Question about how much to offer

[Anonymous]

My realtor has given me a long list of comps for the last 24 months.  Should I be weighting them based on how recently they were sold?  This house is listed at 99,900 but based on the comps, I think 60-80k is probably much more reasonable.  Additionally, I've looked up tax info on this house and prior sales info:  He's listed it on and off since about March & its current listing started in October.  He pulled 2 permits for work on the house, one to work on some wiring and another to work on the sewer line to the street.  He purchased the house for $32k in foreclosure 2.5 years ago.  He also hasn't paid taxes on it once (or he's behind enough that he hasn't paid any of the property taxes soon enough for them to update them as paid on their website).  Oh, and he's a county commissioner. 

More about the house: it's in pretty good shape, from what I can tell, compared to other houses I've seen.   It was built in 1902, with a fairly recent kitchen addition.  Stone basement (dry) with a furnace that looks like it's from the 80s and a gas water heater.  It also has an old oil storage thing that would need to be removed.  There's a 2nd floor laundry room with washer hookups but no dryer hookups.  It probably needs a little more insulation, and it has a 1-year-old roof on it but no gutters except over the porch.  

Given that, in theory, he's about to lose it to the city for back taxes, does $40k sound reasonable?  $50k? He owes over $11k in back taxes.  My primary concern with really lowballing him is that if he doesn't accept or counteroffer, I don't want to be in a weaker position if I made a 2nd offer.  I really like this house - it meets most of my criteria and I really can see myself staying there long term.

Other factors:  I'm going with a FHA loan with county down payment assistance.  The county program provides half of the 3.5% downpayment and all of the closing costs PLUS they deal with any kind of currently-needed rehab.  i.e., they will figure out how to get that oil storage drum out of the basement / add needed insulation / deal with lead paint mitigation / etc etc up to a certain $ amount and, if needed, replace any appliances with Energy Star appliances.    

[chasmith]

Your realtor should be able to give some advice on the local culture for offers - in some places a lowball is considered insulting but if not in your locale - or even if it is - I don't think it hurts to make a low offer and raise if there's no counter.

Is the trend in the comps up or down?

So if you figure $32K plus the $11K for taxes, $5K for the work he's done, he has something like $48K plus carrying costs and realtor commission sunk in the property that he has to cover at closing to break even.

So I'd consider $65K a plausible offer if you believe it's worth paying that much (and the house needs to appraise for that).  He nets $60,500.00 after a 7% realtor's commission, and clears $12,500 less his carrying costs.  This shouldn't be an insult but if he won't counter he's greedy.

I'd be very concerned about the oil tank.  You said this is a stone basement - is it a dirt or concrete floor?  Is there any evidence of oil spillage / leakage?  The county program might help with removing the tank but environmental hazards are a nightmare.  I might put an environmental inspection contingency on my offer.

[Anonymous]

I feel like the trend is upward - about a year ago, this neighborhood had houses selling for about $15/sq foot and now there's more going around 20 - 22 /sq foot, although there are some going around 70/sq foot.

The floor is concrete.  I don't think there's spillage / leakage.  Thanks for pointing out the environmental hazard - that's definitely something the county program will take into account. 

When I initially looked at comps, I came up with $60-80k.  I'm definitely OK with $65k on this house - although, given his tax situation and that similarly sized houses are going as low as $40k without seeming to be in terrible shape, I'm tempted to offer less.  I'll definitely discuss this some more with both the county program and my realtor.   

[Anonymous]

I am confused.  You say that comps are 60-80K then you say that they are 40K.  Which are they.  Even the 60-80K is very vague.  Unless there are not many similiar homes in the area you should be able to get a pretty accurate comp price for the home.. 

Also, you do not subtract the money he owes in back taxes from the value of the home to determine offer.  HE has to pay these at close to seal the deal.  The fact that he owes alot of money to taxes hurts you, not helps you as he has to clear enough to cover not only the amount invested, but the taxes.  It may make him eager to sell, but also makes his bottom line really low.  

Is the home actually in foreclosure, or are you just assuming because taxes are owed and it is behind?  Alot of areas ore not foreclosing due to taxes right now due to teh economy, they just hold a lien against future sales.  It is alot cheaper for them than actually going through the process of closing (they just have to wait for the money).  I have heard of many people 3-4 years past due on property taxes.   Unless it is actually showing in the foreclosure process, you are way jumping the gun assuming that.  If this guy is a county   commissioner I would be surprised to see him letting a home go that far.  Alot of people who are investing in home to flip do not pay any taxes until they sell the home.  THey consider the fees and charges they get basicly a loan they will pay upon selling.  Often times the hassle, fees, and interest of a regular cash out investment loan is not much cheaper and alot more time consuming and full of hassle.

Anyways, that may or may not be this situation, but I just wanted to clarify if some of the things you are saying are assumptions or if you know them (the foreclosure part, etc)...As far as the multiple listings, he may have had the home under contract and the contract ended, he may have discovered wor that needed to be done and pulled it, etc.  SO, anyways I am curious to the whole story so please let us know.  If he really is about to loose the home, you may be able to slip in with a 50K bid (I would not even waste my time with a lower bid) and get him to say yes....But if he is not actively in foreclosure, it sounds lie he is just an investor who bought the home and is slowly fixing it up to sell and maybe taking interested offers along the way.  Good luck.

[Anonymous]

When I initially looked at the comps my realtor sent me, 60-80k seemed reasonable...but then I re-evaluated today.  I narrowed down the neighborhood & it seems that most houses within a couple of blocks is selling for 15-25/square foot with a few that were more like 70/square foot...also, the lower prices per square foot are primarily from last year through this spring, although there was at least one in that price range in September. (This house is around 1645 square feet)

[chasmith]

If you have a realtor, the realtor should be helping with this detailed analysis.  If they aren't helpful, or are just pushing to buy something, I would consider changing realtors.