Offering more than the asking price

[Wyman]

Ok RE gurus, here goes...

I get a call from my RE agent on Wed., saying that there's a property that I just have to see. It had just gone on the market on Tuesday. So I go and see it, and I like it, and I want to put an offer in. It is very underpriced, even in this market, and there's a good potential to make money on the house (looking at comps, I conservatively estimate making 60k on 20k investment).

In this market (I live in Ann Arbor, MI -- so we have the strength of a college town, but the weakness of Michigan), I was advised to lowball everything; for a house that's been on the market a few months with a "motivated" seller, coming in at 30%+ off of the asking is standard.

Long story short, I tell the agent let's not mess around, we'll offer the asking price (in fact, we offered over the asking price so that we could get 3% back at closing and the seller still got just more than the asking price).

I get a phone call today that another offer was accepted, $6k higher than mine (which, you'll recall, nets the seller more than the asking price).

It never would have crossed my mind to offer 6k above the asking price to compete with someone else offering that much. So, the question is: how do you determine your offer when a house is listed at a very cheap price?

[Tien]

tell me what the after repair value is
tell me what the asking price is
tell me what condition the property is in
what is the real "motivation" of this seller?

[Wyman]

The recently sold/listed houses in the area are from 1100-1300 sqft. This one is 1600. These houses have listed/sold anywhere from 220-290, rarely but it happens in the 325 range. RE agent says 300-350 in good market, but we're not in a good market. I conservatively estimate 250 though.

Ask: 169,900

Condition: Solid house, structurally. It is a tri-level, 3BR, 2BA. Basement (or lower of 3 levels, however you look at it) is mostly unfinished. Roof is 10 years old, looks in good condition, but didn't have an inspection yet. Middle level (DR, KI, LR) are in fine shape, but were decorated in the late 70s. We need to bring the carpet in DR, LR up to replace with wood/pergo, and the kitchen needs to be remodeled (cabinets, dishwasher, floor). Other appliances are < 5 y/o.

Motivation: Owner died, family does not want the house.

This help?

[Platonic]

I think you just listed the factors that determine when you should offer more than the asking price [img]/images/graemlins/smile.gif[/img]

(sorry to be a smart a$$)

Platonic

[Wyman]

I know the house is _worth_ more than the asking price, but how do I determine how much to offer?

So you do the standard: (how much can I sell for - how much will it cost me to fix - how much it will cost me to hold for X amount of time - how much do I want to make), and this is the most you can offer. It's straightforward if this number is less than the asking price, but when it's >> asking price, then I'm not sure how to decide on an offer value.

Anyway, if it makes a difference, the plan was to live in the house for 3 years also.

I guess I should just chalk this up to experience.

[jaydub]

Wyman,

Pretty sure 3% back without disclosure to a lender is fraud. Just FYI.

J

[Wyman]

=)

Mortgage broker arranged it this way, presumably with lender approval (as when we went thru pre-approval he entered the seller concessions). Thanks for the heads-up though.

[jaydub]

[ QUOTE ]
=)

Mortgage broker arranged it this way, presumably with lender approval (as when we went thru pre-approval he entered the seller concessions). Thanks for the heads-up though.

[/ QUOTE ]

Too funny, welcome to the world of (hopefully) unprosecuted fraud.

No lender in this market approves a 3% kickback, just FYI.

J

[Wyman]

Can you elaborate, perhaps with source? [Yes, I can do my own research and will, but if you have a source off the top of your head, I'd appreciate it]

I've spoken with 2 RE agents and 2 mortgage brokers who've all told me that 3% is the cap on seller concessions [Is it possibly a state thing? Unlikely, I suspect...] If you are correct, I need to find a new agent and broker, and ASAP!

Can anyone else weigh in on this?

EDIT: Let me make it clear that seller is covering closing costs up to 3% of purchase price. That's what the 3% is here. It's not like we're scamming to inflate purchase price.

[jaydub]

[ QUOTE ]
I've spoken with 2 RE agents and 2 mortgage brokers who've all told me that 3% is the cap on seller concessions [Is it possibly a state thing? Unlikely, I suspect...]

[/ QUOTE ]

Yes I'm [censored] with you but the fact that you don't know it tells all.

J