.  What is "a while" in your opinion?  The MF property that I am interested in the Triad NC area is over 85 days on the market.

85 days is more than "a while". That's a long time in this market. Either the property is way overpriced or it has insurmountable issues.