And? Unless they spit in my face, I’m no worse for wear. This is a business for investors as well as the entity holding the note, so feelings aren’t part of the equation. You can always offer a bit more later. I have never gotten mad at myself for offering too little, but I’ve regretted offering too much. I never fall in love with a house, so it makes it easy to walk away from a deal. They won’t be laughing when they are sitting on a non-performing asset this time next year. Banks are all about numbers, and they make enough $ that they can easily absorb a bad loan (not so much with small, local banks). A lot of REOs are owned by companies that bought out the originator and are probably in a different state. If a home has been on the market (as an REO0 for a year, they will consider any offer, in my opinion.
Posted by Steve B on November 17, 2006 at 05:44:12:
I have found three “foreclosed” REO properties in my area that look promising as rental homes. All are older but only one looks like it needs significant renovation (new kitchen cabinets, paint, windows, etc.) One of these houses has been on the MLS for almost one year, the others a few months. The asking price has been dropping over the months on the “fixer-upper.”
Comp. sales in this area over the past year have been around $140,000 - $160,000 and all three of these houses are for sale at around $115,000. It seems to me that prices have been dropping lately on the more recent comps.
What is my next step? A real estate investor friend of mine says to offer about $90,000 for each of these houses, expect the bank owners to balk, and then keep the offers open until the banks give in and accept the offers. I have read on other posts of the need for “proof of funds.” What would best constitute such a “proof” and how helpful is this? Does my realtor present this at the time of my offer and is a verbal offer from my realtor the usual course of events?
Any help from those in-the-know would be greatly appreciated.
Posted by Pete CA on November 26, 2006 at 06:36:50:
I saw an REO property listed for $614,000 for 4 units. I offered $412,000 because that’s what worked for the income of the property. They asked my real estate agent if the offer was a “typo” LOL. She said no and explained that I am an investor and was offering what i thought was market value. My agent and I had a good laugh about it and then we move onto the next offer…it was as simple as that. Good luck. I just bought two REOs in CA. One for 117,500 worth $180K, and the other $150K worth $250K. make offers for what you think it’s worth. If they dont like your offer dont let it get you down. Roll with the punches as they say.
Another idea is to make an A-B offer. You can offer one price, like $54,900 cash OR $70,000 if they lend you the full amount at normal terms. I’ve used this the last time and they took the cash offer. I would have been happy either way. (I got this idea from Tony and Scott’s Mobile Home Boot Camp, although they didn’t invent it, it was a something I had never considered)
Posted by Dave T on November 17, 2006 at 21:44:26:
Your next step is to submit a written offer. A verbal offer is not enforceable. Don’t expect the bank to respond to a verbal offer.
If you will need financing, you need a pre-approval letter from your favorite lender.
If you intend to pay cash, then proof of funds could just be a copy of your bank statement showing sufficient funds on deposit to close.
Use a real estate agent to help you with comps. Be realistic about the maximum price you are willing to pay, so when you make your offer leave room for negotiation.
Posted by Max-va on November 17, 2006 at 12:10:23:
If these properties are listed for 115K and are not selling, they are priced too high, then the comps of 140-160 are wrong. I think your investor friend is over pricing as well. What are the repairs? I am assuming from your descripition about $20K. I use the 115K X 65% = $74750 - $20K = $54750 should be your offer
The first thing to be aware of about an REO is that the owner will not be offended by ANY offer. I would never submit the offers I submit on REOs to an owner that lives in the property that they are selling. Don’t be afraid to offer low, as they may be happy just to get an offer.
Proof of funds required? Not all have that requirement in my dealings. In the past I have used a letter from my bank stating that I had enough funds to cover the purchase, a letter from a loan officer stating they ‘had my back’ or a letter from a private investor along with a note from his bank stating that the funds were available. Important note: Make sure the letter states something like ‘has funds available to cover a $xxx purchase’, xxx being your bid amount. Don’t give them a letter stating that you are covered up to $500,000 if you expect to get your low-ball offer accepted! I also say that I will close in 30 days or less and will take the property ?as-is?. No contingencies really help the cause! I do my own inspections so I already know what I?m getting, for the most part!
Examples of REO purchasing: Just this Wednesday I submitted an offer for just under 30% of the list price of a 2 bedroom house. Why? Because the house needs work and it has been sitting on the market for about a year. The bank wants it off the books and there is a loan officer at that bank that has to hear about the bad loan every week at the lenders meeting. Offering to buy an REO is doing them a favor. The last REO I bought a few months ago…35.6% of the LAST list price…25.5% of original list. I throw a few thousand into it, along with some evenings and weekends, and I’ve got a nice little investment.
I haven’t looked at an REO yet that didn’t have things wrong with it…spray painted slang, holes in the drywall, several piles of dog ‘sheet’ on the carpet… When a bank takes ownership, usually they don’t pay someone to go in and clean it up or anything, meaning everyone that goes into thay home that is for sale is going to have to step over Rover’s pile of droppings to continue their tour. Any wonder why banks don’t get close to retail on most REOs? I’ve seen ONE TIME where the realtor actually went in and cleaned…swept, vacumed, removed old clothes etc left behind (she did forget the deer legs in the shed!). By the time she actually cleaned though, people had already decided that they didn’t want it. Result? I pick it up on the cheap.
The home could comp at 140-160 after fix-up, but not to many buyers want a project.
Posted by Steve B on November 17, 2006 at 12:14:32:
Berno -
Thanks for the advice. Your comments were exactly what I was hoping to read. I am a little surprized at how low your accepted offers were. It makes me think that I should go lower on my offers.
The homes I bought were cheaper, so know that going in. Letting a $40k house for $10k is not the same as letting a $400k house go at $100k. Same percentage, different $$. That said, you should always be a bit embarrassed by your offer on an REO. I wouldn’t think it bad to offer $54,900 on an REO listed at $115k. I use a realtor that I’m close with for all my purchases so I don’t have to worry about any negative comments. I do get an “Unbelievable, I never thought they would take $xxx” after they accept once in a while!
lowball offers…depends what state - Posted by CTR (CA)
Posted by CTR (CA) on November 17, 2006 at 19:31:30:
Whether you get lowball offers accepted for REO’s really depends where you are. If you are in an area of the country with a TON of REO’s (Texas, Georgia, Colorado, Ohio), they may accept a super lowbal offer. But if you are somewhere like California, they will laugh in your face if you offer 35% of the properties value.