How Much Should You Offer on a Property?

by | BiggerPockets.com

Here’s a difficult question: How much should you offer on a property?

Hopefully, you did your preliminary numbers on the deal and have a decent idea of what you can pay for the property. But should you offer that exact amount? Should you lowball the seller (offer an extremely low price, hoping they take it)?

The truth is this: there is no one right way.

Some investors choose to submit a lot of lowball offers, hoping something, somewhere pans out. Others choose to give their highest and best offer up front. Still others find room in the middle. Each of these techniques have a time and place, but each individual deal will dictate the kind of offer you should submit.

For example, if the home has been sitting on the market for a long time, and you have a good indication that the seller is eager to sell, there is no real danger in submitting a lowball offer to see what happens. However, if you are in a competitive market and a new listing hits the MLS at a great price and you know that it’s going to sell quickly, you may want to cut out the chase and simply offer your highest amount, right then and there. Sometimes, you may even need to offer more than the asking price.

make-offers

Related: How (and Why) I Offer on Properties BEFORE I Ever Step Foot in the House

Offering Over Asking Price

The transaction for a triplex I recently purchased went exactly that way.

The big, ugly, purple triplex REO hit the market at $70,000, and I knew just by the photos that this thing would go quickly. It needed some work, but the property was in overall great shape and would bring in almost $2,000 per month in income. Within hours of the home hitting the MLS, I submitted a bid of $72,000 for the property, wanting to be the first and assuming that any other offers would be full priced but that few would go over. I was right, and today, this property is one of my highest cash flow deals. Had I tried to lowball the seller with a $50,000 offer, they would have laughed at me and moved on to another interested party. But for me, even at $72,000, the numbers worked great. And that’s key! The numbers worked at $72,000.

I would never pay more than asking price just to win a bid if the numbers didn’t pencil out, and you shouldn’t either, unless you have some dramatic future reason for doing so.

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Lowballing Your Offer

For another property, I walked through a home on the MLS, and the seller was home, so we struck up a conversation. She was trying to move to California, and the house, which she could not take care of, was the only thing keeping her from doing so. She was eager to go be with the rest of her family and just wanted out. The seller was asking $30,000 for the piece-of-junk property, but because of the condition, I didn’t expect any other investors to be pounding down her door. It was only a mediocre deal. I offered her $16,000 for the property and told her I could close in two weeks. She took it.

Related: How to Make an Offer on a Property Not Listed on the MLS

As you can see from these two examples, I submitted an offer on both these properties the day they were listed, yet my strategy was different for each. The motivation was different, as was the relative price. These are just a few nuances in the real estate game that you’ll master quickly once you start making offers. Never assume that the offer process is always black and white, and keep your eyes open to cues that will help you make a solid offer with the best chance of being a win-win for all parties involved.

There is no silver bullet in knowing exactly how much you should offer. Each deal is different and requires a different analysis and strategy. Yes, this means it takes work! However, the more offers you make, the more deals you’ll close, and the faster you’ll reach your financial destination. Just keep one eye on the financials and the other on the situation, and you’ll do great.

How do you determine where to put your offer in relation to the asking price?

Weigh in below!

About Author

Brandon Turner

Brandon Turner (G+ | Twitter) spends a lot of time on BiggerPockets.com. Like… seriously… a lot. Oh, and he is also an active real estate investor, entrepreneur, traveler, third-person speaker, husband, and author of “The Book on Investing in Real Estate with No (and Low) Money Down“, and “The Book on Rental Property Investing” which you should probably read if you want to do more deals.

7 Comments

  1. Tyson Cox

    Great article Brandon. I totally agree that both purchasing approaches can work as I have done both as well. As long as it numbers out, I have also offered over and under an asking price on many deals, but I don’t always make that choice based on the property features. My criteria is usually based on whether or not I am in a good position to acquire a new asset. I have paid more for a property in times when I have cash not working very hard, as I would rather make a 10% cash ROI than .01% at the bank. It doesn’t take much math to figure out that this is a good move, even if it isn’t the greatest deal. On the other hand, I have lowballed many sellers because I was not in the best position to buy. If I need to partner to make the deal happen, I may give a significantly lower offer, not because the price is bad it just wouldn’t work for me at the time. I always look at each deal (or any business decision) in terms of what would work best with the information I have today. I get as much information about the situation including past performance, future projections, and my common sense. I then make the best decision I can to continue moving forward, only looking back to improve the next best decision.

  2. Dave Rav

    Great points. I agree with virtually all of what you said.

    Also notable is it pays to know as much as you can about the property and the motivation of the seller. I went and looked a property a month ago and the seller, a landlord, straight-up told me he owned the property free and clear. (I didn’t even have to ask!). Automatically you’re thinking SELLER FINANCING! At least I was. So, instead of low-balling him on a list price already maybe 8-10% off retail, I offered him just a little less. Now in the end, this guy didn’t want to do ANY seller fi so we didn’t have a deal, but there are sellers out there who would have done it.

  3. Melanie Hartmann

    Thank you Brandon! I FINALLY found a place and submitted an offer yesterday. My first! After listening to several podcasts, I changed my initial strategy and am looking in different areas/property types. Even if this deal doesn’t go through (it’s a short sale), I’m going to keep going at it, learning as I go. Reading this article is helpful along with a recent podcast of yours stating that most offers are not accepted and that’s OK. Eventually one will and the numbers will be in your favor. I didn’t view this property in person (which I had previously been doing prior to an submitting offer). This one also had very few pictures but is tenant occupied. I’d also been staying away from listings with little to no pictures but after listening to a more recent podcast, I am drawn to them now!

  4. John Teachout

    We also have made offers under and over the list price. Trying to make an offer on a property last week that was already under contract by the time we got with the realtor. It was still the first day of the listing. Made a low offer on a FL property that was accepted and excited about our first “out of area” property. We close in two weeks.
    I have learned that a property’s list price doesn’t always reflect its actual value and the buyer needs to determine what it’s worth and reflect that in the offer price. On a recent acquisition, we offered over list and weren’t the highest offer but we had an all cash, no contingency, no inspection period offer and the sellers went with that. Our area is pretty hot right now and it’s tough to find deals… Good article.

  5. Jinhee Park

    I’m so happy that my offer got accepted to buy a 4-plex in a dream location in Tucson, AZ with an FHA loan. I negotiated very wellby sticking to my guns with a motivated seller. So it’s a great deal. I’m going to make it into a medical AirBnB. I’m so excited!

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