Educate your Real Estate agent
Hi BP Community,
I wanted to share my recent interaction (email exchange) with a real estate agent who was advising me to up my offer price to beat the competition.
About 20 days ago, I called an agent about a double (1840 sqft) house in need of full renovation. This was a foreclose home-path property deal. The advertised sales price at that time was $219,000. Agent immediately told me that the property was under contract for much more than the advertised price. I run the numbers and it looked like a good purchase in that part of the town, the comps checked out. I told the agent to give me a call if the deal did not close. Apparently, the sale fell though, and I received a call from the RE agent about putting my "best and highest" offer because, there were multiple offers on the table over the asking price, as she claimed. I run the numbers again and I was comfortable offering $250,000 with 10% down and financing rest of the purchase price and renovation cost. Again, I received an email from the RE Agent hinting that my $250,000 offer price, which was $31,000 over the asking price, would likely be rejected because there were other high offers on the table.
I felt compelled to write this agent my thought process and analysis of this deal, in hopes to educate this person why my offer was "best and highest" offer for any buyer. Below, is the email I sent to the agent:
""
Hi RE Agent,
Thanks for the info! Looks like comparable properties around sell for between $221/sqft to $244/sqft.
My rough estimate on rehab on 1840 sqft is $80/sqft which is $147k.
If I buy the property, let's say, for $270k+$147k (Reno budget) +$5k (carrying costs) = I am all in at $422k.
If sold at $240 sqft *1840sqft= $441,600
Sales price - all in price - sales commission (5%) = $441,600-$422,000-$22,080= -$480 (negative $480).
As you can see, from this logic above, $250k should be absolute maximum amount any person (investor or individual) should pay, including myself. Otherwise, buyer will be, most guaranteed, upside down!
I am not sure if the sellers look favorably on all cash deal (in which case I could do $190k all cash) but otherwise $250k with 10% down homeopath loan is what I would say is my best and highest offer.
I hope in this email, I have outlined my investing strategy and the way I think of the "numbers" and if this template is useful for you to bring me other deals that fit my "formula", I would be most grateful. ""
I am not sure whether if I helped this agent to understand the real numbers behind this deal, but i know that eventually she will come to understand and think like an investor when dealing with investors.
As part of your interview process, you must ask your RE agent to give you analysis of a deal and then schedule 20-minute telephone conversation to speak with them about their assumptions and numbers. This will give you a window in their though process and their knowledge to vet the deals for you.
I welcome your thoughts and feedback!
Thanks