# Making the Offer to the Homeowner

So you have pushed by the house received a release from the homeowner, received a price which the manager is willing to pay and have knowledge of the market value. How do you move the homeowner from the market price to the price we want to pay for the home?
In our experience we have found that you can walk the price down from market value or up from the mortgage or give the homeowner terms they want to get to the right price for the character with the homeowner. In this article we are going to walk the price down.

This technique requires you to start with the market value of the home in pristine condition unless the homeowner volunteers a price that is lower than the actual price. How you get to the price is one of three ways.

1) The manager can provide you with local comparable homes that have sold in the neighborhood which you can bring with you.

2) You can print the index and show them what similarities traditionally sell for on that street.

3) The homeowner can tell you what they think the home is worth; if that number is lower than the first two you can use it in your calculation.

Remember this is the pristine condition (no rehab necessary price). A house with deferred maintenance sells for less and takes much longer to sell.

Walk Down the Price

If you have a character that has a market value of \$200,000 either by (comparable value, Index or homeowner) what do you do next?

You use that price as your value and then begin the time of action of netting out what a homeowner would receive if his/her character was placed on the market for that particular price by a real estate broker.

Reduction 1

Market Condition:

Asking Price vs. Actual Sales Price

Most Homeowners do not know that realtors keep statistics on the price a house went on the market and the price it truly sold for. The difference is always a few percentage points at the minimum, already in the strongest market.

We can and will provide you with the statistics in your county and in the zip code where the character you are trying to buy is. For example if the character was in the 02360 zip codes. Houses stay on the market for 139 days and sell for 96.4% of the asking price. Personally, I would rather use the 10% reduction of the market price instead of the actual percentage. The reason is that the percentage is a look back procedure and the market may have changed in the last quarter.

Based upon the market conditions as of the first quarter of 2006. A house on the market for \$200,000 in pristine condition would sell for \$192,800.00 dollars.

REDUCTION 2

BROKERS COMMISSION DEDUCTION SIX PERCENT 6 %

If the character were to sell for the price of \$192,800 less the brokerage commission of six percent (6% or \$11,560.00) \$181,232.00

REDUCTION 3

Time On Market Carrying Costs

In the example above character in the 02360 zip code sells in 139 days on the average. Some are longer some are shorter. During that period of time the homeowner is obligated to make the following traditional payments:

1) mortgage payments (1,200.00)

2) taxes (200.00)

3) Insurance (200.00)

Each of those payments should be additional up and then multiplied by 4.5 (139 days =4.5 months) This would be deducted from the amount they would receive at the sales table.
For example the mortgage is \$1,200 per month x 4.5= \$5,400.00

Taxes 200 x 4.5=\$900.00

Insurance \$200 x 4.5=\$900.00

Balance due to homeowner \$171,032.00

REDUCTION 4

Foreclosure Fees and Charges

In the current situation the homeowners are typically required to pay the following bank charges:

BPO fees and inspections: the bank has the right to charge for inspections which are excursion-by inspections of value of the character. This expense is charged to the homeowners back due payments.
Attorney fees: the bank will continue to charge legal fees during the time of action of foreclosure including fees for advertisements in the local newspapers, filing fees in the land court and superior court (Prothonotory court).
Late fees and forced place insurance. Because the homeowner is not paying the mortgage they will be charged for late fees and insurance by the bank.

All of the foreclosure fees will add up to approximately \$10,000.00 or more.

171,032.00-10,000=\$161,032.00

REDUCTION 5

Payoff Mortgage and other Liens

The homeowner needs to pay off the noticeable balance of the mortgage in addition. This in our example is \$120,000.00.
This number would be deducted from the \$161,032-120,000=41,032.00

REDUCTION 6

CLOSING COSTS REDUCTION

The homeowner would also have to pay closing costs including deed preparation, taxes, excise taxes, stamps. These fees are usually 1.5% of the sale price (\$2700.00 in our example)

\$158,332.00 or net (41,032-2,700=38,332.00)

So in the best of all worlds the homeowner would receive net \$38,332.00 in 139 days from today.

REDUCTION 7

Deferred Maintenance (home inspection)

Pristine condition method that their would be nothing to do to the house, no painting, no rug
substitute, sanding and refinishing floors. Everything is new including the mechanicals.

From your notes and the interior walk by you may have noticed that some of the items are not in pristine condition. You should mention these items and the rehab budget to excursion down the net price less the deferred maintenance issue price. For example, maybe the house needs an complete interior paint job, new rugs and one new bath, some landscaping and a new heater. This would add up to approximately a \$12,000.00 dollar budget.

158,332-12,000=146,332.00 Net to the homeowner (38,332-12,000.00=26,332.00)

REDUCTION 8

Uncertainty of the market, mortgage contingencies and other matters that may stop a sale from being completed before the auction.

In a normal sale the homeowner needs to worry about home inspections, mortgage contingencies and the matter of closing before the auction comes about. These uncertainties cause additional stress to the homeowner and may cause them to lose most if not all of their equity.

Our offer takes away those uncertainties and reduces the homeowners equity by what we consider to be a fair profit margin.

The homeowner needs to know that we only buy similarities to resell them and that method we need to have a profit margin built into the character when we buy it. The quicker they sell to us will give them more net money. They will have a reduction in attorney fees and foreclosure costs. They will not have to worry about the mortgage contingency of a regular purchaser or the results of a home inspection or the time crunch involved in a foreclosure case.

Usually, in such a direct sale, the homeowners can be quite happy walking away with just a modest amount of cash. Here in this case, we would probably offer them 135,000 dollars for the home if they are out in 30 days.

This would leave them with approximately 12,000 dollars of their equity top start a new life. It is not \$26,000 but there is no uncertainty about the figure and they have saved themselves from a foreclosure. It also allows them to live rent free for 30 days.

Reduction 9

More time to move reduction

Frequently, your negotiation of the terms, such as how long the homeowners can stay in the character and which items they can take with them after the sale, will determine how easily you can reach agreement on the price.

If the homeowners need to stay longer than 30 days we will price in the cost of our ownership and take it out of their equity. This would be a price that will allow us to pay all the bills of the character plus a management fee. We would rather have them move-out at the closing than stay anytime after the closing.

Conclusion:

You should use a blank piece of paper and go by this with actual figures with the homeowner. We have a form in the resource section of the website to use. I have had more success with actual blank paper than using a form. People want to think that you are doing something rare for them. Good hunting.
[http://frontgateconsulting.com/]

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