This article explores a real conversation between a potential homebuyer and a real estate agent about making a lowball offer on an affordable property. It highlights the challenges of negotiating below mortgage value, the importance of inspection contingencies, and creative financing strategies like assuming the seller's debt to make deals work for both parties.
Buying affordable homes in the United States often involves navigating complex negotiations, especially when the property has existing mortgages and potential repair issues. This article delves into a real-life conversation between a prospective buyer and a real estate agent discussing a lowball offer on a property listed on West Brown.
The buyer initiates contact late in the evening, aiming to get pre-approved before the weekend to submit an offer. They inquire about the rental income of the property, learning that the lower unit is rented month-to-month for $900, while the upper unit is vacant.
The buyer expresses hesitation about sending an inspector without knowing if there are major issues disclosed by the seller. They mention the cost of inspections and past experiences where agents claimed good condition despite the need for significant repairs like a new roof and siding. The agent confirms that the roof has not been updated by the current owner.
Given the uncertainties, the buyer suggests including an inspection contingency in the offer. They propose a verbal negotiation process to save paperwork if the seller is not interested. The buyer plans to offer $110,000, acknowledging the potential need for a new roof.
The agent responds that $110,000 would not be acceptable because the seller still has a mortgage on the property, and that amount would not cover fees, closing costs, and the mortgage balance.
The buyer shares a previous experience in Minneapolis where the seller could not accept a low offer but suggested the buyer take over the mortgage debt. The buyer ended up assuming the debt on a $460,000 property and paid the agent's commission.
They propose a similar approach for the West Brown property: paying the agent's commission, assuming the seller's mortgage debt, and providing additional cash to the seller to make the deal attractive. This strategy would allow the buyer to avoid a large down payment required by their lender for a traditional purchase.
The buyer explains various ways to take over the debt, including:
These methods would remove the property from the seller's debt-to-income ratio (DTI) and transfer ownership to the buyer.
The agent indicates that if the buyer pays the commission and offers $110,000, the deal could be feasible. The buyer suggests a hypothetical scenario where the seller owes $120,000 on the mortgage. They would assume the $120,000 debt, pay an additional $10,000 in cash to the seller, and $6,000 commission to the agent, totaling a $136,000 offer price.
This structure benefits the buyer by reducing the down payment required (to $16,000) compared to a traditional $110,000 offer, making the purchase more financially viable.
Negotiating lowball offers on affordable homes requires creativity and flexibility. Understanding the seller's financial obligations, such as existing mortgages, and exploring alternative transaction methods like loan assumptions or LLC purchases can bridge the gap between buyer and seller expectations. Including inspection contingencies protects buyers from unforeseen repair costs, while transparent communication with agents facilitates smoother negotiations.
This case study illustrates how buyers and agents can collaborate to find win-win solutions in challenging real estate markets, especially when dealing with the cheapest homes in the United States.
