How to Low Ball Offers

Question

Is there a rule of thumb for what a low ball offer should look like?  I keep hearing that if you're not embarrassed by your offer, it's not low enough.  Thoughts?

Ujwal Velagapudi · Answer

I would make my own calculations to price the building based on my desired financials, comps nearby, and of course the current condition.

I usually have a rough idea for what the most I would pay where it still make sense financially, then backtrack to see what the lowest I think I could buy it for in the current market conditions. Then I will offer something lower than that to start off with. I justify each offer, I spend more and more time with the deal/agent/seller if I am really interested, look for what the seller really wants and how I can help them get it, etc. I want to see what the seller is really looking for, and sometimes it is not simply just money.

Is the seller 82 years old, and therefore willing to give a great discount for cash vs. land contract? Is the seller still looking to occupy his business in one of the units and wants it to be a clause in the sale?  Is the seller looking to close immediately, bypassing due diligence periods and all? Just some things I considered in my deals. There were actually three instances I ended up closing for less than what I had initially offered with the way things worked out.

My closed deals so far have been 50%, 44%, 30%, 29%, and 20% under listed sale price, and all but one were private sellers. It definitely helps to get some facetime with the owner if possible.

Jacob Eddy · Answer

Thanks to all for the input.  All makes sense and much appreciated.  What is a T12?

Kenneth Reimer · Answer

@Jacob Eddy Jacob, the only way to get deals for less than what the market will bid it up to, is to find an owner with motivations or incentives that he or she will trade for a lower price. The saying is "my price and your terms, or your terms and my price." Instead of figuring out how to write a low ball offer, figure out how you're going to find owners that have a need for their own demanding terms so you can trade your flexibility of terms for a lower price.

@Andrew Johnson echoes my beliefs in financial underwriting. Listed prices are irrelevant. Underwrite the property to find at what price the deal makes sense, not whether or not the deal makes sense.

Feel free to shoot over any questions!

Kenny Reimer

Ronn Johnstone · Answer

@Jacob Eddy

I think both responses are sound advice; the take-away for me is fair--and fair can benefit you, as can a discount.Honestly, once in a blue moon are you gonna get 50 cents on the dollar. If you always aim for that, you'll miss a lot of opportunities. So what is fair? Here's where @Andrew Johnson advice is very sound: fair is defined by the numbers.

There's duplex up the street from me I want so bad I can taste it! But the numbers say they're asking 30,000 too much.

Hope that helps,

Ronn

Jonathan Towell · Answer

Searching for a good deal is like finding a needle in a haystack. When you finally find a good deal, why give a low ball offer and risk losing the needle? Why not just offer something fair? Then, improve the property and make it worth more. Rinse and repeat, and develop a reputation as a fair businessman. Do that for a few years. As your reputation grows, you start getting referral business.

I know a lot of investors that only give low ball offers. They just don't land many deals. And, they often develop a reputation as a cheapskate. Maybe that isn't so bad on the buy side. But, what about when you go to sell the property? Do you want people thinking you are cheap and unwilling to be fair?

I've never heard the advice that you should be embarrassed by your offer, but it sounds like terrible advice to me! I don't want to purposely embarrass myself, especially to people in my community. (I embarrass myself accidentally enough, without adding extra on purpose!)

I hope that helps. I wish you the best!

How to Low Ball Offers

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