A little over a year ago I came across a small vacant house for sale in Nashville, TN near one of my target investment areas. I spoke with the owner over the phone about some of the facts of the house and got as much information as I could. He was a friendly guy with a southern accent, what many from this region would call “a good ol’ boy.” His asking price was $40,000, which was incredibly cheap, but the house was only 672 square feet and it had been moved to that parcel from a different location. The fact that it hadn’t been built on-site was definitely a concern for future resale, as many buyers worry about the unusual. I asked him what his lowest price was for an all cash, no contingency offer, with no inspections and a quick closing. He said $30,000. Wow. Had I really gotten a drop of 25% of the sales price that fast? Could it be that easy? My typical negotiating approach is to initially get the seller to say their lowest price and then counter-offer a bit below that. I got him down $10,000 with one question. That was sweet, but I wasn’t satisfied. How cheap could I get this little cottage for?
I went by the house again and looked in the crawl space. The new foundation appeared to be solid. The house had new plumbing roughed in and some new wiring, but other than that it would need everything, from drywall to flooring and lighting, and the entire kitchen and bathroom. It was no small project and the projected renovation costs quickly added up. I wanted to buy it for less if I could, to provide some extra cushion in the renovation budget. I called him back and said I would pay $25,000. He was going to work out of town for a few days, but said he would think about it.
Two days went by and I didn’t heard back from him. As far as I knew, there wasn’t any other buying competition for this house. If he lowered his asking price by $10,000, I figured that I was the only interested buyer he had encountered. I called and left a voicemail asking him to please call me back. I was wondering what was taking him so long to respond. “It’s just $5,000 right?” I was starting to think maybe I should have simply accepted $30,000, or maybe counter-offered at $28,000. By this point, I had decided that the next time we talked I was going to accept a verbal agreement for any price that was $30,000 or below. As soon as we agreed on the price, we would sign a contract.
I left another voicemail. Maybe he had poor phone signal where he was working. Maybe there was a family emergency. Two more days went by and I still hadn’t heard anything from the seller. It was frustrating to say the least. I called him one more time, a week after he had offered to sell me the house for $30,000. No response. I left a message saying that I was ready to buy his house if he still wanted to sell it. We never talked again.
About six weeks later I looked up that house on the tax records. It had sold to a real estate investment company. The price? $30,000. I shook my head. $30k was a great price. It was a can’t miss deal, and I lost it while fighting for $5,000. I have never done a real estate transaction where $5,000 will make or break the deal. The margins I calculate at the point of purchase are way higher than that. Why didn’t I just accept his “lowest price?”
The investment company that bought it churned out a quick renovation on the house and sold it three months later for $125,000. The little cottage almost fetched $200 per square foot, even if it had been moved to the site. After closing at that robust price, apparently the buyer wasn’t too concerned about it being a “mobile” home.
Now that I look back at this deal that didn’t happen, I see what I could have done differently. When the seller said his lowest price was $30k, I don’t mind that I counter-offered at $25k. However, when he didn’t accept that, I should have agreed to $30k, and not let him think it over. The “thinking over” is what cost me the deal. That is when the other investor swooped in. The truth is, if the seller would have initially lowered his price to $35k, I would have probably counter-offered at $30k. And I would have been thrilled if he accepted that. Instead, my desire to get the best, rock-bottom price backfired.
I recently wrote in One House I Wish I Hadn’t Sold, that I didn’t have any deep regrets over selling that house. Likewise, I don’t have any deep regrets that the little cottage deal never happened. The truth is, another deal always comes along, although it is definitely hard to find anything around Nashville for that low of a price now. I may not see another good deal for only $30k, but if I do, I definitely won’t try to buy it for $25k.