How to Make an Offer on a Property
Making a good offer on a property that you would like to purchase is not rocket science. With that in mind it is very important to fully understand the dynamics of making an offer, to avoid wasting other people's (and your own) time and energy.
On certain properties you will be wasting your time trying to low ball your offer. Then again there are many properties on the market right now which you may be able to pick up for a price much less than your determined maximum allowed offer.
Before we dive into the nitty gritty of this post I would recommend that you familiarize yourself with a few important topics if you have not already done so. Definitely educate yourself on after repair value, the 70% rule, costs of repair and determine your maximum allowed offer.
Conveniently we already have some posts here at House Flipping School covering these topics.
For information on determining ARV (after repair value), MAO (maximum allowed offer) and the costs of repairs click here.
For the 70% rule click here.
Once you have a handle on the above mentioned items you will be one big step closer to making a serious offer on a property.
How to Make your First Offer on a House
When you are just starting out I recommend visiting the property with your general contractor. This is what I did when I was unsure about how much a house was actually worth, and I still visit houses today on occasion with my GC. Utilizing the expertise of a knowledgeable and experience GC is extremely valuable.
Be sure to have your GC explain things to you. View the experience as an opportunity for learning, so you can someday determine an accurate value of a home completely on your own. Ask plenty of questions so you can really understand the inspection side of the business.
After touring the property, lets say that you determine your MAO to be $100,000. A question I hear all the time from newbie house flippers is "if the most I want to spend is 100K, how much should I place as an offer?"
There is a lot that goes into answering this question, but you can accurately gauge how much you should be offering by paying attention to a few key principles.
Important Ingredients for Making Offers when Flipping Houses
The number #1 ingredient for determining how much you should offer on a property is figuring out how much activity there is in the market for that specific house.
If there is a tremendous amount of activity, then low balling your offer is not an appropriate strategy. As mentioned above, in this scenario offering a low price is really just a waste of your time and your real estate brokers time.
If there is a lot of competition for a home, and your MAO is $100,000 then starting with $90,000 is most likely a smart decision.
On the other end of the spectrum, if the property has been on the market for a while (maybe more than 6 months as an example) it would be appropriate to test the waters with a lower offer - say $70,000.
These types of properties might be a short sale or a foreclosure. Because the competition may not be as intense, there exists some wiggle room for negotiating.
As you may already be thinking, having the right kind of information on a property is huge and cannot be overemphasized. Having a solid relationship with your real estate broker is extremely important. Your real estate broker's relationship with the listing broker is of equal importance.
The amount of activity on the listing, days on the market and buyer competition are the main ingredients that will help you determine how to much offer when flipping houses.
And as usual, I have all of this information viewable in video format below for your convenince. Enjoy! And please don't hesitate to ask me any questions via email at firstname.lastname@example.org or in a comment below.
See you at the top!