This should work, but the numbers don't add up??? Help! - Posted by Steve (FL)

Posted by Bill K. - FL on February 07, 2000 at 07:42:06:

Lets have a reality check here. First of all RE valuation is an art not a science. The thing that determines what a property is ultimately worth is what a willing and able buyer will pay for a proerty in an arms length transaction period. So any estimate of property value is just that an estimate. The longer a property stays on the market for sale the better idea one can have about its value. Since this house has been on the market for a while at two different prices and didn’t sell at those prices it is a safe assumption that the value of this property is below 158K. Do you think that a coat of paint will increase the value of this property significantly? I am assuming from your comments the property is in decent shape,and is on the MLS, therefore everyone in the country knows about it. Since no one bit at those prices I doubt just by painting the inside you can sell for 160K. Now it is listed for 148K. If it is a decent house in decent condition in a decent location most likely an owner-occ. will buy and pay retail. If your area is appreciating that quickly it means there is strong demand for properties which translates to a lot of competition. If you buy for 130K even assuming they accept that, where is the profit?

This should work, but the numbers don’t add up??? Help! - Posted by Steve (FL)

Posted by Steve (FL) on February 06, 2000 at 20:09:33:

SFH built in '96, 2130 sq ft in a nice neighborhood on a resort island. Originally listed for $168K plus carpet/tile allowance. Lowered once to $158K, now today to $148500 without the carpet allowance (tile will be replaced). Sellers are very motivated. Already moved and getting ready to close on new house in another city. The Realtor told me 3 times they don’t want 2 payments. Carpet is ok, just needs to be cleaned. Needs painting on entire inside. Some landscaping. No assistance on financing from owner; non-assumable.

My problem is it’s the largest floorplan in the neighborhood, so while the price per sq. ft. puts it at a FMV of close to $200K, the average sale price in the neighborhood is more around $130 to $140. Here’s my numbers:

Down payment, $7K
Closing costs, $3K
Appraisal/Survey, $550
Repairs, $2000
6 mos payments, $6500
6 mos tax, $800
6 mos Insurance, $600
6 mos utils, $600
Sale closing costs, $2K
Commission, $9600 (?)
Advertising, $100

Why can’t I figure out a good offering price? They just lowered the price today and I want to be the first offer they get in the morning! I was originally thinking of offering $140, but if I sell it at $160K, it doesn’t work. The home really would comp out at $200K, but that’s just too much for this neighborhood. It’s been on the market for 2 months and I drive by it everyday.

HELP! This will only be my 2nd offer!


Ok. You’re right. - Posted by Steve (FL)

Posted by Steve (FL) on February 07, 2000 at 17:16:19:

I did the numbers over and over and it just won’t work. Not unless they’ll sell it to me for less than what they paid for it 5 years ago. Even my Realtor’s broker said he thinks it’s overpriced at $148,500.

Thanks to you all for your help and advice.

I’m still learning.

Answers to 3 responses below (long) - Posted by Steve (FL)

Posted by Steve (FL) on February 07, 2000 at 07:17:24:

First, thanks a million for the responses. Here’s the poop.

Q. What did the sellers pay 3 years ago?
A. The bought the home new 5 years ago for $113,100.
(Remember, this is a resort island and prop. is appreciating rapidly. My home just 1/4 mile away has gone from $174 to $200 in 18 months.)

Q. What do they owe on it?
A. I forgot to ask yesterday at the open house and intend on finding out today. My “guess” is they owe about $102K. (5% down at 7% for 5 years)

Q. This is not a totally custom floor plan?
A. No. The entire neighborhood was built by the same builder. It’s quite possible there are similar floorplans in the n’hood, but not on this street.

Q. Were there any true comps?
A. Yes. Here’s what I have:

  1. Same street, 1700 sf, $128000 6/3/99 (same bldr)
  2. Next street, 1806 sf, $119500 4/9/99 (diff)
  3. Next street, 1738 sf, $125500 4/1/99 (diff)
  4. Next street, 1743 sf, $123000 7/7/99 (diff)
  5. Next street, 1865 sf, $138500 11/10/00 (diff)
  6. Next street, 2060 sf, $187000 8/24/99 (diff)

Q. Does the prop. back up to a busy street?
A. Yes. It’s a corner lot on a relatively busy street with a posted speed limit of 25 and a stop sign at the next street, so while the traffic is moderate, it’s slow moving (at least it’s supposed to be).

Thanks again for all of your help. After sleeping on it and crunching numbers again, I think my offer is going to be somewhere in the $130-$132 range. Let me know what yall think!

What do they owe . . . - Posted by JoeKaiser

Posted by JoeKaiser on February 07, 2000 at 24:22:34:

That’s where you need to start.


Re: This should work, but the numbers don’t add up??? Help! thoughts(long) - Posted by kf_az

Posted by kf_az on February 06, 2000 at 21:42:11:

First, disclaimer…I am not an expert. But, I can offer some food for thought which is a result of real experience. I’m sure some veterans will be able to expound on my post, however, I know what it’s like to be waiting for a response…any response…so, I thought I’d jump in here.

  1. You say “this should work”. Why, because the Realtor tells you the sellers are motivated and don’t want 2 payments? OR Because you drive by it everyday?
    Forget all of that noise. Your instincts may be right on the money…in that it doesn’t add up. I’m not saying you don’t have a deal here. Quite frankly, you didn’t give enough information to know if it’s a deal or not.
  2. Always remind yourself that the initial List Price means nothing. That is merely a ficticious number dreamt up by the seller, Realtor or both. The house was listed at 168k and now is at 148k(roughly). It is quite possible that the house should have been initially listed at 148k as a realistic number.
  3. Never, never, never(this is from experience talking now) calculate FMV of a property using only the cost per square foot of predominantly smaller props. You already mentioned that this didn’t seem right to you. It isn’t. You’ll never(my opinion) get your price. However, I wouldn’t solely use the Average Sale Price either. This is an indicator/average and just that. You need to know exactly what you’re buying and ultimately selling compared to the rest of the neighborhood. You say it’s the largest floor plan. O.K., it’s not a totally custom floor plan though, right? So, were there ANY true comps of this floor plan in the last 6-12 months? Were there any props that sold that are maybe the next floor plan smaller to compare to rather than the average sale price? Does your subject prop back up to a busy street, greenbelt, appartment complex?
  4. You could be dead right with your estimate of FMV being 160k. If YOUR numbers don’t feel right, then, it AIN’T right…no matter how many times the Realtor tells you it’s a good deal! Now, you may need some help with your numbers; that’s another story. But, I don’t think you’re too far off. By the way, you neglected one little line item…your profit. I’m sure that was just an oversight that you had calculated in your mind…but you need to put that down on paper as well when calculating your offers. I wouln’t add in your down payment in as an expense because you’ll get that back when you sell. It would factor into your R.O.I. however. Also, I think you could probably shave some off of your commission calculation(get a Realtor to list it in the MLS for $500, for example, and agree to pay the buying agent 3%). Structure this as an Open Listing so that you can market it yourself and pay nobody(other than the $500) if you find your own buyer.
  5. Have you thought about a Lease Option? You could get by alot thinner on this deal if you know how to do one or have the time to learn. You should also shoot for a “subject to” offer in a scenario where the seller has already CLOSED on a new home. They are eager to just get out yes and they also don’t necessarily NEED to get their name off of their existing mortgage on the subject property to qualify for the new home. So, if you can agree on a reasonable sell price to you, you take over their payments (subject to) until you can sell it for your desired profit.

In closing, for me, if I’m offering more than 75%-80% of FMV of a property that I plan on retailing…I start to sweat and lose sleep. Again, I’m sure there are others that can probably offer more creative ways to approach this…but, on the surface, you have every reason to doubt this deal.
Good luck. I, like you, will read the responses to your post so as to learn more. Either way, let us know what happens. By the way, you should follow this deal to its next owner to see if an investor did buy it and what they were able to get for it. If an owner-occupant buys it, you can’t really compare that to an “investor deal”.

Re: This should work, but the numbers don’t add up??? Help! - Posted by Bill K. - FL

Posted by Bill K. - FL on February 06, 2000 at 21:39:47:

This is considered an over improvement for the neighborhood. You can’t expect more than 20-25% above the avg selling price in the neighborhood. What did they pay 3 yrs ago? If it was such a great deal someone would have bought it at 158K.