Condo Deal Negotiation Advice: very close to deal

Condo Deal Negotiation Advice: very close to deal

Investor · Hyattsville, MD · Member since 2012 · 822 posts · 441 votes

I'd appreciate any ideas on how to handle pricing negotiation with the seller based on the below details:

I'm in discussion with another condo owner in my building to buy his 1bd/1br unit. Location is Washington, DC in city near metro station. Unit has been vacant for 13 years since owner moved out, but hasn't been willing to rent or sell the unit for unclear reasons. He's in 60s and retired. Unit condition is very poor and still contains his old furniture and household items in addition to needing a new kitchen, bathroom updates and drywall repair to 3 different rooms from prior leaks from upstairs. the bathroom ceiling is collapsed. Overall scary cosmetic picture, but all reasonably taken care of with a good contractor.

The negotiations are that I offered 80k cash however he is hoping for 89k, which means we're fairly close. He is using the purchase price of my unit from June 2013 of 89k as the basis for his asking. I responded that his unit condition is in significant worse condition than the condition mine was in during purchase. We left off with him providing me keys/access to the unit for the week while I bring in my contractor to identify the true costs, but he still thinks the 89k price is reasonable regardless of the different in unit conditions and additional repairs/ junk removal required. The follow up phone call will be my opportunity to use contractor estimates to support my claims for the level of repairs, but not sure those will have any effect. Mine took 17k in repairs. His will likely be 20k or more.

This is going to be a buy and hold rental, and I'm comfortable with the cashflow potential, however just looking at techniques on how to help him understand that a) his unit repairs will cost significantly more than mine which is why I was able to pay 89k for mine and cannot do the same for his and b) the alternative option for him to fix and sell will not be worthwhile. He expressed that he would fix and sell if he didn't sell it to me but might not know the true cost of such repairs and the value add for him paying retail to get the below ARV.

ARV is $105K. Analysis of the Deal quality is not as important as I know it doesn't meet the 70% ARV-repairs initial guidance, but nothing in DC does, hence my current offer.

Appreciate any feedback in advance!

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Involved In Real Estate · Potomac Falls, VA · Member since 2012 · 203 posts · 31 votes
12y

You're right about structuring the deals in DC significantly more different than elsewhere. I'm a Realtor up here too in the DC area. If you send me the address in a PM, I'll do a ARV report for you and you can show it to the owner. He sounds kinda interesting, and possibly not in a good way. I deal with a lot of delusional folks in real estate and I find getting away from them to be paramount. I would not want this guy owner financing anything.

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  • Investor and Commercial Real Estate Agent · New York City, NY · Member since 2013 · 109 posts · 67 votes
    12y

    Just give him the $89k he is asking for and just structure it in a way that works for you.

    Let's say you tell him, you will give him the $89k; $69k in cash with him holding $20k amortized for 30 years @ 5% interest with a 5 year balloon payment. Your payment on this will be $107.36 per month.

    Or still give him $80k in cash with $9k in owner financing at zero interest payable in 3 years ($250/mo).

    Don't lose the deal by negotiating hard on $9k. As you said this will be a long term hold and most likely the value will appreciate in the future.

  • Involved In Real Estate · Potomac Falls, VA · Member since 2012 · 203 posts · 31 votes
    12y

    You're right about structuring the deals in DC significantly more different than elsewhere. I'm a Realtor up here too in the DC area. If you send me the address in a PM, I'll do a ARV report for you and you can show it to the owner. He sounds kinda interesting, and possibly not in a good way. I deal with a lot of delusional folks in real estate and I find getting away from them to be paramount. I would not want this guy owner financing anything.

  • Investor/Realtor · Hoover, AL · Member since 2010 · 1k+ posts · 459 votes
    12y

    @Jeff Bridges ...Offer 85K..Remind him of realtor commission and time it might take to close.....Sounds like he's ready to move on...

  • Real Estate Broker · Fort Washington, MD · Member since 2012 · 83 posts · 9 votes
    12y

    I agree with the last two posts, have comps pulled and remind him he is saving on the fees. I dont see $9k breaking a deal especially if the value is increasing and any foot in the door for dc is would be okay with me!

  • Involved In Real Estate · Potomac Falls, VA · Member since 2012 · 203 posts · 31 votes
    12y

    $9,000 and $9.00 will all break a deal if the person with whom you are dealing is delusional.

  • Investor and Commercial Real Estate Agent · New York City, NY · Member since 2013 · 109 posts · 67 votes
    12y

    @Andres Piedra where do you get delusional from the original post? Is it because the seller can afford to keep the unit vacant? He wants $9k more than the offered price?

  • Involved In Real Estate · Potomac Falls, VA · Member since 2012 · 203 posts · 31 votes
    12y

    Yikes. Yeah, @Jonathan Marcus , that did sound kind of jerk'ish on my part. I was operating off some PM information. It sounds like the current owner is attached for reasons other than financial, which adds a bit of nuance to this deal.

  • Investor · Hyattsville, MD · Member since 2012 · 822 posts · 441 votes
    12y

    Thanks @Rolanda Eldridge @Lolita Ellis @Jonathan Marcus @Andres Piedra

    for your feedback and advice. I didn't paint a full profile of the seller, but lets say he's quirky and doesn't have normal interpersonal skills that make negotiations a little more difficult. He's delusional because his unit is a disaster zone with crumbling plaster and fails to see how he can't command the same price as what I paid for my move-in ready unit in the same building.

    Seller financing seems like a great suggestion to bridge the gap between our differences, but I've been cultivating this relationship for some time now, and have pitched several offers to include various types of seller financing options with no traction. Now that I'm offering more cash, I'll still check about this but don't anticipate any joy.... Also I'd like to not have to deal with him after closing, and definitely not for 3-5 years:)

    Next steps, I'm going to have my contractor do a walkthrough tomorrow to tell me what some aspects will cost and maybe give me a written estimate to help my offer negotiations.

    I'll try my best to outline what would happen if he were to sell the unit on his own vs. my offer of 80k cash and at least explain the basis for my offer.

    105- (20k + Closing costs 8.4k (8%))= 76.6k plus time spent meeting realtors/ contractors. closing will take an additional time if offer financed.

    My offer of 80k nets him 80k plus saved time of renovations/ fees and visiting property and be done with it...

    I'll likely settle meeting him halfway to get the deal done at 85k as I don't want to risk losing the deal, but I'd be remiss if I didn't at least try to help him see the alternate scenarios. I know I'll risk alienating myself if I play up how scary the unit looks since the sentimental emotions might kick in and shut him down...

    I could also explain that its hard for me to come up to 89 if repairs cost 20k (him likely more with retail priced contractors) putting me in at 110k for a property with market value of 105k. but he also thinks the cast iron sink and retro metal kitchen cabinets can be left as-is so the renovation arguments will not have a powerful effect on him:)

    I'll post again the results of the negotiations later in the week hopefully...

  • Investor · Hyattsville, MD · Member since 2012 · 822 posts · 441 votes
    12y

    Quick update: the seller appears to be willing to do 89k: that is, 69K cash down and 20k seller financed at 5%. He didn't like the 5 year term since he is 63 and his father passed when he was 65, so he is concerned with not being around for the remainder of the loan. He is ok with considering a 3 year term.

    That said, should I not mess with seller financing due to his age and risks associated with him passing and trying to release the lien from the deed in the future? Are there ways at closing to hold the deed in escrow so that I can pay off the loan and have someone besides the seller release the lien? I can use a mortgage servicer like sellerloan.com but I'd rather avoid it due to the high fees, unless this is the only way I can have a third party hold the deed in escrow and automatically release when the payments are complete in order to avoid a mess if he passes before he could release the deed of trust note.

    I can offer him 85k as well and just call it a day, but this would really help me with my 20k in planned repairs and allow me to not have to come to the table with all cash. Further, I dont anticipate I will get conventional financing for this in the near term anyway as I already live in my building and I checked and they wont finance a 2nd unit in the building due to higher risks of default etc. So I'd like to reduce my personal investment in the unit if at all possible... I do however understand that free and clear would be the least headache:)

    I can email him the proposal anytime. Any thoughts or recommendations on how to structure given the receptiveness to above terms or experience with older sellers and seller financing pitfalls?

  • Investor and Commercial Real Estate Agent · New York City, NY · Member since 2013 · 109 posts · 67 votes
    12y

    Good job. You don't need to have the deed in escrow. At closing, the deed will transfer to you. You're giving him a note and a mortgage for the $20k which is going to be secured by the condo in first lien position.

    Just ask him if he can give his attorney authorization, in case anything happens to him, to be able to sign-off on the mortgage payoff/discharge when you pay it in full in 3 years.

  • Investor · Central Valley, CA · Member since 2012 · 6k+ posts · 3k+ votes
    12y

    If the $20K loan gives you the leverage you need at a good rate, do not be concerned with the age of the seller/lender. In the event of a note holder's death, the decedent's estate takes over the note. Not doing a seller financed deal because of lender age concerns is like not borrowing from BofA because they might be bought by Wells Fargo or merge with Chase or that they might sell the note. Really not your concern.

    I do recommend servicing though. Even though you are the borrower, servicing benefits you when it comes to annual statements and proper application of payments, etc. Since your seller has likely never managed a note before, it's a good idea to have a servicer take care of the paperwork.

    Make sure the note has no prepayment penalty.

  • Investor · Hyattsville, MD · Member since 2012 · 822 posts · 441 votes
    12y

    Quick update. I was able to get a signed contract for 89K purchase w/ 69k cash at closing and 20k seller financing at 4% for 3 years paid in equal installments. no balloon. tried to push for 5 years, but seller pushed back to 3 years. Still pleased with the outcome.

    Due to older age of seller, I've arranged for settlement attorney to be trustee for the loan and will use Sellerloan.com to service the loan (i.e. accept the payments for the seller, provide proof of payments, generate tax documents and be able to interact with the trustee to release the lien upon payoff) taking the reliance on the seller out of the picture in case they are incapacitated in future to approve lien release and sign paperwork. It seems worth the extra trustee fees and loan servicer fees to have this extra layer of protection.

    We close at the end of the month. Thanks everyone for the top notch advice!

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