Newbie needing help with negotiation

2 Replies

Hello everyone!

I feel like my husband and I are in a position where the ball is in our court but we're not sure what to do with it. Apologies in advance for the long post, but I'm not sure who else to ask for help, BP! Thankful for this resource.

We are under contract for a property for $184,000 with seller to pay closing costs. The property was listed in March on the MLS for $250,000, dropped to $240,000 a couple of weeks later and then has been at $215,000 since April. According to our realtor (who is also with the selling firm, more on that later...) there have been no offers on it. This property is located in a fast growing market in a great area but has not been cared for. We expect ARV to be $250,000 and are still finalizing repair estimates but expect these to be $30,000.

I know newbies are notorious for overestimating ARV, underestimating repair costs, and that we are at or near a peak in the market, so I feel I should explain myself a bit further. We know and trust our contractor quite well and this is a very basic, simple home. Built in the 80s, frame, good layout. The area is great-there is more development to happen in the near future and the ARV is based on recent sales. Even if/when there is a contraction in the market this does not feel like a risky amount to plan for-whether we decide to sell or buy and hold.

The major concerns where I feel we have leverage are 1) the roof needs replacing-there is wind damage 2) there is a slope towards the house which needs correcting (we think this can be fixed with a French drain) and 3) there is a giant tree right by the house with roots visible to the slab. We are having a foundation specialist come assess if there is already tree root damage to the slab and if so, we will walk away. But that inspection has not happened yet so let's assume there is no damage to the slab. 

We initially offered $150,000 and the seller was 'offended' but countered at $185,000. We ended up at $184,000 with closing costs being paid and in the contract it states 'no repairs to be made.'

So, my main question is what are our options? 

How can we negotiate for the new roof since insurance should likely pay a portion? 

The home was reported in default in April of this year, and on August 25 Zillow shows that it is in Preforeclosure. I know Zillow is known for having out of date info, but does this mean anything to us since it is recent? The preforeclosure estimate is $153,000. County records show purchase date in 2003 and price of $70,000.

Ultimately, since the inspection, we want to be in the $160,000 to $170,000 range for purchase of this property as long as no major foundation work is needed. 

Given all of this info, do we have anything we can use for negotiation? Can we be creative about building in repair money somewhere for the roof or tree removal? 

***We learned our lesson about finding a better realtor for next time and not going with the same firm as the seller. He has not been bad necessarily and he did submit the $150,000 offer without much push back but I feel like too much could be going on behind the scenes. 

Hi @Katelyn Ball -

What are your plans for the property? Flip it? Rent it out? Live in it?

The power you hold in this transaction right now is your ability to walk away ... the seller will not only have to go back to the starting line to find a new buyer, but they will also have to explain why the first buyer backed out.

Now, I don't know the disclosure requirements/laws for agents and sellers in Arkansas, but if you deliver them written reports by licensed inspectors that indicate roof, drainage and/or foundation issues, they are now aware of material facts that negatively impact the value of the property - I would assume that they will have to disclose these facts to all future buyers.  Therefore, they're going to have to address these issues at some point ... they might as well handle it with you and close the deal sooner rather than later.

That said, it sounds as though you're in a rather delicate situation.  Emotions get involved in deals and logic goes out the window.  If the seller was truly "offended" by your initial offer, asking for another $15-25k off in price could easily be a breaking point for them.  I hope your agent has a soft touch when it comes to negotiations :)

Since all your closing costs are already being covered by the seller, you have limited options with how to structure any negotiations.  A reduction in price is the easy approach, but it may not be what you really want if you're financing the deal and have limited funds for the rehab.  Another option is to have part of the seller's proceeds remain in escrow after the deal closes and to be paid directly to the contractor doing the roof/tree work.

A few different thoughts:
- I wouldn't automatically assume that insurance will pay for wind damage to the roof.
- working with an agent from the same firm as the seller's broker shouldn't be an immediate red flag ... if you have concerns about your agent's actions behind-the-scenes, that's a concern that can and will exist regardless of who the listing broker is ... that's a trust issue with your agent, and, in my opinion, a reason to find a new agent to represent you.  It should be the lack of trust and not the brokerage that's the reason for switching.
- I would get the findings and estimates in writing from each of the inspectors/contractors so I could share it directly with the seller and agent

Good luck!

@Brian Sparr thank you so much for your response and advice. We are looking to live in it throughout the rehab and will likely hold it as a rental after. Holding funds in escrow makes a ton of sense, especially if the insurance payout isn’t a guarantee. I think that is the direction we will most likely take. 

Would it be out of bounds to hold a high amount in escrow ($20k?) given we don’t know the cost of the foundation repair? Then we would submit actual foundation/tree/roof repairs and any leftover amount would just go back to the seller? Not sure if that’s something that’s even possible.

Thanks again for the advice. I really appreciate it!

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