How aggressive to be when you're offering a back up offer?

3 Replies

Hi everybody!

This is the year that I want to become a home owner! But I need some advice for the people in this community.

There is a remodeled detached duplex for sale in the city of Los Angeles, it is fronting a major street with the light rail a mere 4 minutes walking from the duplex. The location is great, up and coming, and there are about 3 cemeteries around the area. It is zoned multifamily, so building another unit on the lot is not a problem (I checked with the planning department). There are two structures on the site, one is 500sf and the back unit is 300 sf. The total size of the lot is 3600 sf (pretty tiny). The asking price is $440,000 and it's been on and off the market (due to the seller) for about a year. I've checked on the MLS and this property never appears as "pending". I understand that they have not been in escrow. I like the property but I do not like the price. I intend on offering $400,000 with a 20% downpayment. Has anyone asked for a "discount" of $40,000 on a home purchase?

So I ran a craigslist ad for about a day and I received on average 9 emails for each of the units of people who are interested in renting them. Granted, the ad did not have any pictures but there is definitely interest in renting around the area. The duplex is great for me because I have a low income and the income from the duplex gives me more purchasing power. However, my lender said that the appraisal might come in around the high $300,000 because there are no comparables to support the selling price of $440k. Which means that I would probably have to come up with the money out of pocket or negotiate with the seller to lower the price further, and be closer to what the appraisal came out.

There is already an offer for asking price, but with FHA financing. My lender thinks I still have a shot because even though I am offering $400k, I have cash reserves to pay for the difference and probably the FHA applicant doesn't. So I am submitting the back-up offer on Friday. Now, how aggressive should I be with the back-up offer? In anyone's experience, do you think I have a shot at getting this duplex?

Thank you for your help!

Wei, 

Ok, a couple of things here. 1) You only offer what a property is worth to you based on your numbers, your business model and your ability to finance it. You've done what appears to be some excellent research and have a good handle on the properties value to you.

2) Your seller (if he's any good) is going to look at backup offers as if they were primary offers. This is because a backup offer can very quickly become a primary and then they are required to perform to that contract. 

My advice, make the offer at your price and terms as soon as possible. It will either be accepted or not.  If so, then go with it. If not, go find another deal,  because there is another one out there waiting for you. 

Hope that helps. 

Good luck, 

Jim 

A further note: Most people think of back up offers as just that, an offer that just sits in the computer, the seller looks at it, but does nothing until the first one falls apart. I prefer, having a Signed back up Contract, contingent of course on the first offer falling apart. The moment the first contract becomes void, my contract goes “into effect”, and inspection/financing periods etc begin.

Hi James and Wayne,

Thanks so much for both your input. I feel more confident about submitting my offer even if it’s less than asking price. The LA market is so hot but nobody seems to be paying any attention to this property. However I did my due diligence and everything points to this property being okay to add more units. I think I will wait and see if the first offers come through and hope that the appraisal comes out to $400k. 

Thank you,

Wei

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