Tuesday, July 11, 2006

House 3: Two Offers Received

While I was in Las Vegas last weekend, my Realtor got two offers for the property. One was for full price with a 3% seller contribution. The buyer pays for the home inspection and I am to pay for a home warranty at a cost not to exceed $350. The buyer put up $1,000 earnest money and is getting a 100% loan. The good news is, even though the contract says the buyer wants to close around mid-August, the agent said they would be willing to close sooner if possible. So we counter offered with using my title agency (for discounted title insurance for me), the earnest money is to be non-refundable after the inspection period, and a clause that said the seller will credit $50 per day to the buyer for each day before the specified close of escrow date that we close but the sales price goes up by $50 for each day after the specified close of escrow date that we close. No response yet to the counter offer.

The second offer with almost identical to the first except the sales price was $5,000 below the list price. We didn't even bother responding to that one.

On a side note, my agent told me the only properties she is seeing offers on right now are those in the $215,000 and under price range.


Michael said...

Hi Shaun, I really like reading your blog because it puts a 'real world' perspective on what I do. (I am an underwriter for Wells Fargo Home Mortgage.) Anyway, one tip I wanted to offer is that if you have an offer that is a cash offer (you didn't indicate if the 2nd offer was a cash offer), you might want to consider that option. If a major lender is able to determine that a property is being flipped, they will not do the financing. That limits your buyers to either cash offers or loans from fly-by-night or hard-money lenders. Just a little bit of inside advice for you! Good Luck! Keep Blogging! :)

Anonymous said...

I know you hear this all the time, but I really appreciate your website. The details you provide are helpful for newbies like me.

I have a question that I hope you or someo of your readers can answer. I've been looking for my first property on the Internet.

What I don't understand is why the asking prices are soooooo much higher than the appraised value and previous sales price given on the county's tax assessor website.

For example, I just saw a rehab property for sale that was sold last year for $99k and, according to the county's website, is appraised this year for $78k, but it's now being sold for $124k. What am I missing?

Shouldn't I be offering something lower than the appraised value that's on the Tax Assessor page?

Anonymous said...

Those values are used to calculate property taxes, market values are computed from resent sale prices of comparable housing in the same area, general supply and demand conditions in the open market and how good a bullshitter you and/or your realtor is. ams

Shaun said...

Michael - Thanks for the tip. The second offer was not cash, it was another 100% financing deal. I have had some major banks say they are ok with flips as long as the appraisal comes back ok. In fact, the first time this property sold, that was the case. It's also been my experience that if you've had the property for 6 months or more, banks tend to be ok with that as well. That was the case with my last property and we are approaching the 6 months mark on this one. Anyway, this seller is using The Money Store as a lender and I don't think they are going to be as picky as Wells Fargo :-)

Anon1 - thanks for the kind words! Anon2 got it right. The assessor's value is generally much lower than current fair market value. And this is actually a good thing since your property taxes are based on that value. Also, here in Maricopa county, Arizona, the assesor revalues properties every two years instead of every year, so there can be a two year lag in values. In general, I don't look at the assessor's value when trying to decide on an amount to offer.

The other thing to keep in mind about the previous sales amount is they might be artificially inflated. For example, the last offer I had on this property was for $199,000 but I was to contribute 3% cash back at closing, so what I would have actually sold it for was $193,000. Yet had the sale gone through, the assesor's web site would have shown a sales price of $199,000. So basically, use the figures from the assesor's site as a general gauge, but don't treat them as hard and fast figures. In real estate, values are all relative. Your offer should be for an amount that gets you the ROI you want.

michael said...

I believe even the "Money Store" abides by federal guidlines. Only the most loose lenders (with names you've never heard of before, because the names keep changing) would disregard the guidlines regarding lending on flipped properties.
The following is an excerpt from Federal Guidelines sent to all lenders:

"Property sales by the following categories are exempted from the property flipping rule:

· State and Federally chartered financial institutions (including, but not limited to WFHM REO)

· Government Sponsored Entities (GSE’s)

· Local and State government entities

· Nonprofits approved to purchase HUD REO properties at a discount (list available at: )

· Sales of properties within Presidentially-Declared Disaster Areas (upon FHA announcement of eligibility in a mortgagee letter specific to said disaster – this is not automatic). Example: FHA has issued a waiver for properties in certain counties in Alabama, Louisiana and Mississippi. The detailed list of counties is included in the FHA Disaster Guidelines posted on the National Underwriting and Compliance Group Web site.

The following categories remain eligible for the FHA exemption from property flipping requirements.

· HUD Property Disposition Properties (HUD REO)

· Real estate owned by Federal Agencies. Eligible agencies include, but are not limited to: Department of Veterans Affairs (VA), Rural Development (RD), and Federal Deposit Insurance Corporation (FDIC).

· Properties owned by employers or bona fide relocation agencies that contract with employers to handle the relocation of an employee

· Inherited properties

· When a builder is selling a newly constructed home or is building a home for a FHA homebuyer"

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