Offers for REO's - Start low or go in with best shot first? - Posted by Ron

Posted by Susan (N.Ca.) on January 31, 2000 at 18:14:07:


Offers for REO’s - Start low or go in with best shot first? - Posted by Ron

Posted by Ron on January 30, 2000 at 13:17:11:

What’s your opinion on making offers for bank owned properties? (I’m talking about multiple listed properties with a realtor involved.)

A typical prospective property for me is listed for $35k and I would be happy to get it for $30k.

Is it best to initially offer something lower (e.g., $25, to allow room for countering)? I sometimes worry that this will be viewed as a “non-serious” offer and ignored (or countered with something very near list price).

I hate to offer my upper limit (even if I would be happy to have the house at that price) because I don’t want to leave money on the table and I think sellers generally expect to “meet in the middle”.

Thanks for your thoughts.


REO - market, location, month - drop price on each counter - Posted by Millie I.

Posted by Millie I. on January 30, 2000 at 23:28:37:

Nowadays I almost buy exclusively REOs when it comes to SFR. Depending on your market, location, busy or slow month, your approach should vary a little.

  1. Market - if you are in a hot market where houses goes real fast, beware of REO asking prices that are full or above market value even if the property requires a lot of work. Most of the time, the bank is out of town/state, they never saw the property, they just want to get as much of their money back as possible, they often ask for more than the property is worth in its present condition. It is up to you as an investor to figure what you can sell the property for , decide the profit you want to make, and calculate backwards subtracting the rehab and holding costs, the remainder is your maximum offer. So you have to start below that to make room for negotiations. If they won’t accept you maximum offer, then this is not a house that you will make money on. Walk, you are an investor, you are doing this to make a profit, if you don’t make the profit, you don’t waste your time. DON’T FALL IN LOVE! This is pure business, no wishy-washy please!

2)Locations - Prices varies with different locations. Offers should vary accordingly. If the asking price is $85K (Market value $100K ), you should make at least $20K in profit, budget your rehab + holding $10K ( if higer, may be too much work to bother), now deduct 10% from the market price, you will most probably get $90K after selling costs and buyer’s lower offer. So your maximum purchase price is $90K-$20K-$10K=$60K. You have to make your first offer at $55K or less to make room for negotiations ( Do the Tango ). They will most probably turn your first offer down. Counter upwards in small increments, if they don’t give in, quit, and come back one or 2 months later when they are more motivated/desperate. If you pay more than $65K for that house, you will be doing a lot of work for nothing.

3)Month - depends on what part of the country you are in, cold winter months ( November thru Feb ) are usually very slow because regular buyers usually buy houses in warm weather. Realtors are hungry and will do anything to get you to closing. Sellers become very motivated. Such cold snowy & stormy weather is ideal for investors to go out for a killing, especially properties that are not in move-in condition. Your only competitors are other savy investors, these are months that you can pay 40 cents on the dollar, I do that all the time.

If the typical asking price you look for is $35K, you have to find out what you can flip for. If $35K is the market price, then don’t offer more than $15K for it. If the market price is $45K or $55K, then you can go up to $20K or $25K. Don’t forget, if you don’t make money, the deal is not worth doing.

CHALLENGE THE BANK - drop price on each counter
I am closing on a REO that was asking for $30K, ( FMV $45K) I offered $15K, they countered $28K, I raised to $16K, they countered $27K final. I dropped them, told the realtor to call me when they are ready to deal. Realtor called back one month later (end of year), the bank had dropped the price to $16K to meet my last offer. I countered again to $15K, the bank held fast at $16K, so I countered at $14K, the bank accepted immediately before I dropped again.

I paid $14K cash, expect to spend $2K to put ceiling fans and commercial carpet in the house, and plan to rent it out by March for $525/mo. Tenant may buy it for $45K in 2 years.

Happy investing,
Millie I.

Re: Offers for REO’s - Start low or go in with best shot first? - Posted by SCook85

Posted by SCook85 on January 30, 2000 at 17:24:22:

I don’t know what type of competition you have in your area but in Baltimore you just about have to offer list price if it is priced fairly. When I say fairly I mean a property that you can still make money on it. Lately full price and quick is what it takes to buy properties. I’ve lost 2 recently that I offered full price for. If list price is way above what you are willing to pay then feel free to come in lower then what you like because most likely everyone else is doing the same thing.

REO’s are funny, the same bank could have 2 properties on the same street, one in poor shape and one in good condition, they would take less for the one in good condition with no explanation as to why. You should probably just do what I do. I offer what works for me and they take it or leave it. If they counter a little bit higher I look further into the deal to see if I can make it work at the counter offer, if not I stick with my original offer.

Hope this helps.

Happy Investing!


Re: Offers for REO’s - Start low or go in with best shot first? - Posted by phil fernandez

Posted by phil fernandez on January 30, 2000 at 15:31:39:

I would not start out with the number that I would be happy with. Start lower so that it will give yourself some room if the bank counters.