What % of the Market Value do you offer to motivated sellers to make a deal?

6 Replies

Ok say for example, the marketing that I have done has paid off and I generate some leads and get some calls coming in. I get a motivated seller that needs to sell their house and wants my help. How do I know what amount to offer them for their property? Is there a certain percentage of the Market Value that I offer them so i dont make my offer toooo low?

You need to know a couple of things to make an offer:
1) The "comps" - what did similar houses sell for recently (need a real estate agent partner to get these from MLS)
2) The repairs needed on the subject property

To make it an apples-to-apples comparison, you need to understand the comp values in "$ per square foot" so you can apply that to your subject property. If comparable houses sold for an avg of $85 per sq ft, you multiply that times the sq footage of your subject property to determine the ARV (After Repaired Value).

The basic formula most investors use is:

ARV x 70% - Repairs

So if your subject house is 2000 sq ft and the comps are at $85 per sq ft, your ARV is $170,000. Let's say the repair estimate is $15,000. Your formula looks like:

170,000 x .7 - 15,000 = $104,000

That's what we'd typically offer for this example property.

Originally posted by @Dev Horn:

You need to know a few things to make an offer:
1) The "comps" - what did similar houses sell for recently (need a real estate agent partner to get these from MLS)
2) The repairs needed on the subject property

To make it an apples-to-apples comparison, you need to understand the comp values in "$ per square foot" so you can apply that to your subject property. If comparable houses sold for an avg of $85 per sq ft, you multiply that times the sq footage of your subject property to determine the ARV (After Repaired Value).

The basic formula most investors use is:

ARV x 70% - Repairs

So if your subject house is 2000 sq ft and the comps are at $85 per sq ft, your ARV is $170,000. Let's say the repair estimate is $15,000. Your formula looks like:

170,000 x .7 - 15,000 = $104,000

That's what we'd typically offer for this example property.

Thanks for your answer!

It all starts with the ARV. That stands for the after repair value of a property. I would find out what the house is worth by seeing what has sold recently in the immediate area with in the past 6 months. You can also see what is currently for sale close by. This is known as running the comps. That will tell you what the property will sell for. Then I would recommend to take 30-35% off that for profit. The next step would be to find out what the repairs will cost and subtract that. If you plan on wholesaling the property you should also factor in a profit for that. This will leave you with a good offer price. Usually the offers will be low. But that is why you have to build value to explain your offer.

I'll just add that in a tight housing market like here in Dallas, we are rarely winning deals at 70%.  That's a factor you can adjust, offer maybe 75% to try to win but once you start offering 80%+ you may end up working for free.  The only thing you have to give up in the negotiation is your profit.

Recently I've lost a few deals where I know the winner WAY overpaid just to win.  That's not winning.  The hardest aspect of this business - to me - is to walk away from a deal you worked hard to get because you got outbid to the point that the deal didn't make sense anymore.

But, it's not over until it's over.  I've had people beat me on the bid, but then they fail to come up with the $ at closing and the seller came back to me to see if I was still interested.  You need to be smart about the business and DON'T LOSE MONEY to do it.  =)

I once heard someone said that if you are not embarrass to tell the seller your offer, then it is not low enough.  With that said though, I really think it is depended on your market.  If you are to offer 70% of retail value here in my market you have to have cash and you have to have an extremely motivated seller.  Average DOM here for retail buyer is 60-90 days with 90-100% full price offer.  If a seller here can afford to wait it out and pay for certain things like closing, title insurance, and simple repairs; you can't offer a low price because they would not take you serious and you can lose your chance.  IMO you have to make the right offer because if you offer too high or too low, you'll lose both way.  I have lost deals because I was a few thousands short, apparently someone saw more values in the property than I do! But it's okay, I was able to move on to the next one that is right for me.  From what I see in my market though, you just have to be persistent for that one deal by making a lot of offers (on different properties) and don't lose faith.  Because of the low interest rates and we weren't affected by other major housing market since we have the oil boom,military base, and colleges everything skyrocketed in the recent years.  most buyers here are retail buyers that will pay retail price or $0000 more  for the new wall or shiny coat of paint.  I called these people" shiny object syndrome candidates".   In conclusion, I think it goes back to knowing your market, there is no formula or one size fits all.  Just make sure the numbers works for you when making your offer.  If it doesn't, try and try again or find another market.  Good luck.

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