As I mentioned before, sellers and agents are sometimes insulted by how low my submitted offers are. “Why do you make such low offers, Nick?” you may ask. Well, I do my absolute best to be super transparent and show my seller all my costs involved in the sale, and of course, I explain to them that I also need to make a profit, since this is my business. Happy to share the full details on that in another post, if I haven’t already — oops — take a search!
Today, we’ll consider a new project I recently bought from an experienced and well-regarded wholesaler. In this case, the fudge factor was called into play, before we even started the rehab.
This wholesaler used all of the calculations and checklists I require before he brought me the deal, and when I went to inspect the property myself, I ran all the calculations and checklists myself and was confident we were offering a fair price for both the seller and our own bottom line. And here’s another reason I submit what some people consider “low” offers — it’s the “surprise” or “fudge factor.” And there’s always a surprise! After years of experience, I know first-hand there’s just no way to know what’s lurking below that subfloor or behind that wall.
In this case, we did catch the asbestos in the basement before closing, and both the wholesaler and I reduced the purchase price by $2,500. Good catch.
What we did NOT catch, mainly due to the need to close quickly, was recognizing that the addition may or may not be legal. As part of our closing checklist, we pull the property file at the inspector’s office before we purchase, though rarely, like in this case, we don’t get to it until the day after. (Oops!) It turns out that no permits were pulled when the addition was originally added to the house. We may get away with just completing the interior work and bringing it up to code, but there’s a real chance we may have to demo the whole thing, repour a new foundation with footings, and rebuild it, especially since this is where we plan to locate vital first-floor elements of the home. Either way, this surprise will cost at least an additional $6,000 over our planned rehab budget and possibly as much as $15,000. Even allowing for contingencies, this was one unpleasant surprise!
The moral of the story? If the seller isn’t insulted, your offer is too high. And there’s always a surprise!
Oh — and if the seller is insulted, your number is probably right – and now you need to work on showing them how you got there. At least, that’s what we do.
Keep calm and rehab on!by