My business partner and I have found a duplex that we are going to make an offer on, and I was hoping to get some feedback on our offer letter. We need to make a strong case because we are trying to get a good deal below the listing and think it may be possible.
There are two properties:
Property A - The duplex we are looking to buy
Property B - The duplex right next door
Both are 2 units - 3 br, 1 bath
Property A is about 1k square feet larger building, no garage.
Property B is about 200 square feet larger lot and has a 2 car garage.
Property A is listed at
230k, reduce from 250k after being on the market only 25 days. It has now been about 35 days.
Property B sold in June 2012 for
215k.
We want to get property A for 200k - 210k, hopefully at about 205k. We believe the seller has some incentive to sell quickly and we can close quickly without significant contingencies.
We are considering two offering strategies. Ideally, we would like to agree on this offer before our lease needs to be renewed on 7/15, but we are willing to resign if we can't agree quickly. Therefore, we are considering making a one time and final offer of about 205k, or offering about 195k and negotiating, which will likely take longer than a week. Would love to hear thoughts on that if you have any. Here is a rough draft of our offer letter, and would really appreciate feedback:
Dear
Our one time and final offer for the property of Property A is $20x,xxx
We ask that you please consider the following data when assessing our offer:
For zip code xxxxx:
Median sale prices are down 1.2% compared to this time last year. The 4 month moving average for median sale prices is down about 5.5% from this time last year.
Over the last 12 months, the moving average days on market is about 170 days. Our offer can be done quickly, and is not contingent on selling our own home.
Nationally:
Over the last 3 months, interest rates on mortgages have increased by over 130 basis points and continue to rise rapidly
Over the last 12 months, interest rates on mortgages have increased by over 110 basis points
As interest rates have risen, sales prices have fallen and this will continue as interest rates continue to rise rapidly
Comparing to the most comparable home, Property B:
Tax Year Property B Property A
2012 $202,600 $202,600
2011 $230,200 $229,300
2010 $245,500 $229,300
2009 $245,500 $229,300
2008 $269,200 $251,500
2007 $292,500 $273,300
2006 $292,500 $273,300
2005 $242,400 $226,500
2004 $198,800 $226,500
Avg $246,578 $237,956
Over the last 9 years, your property has been assessed at a higher value than Property B only one time. Based on the difference in assessments from 2004 to 2005 for Property B while your property remained constant, it seems that some additional value was added at that point. We have chosen to include 2004 in our analysis anyway, because we cant be sure.
There are a few different methods to mathematically assess fair value here:
o The first two methods ignore that fact that sales prices are lower now than last year (see data above)
o Value vs. One Year Assessment
Property B sold for $215k in a year it was assessed at $230k, a 7% discount
This would value your property at $187k based on the assessment of $202k
o Value vs. Average Assessment
Property B sold for $215k versus a 9 year average assessment (including 2012after sale) of $246.5k, a 14.7% discount
This would value your property at $203k based on the 9 year average assessment of $238k
-------------------------------------------------------
o Both of the following ignore the historically higher value of Property B and assume equivalent values based on 2012 tax assessment
o Value vs. Zip Code Market Conditions
The 4 month moving average for sale prices is down 5.5% since Property B sold. $215k discounted by the current market is $203k
The year on year average for sale prices is down 1.5% since Property B sold. $215k discounted by the current market is $212k
-------------------------------------------------------
o Value vs. List Price
Based on the 4 month moving average, houses sell for 93% of their list price.
If we assume that Property B is valued at $246.5k based on average assessment and was listed at a 7% discount ($230k)to average assessment, your property assessed and an average of $238k could arguably be listed at $214k and sell for 93% of that, at $199k
-------------------------------------------------------
Based on this analysis, we feel the value of the house falls in between $187k and $212k. It is our opinion that it would be unlikely to find a buyer at the high end of the range given the current market conditions and a higher value directly comparable house selling next door for $215k in a time period with significantly lower interest rates and higher average sales prices. It is difficult to argue the higher range, and in our valuations it is somewhat of an outlier. Additionally, we are able to close the deal quickly and easily:
We have a letter of pre-approval from our mortgage lender
We have no contingencies involving the sale of another property
We have not asked you to make any major changes or improvements
We feel strongly that our offer of $20x,xxx is a fair value and we thank you for your consideration. We would be happy to complete this deal quickly if you choose to accept.
Thank you.
(Note) I also have this, but am unsure if I should work it in:
To sell this home for $215k or more, a buyer would have to be convinced that the market is higher than last year (data shows otherwise) and that the value of the property is equivalent or greater to the house next door (equivalent at best). We find it unlikely that a buyer that has those views will be found quickly and with such an easy sale as our offer would allow. As interest rates continue to rise (still historically low), buyers will be less likely to be convinced of that price tag.
Thank you for the time, we greatly, greatly appreciate any feedback and I will do my best to answer any questions! Is there any huge flaw in this? Is it convincing? Is tax assessment a horrible way to argue value on two neighboring properties?