What should my intitial offer for this house be?
April 30, 2010 by admin
Filed under Kitchen Ideas
I’ve found a house I like and during my research I’ve found out a couple things. They bought it in 2006 for 70K and are asking 165k now. They have obviously watched, Flip this House, a million times. All the standard renovations have been done. Hardwood floors, nice new light fixtures, new paint, granite kitchen counters and new appliances. It’s been on the market for over a year so I think I can go low. Any ideas out there?
Okay’ I’ll get a Comp soon as possible and check to see how long it’s been on the market at this price. Thanks for all info you guys. Big help from all of you. I’ll check in again with more info soon thanks.
Okay I ran a comp from realestate.com and got these numbers. Of the ten home recently sold the average was 92k. The site said my homes value should be 89k with a high of 100k and a low of 73k. Homes currently being sold bear roughly the same results. with a couple in the140′s but some have gone as low as the 50′s. They have done a good job with the home and willing to go high as the 140′s but would like to start around 125k. Is that an insult? Should I start in the 130′s.
The best way to find the value of the house is to look at the “comps” in the neighborhood youre looking in. By comps I maen comparabe homes bedroom/bathroom/sqaure footage. The easiest way to find these is to go to realestate.com. Just put in your zip code and it will show you what houses are selling for in that neighborhood. Also be aware they probably bought the home as a foreclosure…thats why it was so cheap
You will need to determine the current market value of the house by comparing recent comparable sales in the area. Once you have ascertained that, then you can gauge your offer accordingly. The purchase price is now irrelevant, since the house is obviously no longer the same as it was when purchased in 2006. The upgrades you mention run into the tens of thousands of dollars.
If current market value is more than $165K, consider the asking price a decent deal. If you drop your offer below what is now invested, you’re probably not going to get anywhere.
As the other answers correctly say, the real questionis what the house is worth today, in its present condition, in today’s market. Unfortunately, knowing what it was purchased for in 2006–without knowing how much in rehab they spent, what’s happened to housing values where you live, or whether $70,000 was a reasonable amount back then–doesn’t tell us anything.
Really, your best strategy is to have a Realtor run comps for you. It won’t cost anything, and you’ll get a good idea of what it’s worth.
You do provide one clue, though. You don’t say whether it’s been priced at $165,000 the entire year it’s been on the market. However, if it’s been at $165,000 for more than 3 months (100 days on market), it’s overpriced. I don’t need to see the house, look at the comps, or know what they’ve spent. Even in today’s market, well-priced homes are selling.
So we know it’s worth less than $165,000. How much less? That’s the $64 question. At the other extreme, we know they bought it for $70,000. Rehab costs (and quality) range widely by area. But from what you’re describing, in many areas that rehab would have cost $30,000-$50,000. Let’s say $40,000. And we know they’ve had carrying costs. Rough ballpark number: $10,000. More if they used a hard money lender.
So they’ve put $50,000 into the $70,000 house. They’re into it for $120,000. And from those numbers, I just have a sense that if you take all their costs, they were calculating their break-even at around $130,000-$135,000. What that means is that they may be able to go down some–maybe to $135,000-$140,000–and get out without too much damage. But they probably can’t afford to go any lower.
Now, that doesn’t mean they’ll accept $135,000-$140,000. And, more important to you, it doesn’t mean that $135,000-$140,000 is a good price for the property in today’s market. We know it’s not worth $165,000. Is it even worth $140,000?
That’s why you need comps. Figure out what the house is really, truly worth. Then offer something less, and don’t pay anything above its true value.
Hope that helps.
Without doing a lot of research in tax files to see what houses have been selling for in that neighborhood, go with a common sense approach.
How much is the house worth to you? Set a limit and don’t go above that.
Keep that price to yourself. When the realtor ask how much you are willing to pay, say you need to consider that. If you tell the realtor, my experience is they will come back with a counter offer right to the penny you told them. The higher the selling price, the more commission they get.
Make your first offer the offer best for you. If they reject it, you can always go up, just don’t go over what it is worth to you.