Paydirt! Update on REO... - Posted by Krista(WA)


Posted by Krista(WA) on February 25, 1999 at 01:01:57:

Thanks for the tips! I hadn’t read this before my first meeting with the agent… but I happened to do just as you suggested. When my husband (the contractor) got home, I called the agent to let us in for a couple hours to do our rehab estimate. After that meeting, I did as you advised above, and asked for a market analysis, which she will provide for us tomorrow. I tried not to sound too “investor-ish” about everything… but she knows that I at least have a clue about how things work because she was very surprised that I got to her from just seeing the vacant house. Thanks again for your input!



Paydirt! Update on REO… - Posted by Krista(WA)

Posted by Krista(WA) on February 24, 1999 at 13:14:14:

…Well, not really paydirt yet, but after 2 1/2 days of phone calls, etc. it feels like it!

For those who read or responed to or read my post far below about trying to track down an REO in my neighborhood that hasn’t been listed yet, here’s the latest…

I finally got someone who is handling the property. She said that it is still getting ready to be marketed, and that the “BPO’s” (what does that mean?) were being furnished to the bank that owns it, and it would be 2-3 wks before a price is established. I asked if the plan was to fix it before marketing it. She said the bank will decide that after they receive the info. I asked if there was a way I could see it in the meantime, because I may want to make an offer before that decision is made. She gave me the name and number of the agent who will list it, and said I could see it anytime I’d like through her.

So, I have an appt. today at 2pm with the agent. My question now is how should I handle the agent, and the situation from here? My thoughts are that she would be very interested in selling it before she has to market it - therefore might be fine to work with. OR she might realize that her commission will be much greater if the property doesn’t go at a rock bottom price, and so might be difficult. What advice can be offered from those who have been here before??? I’m trying to stay cool, but I am very excited about the possibilities here. I think I will go to the courthouse today and pull everything available on this property.

To recap what I do know about it: The assessor’s records show last sale was 3/98 for 89k. Assessed value is 111k. Clerk at recorder’s office told me that previous owner had a deed (dated 1996) for 141k that defaulted. The property was quit claimed to him in 95. Rough estimation of it’s fixed up value (prime condition) 170-180k. As-is value: ??? Haven’t seen it yet. Found out from the neighbor that they don’t think it has a furnace. In this area, that alone could have caused some major problems!

Well??? What do you pros think??



Dave, SCook, others… - Posted by Krista(WA)

Posted by Krista(WA) on February 25, 1999 at 01:24:52:

Both of your offer approaches make sense to me, yet they kind of contradict each other. What about trying something like this…

The Realtor said that this bank does not finance their REOs (I know not to take this as fact, but considering the probable desirability of this property once it hits the market… I would not be surprised if this was the case). What if I offered 65-70k as suggested by SCook. Four possible outcomes: 1.They accept - (Weee!..Wait a minute - I shoulda offered less! Oh well, I know I can get financing at that price) 2. They counter with their bottom line or something close. 3. They laugh and counter with their decided list price. 4. They stall, don’t really counter…eventually list it.

If I get #2, I might counter with that price (if it is do-able) but ask that they finance it.

By opening negotiations this way, I feel them out for their bottom line (which will obviously be lower if they’re not anticipating financing it), and then also try to work in the financing if I can.

What do you think? More suggestions? :slight_smile: “I need, I need, I need!” (Bill Murray) :slight_smile:



Re: Paydirt! Update on REO… - Posted by Dave T

Posted by Dave T on February 24, 1999 at 22:36:51:

Sounds like you have something with a lot of potential equity. If the bank wants to list in as-is condition, then they will probably also get a professional appraisal report with an estimate of required repair cost.

On the off chance that they will just go with the BPO, they are relying on the broker’s estimate of what the property will probably bring within 90 days on the market. In the most general sense, the broker will do the comps, and then make some discount for repairs, while ensuring that his commission will be covered. The broker may also have this in-house estimate confirmed by a professional appraisal.

Given that you can find out the comps and that you have developed your own estimate of the repair costs, you should be able to come up with a number pretty close to the probable BPO.

If this number will work for you, don’t be afraid to offer full price with the contingency that the bank finance it at a very favorable rate (perhaps 30 year fixed at 5½% and no discount points). The bank can be much more flexible in negotiating terms than they can be in negotiating price.


The latest…EL DUMPO! - Posted by Krista(WA)

Posted by Krista(WA) on February 24, 1999 at 21:14:13:

There is MUCH potential and MUCH work! Pending an actual inspection, everything looks cosmetic. Just to give you an idea, the house was built in 1928, and everything is original! There isn?t even a space for a fridge in the kitchen (just an enclosed porch for an icebox!) The walls haven?t been painted since 1967(w/oil heat - they?re black). And there is a couple layers of wallpaper under the paint. The agent left my husband and I to do our repair estimates for an hour or so, and while she was gone I made contact with the very informative neighbor who showed us through her house (almost identical ? but fixed up) and then walked through El Dumpo with us, giving us the history. :slight_smile: Some extensive plaster damage due to past plumbing problems and a leaky roof (which has recently been replaced). There is about 20-30k of work (retail) for a decent rehab, and (roughly) 7-12k for livable condition - marketed as a “fixer” to homeowners (this is a VERY desirable neighborhood - fixers few and far).

What I got from the Realtor: She just talked to bank today (after my call, I presume) and they don’t intend to fix up. They want a BPO in as-is cond. I couldn’t get her to give me a ball park as to what that figure might be… she did mention that fixed up the place could probably go for 140-150k and up…“of course it will go for much less like this.” She encouraged us to figure out what we would need to get it for, and make a low offer! I don’t know if her idea of low, and mine are the same, but at least she seems to want to sell it to us! Last thing I want is a difficult agent in the middle of this. She also said that once it’s listed, there will be A LOT of activity on it, so she would suggest making an offer before then… Duh! :slight_smile:

What I got from the courthouse: I confirmed that the bank paid 89k for it. Now the assesed value is 111k, but that assumes average condition, right? So for those who have done this… will the bank consider an offer around 89k or even less? We will have to do an accurate rehab estimate?but if 30k gets it to 140k, with holding time and all the other expenses, it will have to be that low to be do-able.

Now? FINANCING. That will have to be a-whole-nother post! Any suggestions on where to go with this next? I?m learning as I go! There?s a slight possibility we would consider this as a residence, but for now, let?s assume it?s for profit only?



Re: Paydirt! Update on REO… - Posted by Dan Fink

Posted by Dan Fink on February 24, 1999 at 13:41:33:

First get right to the banks reo manager. If it is not listed yet it is open game!

a BPO is a brokers price opion Kinda like a poor mans appraisal.

If tax recors do not show who the bank is check the deed for the banks name and be sure to check for any assignments in case the org lender sold the loan

while you at the court house pull tax recors for any thing in the banks name and you may just find a few more.

Dan Fink


Re: Paydirt! Update on REO… - Posted by Bob-Tx

Posted by Bob-Tx on February 24, 1999 at 13:37:32:

Alright, way to go. Persistence pays off at least to the degree that you are the first one in the door.
I would hold your cards close at this first meeting with the realtor. Big thing is to ask a lot of questions and listen. What experience has she had with this lender and REO stuff? What do the comps look like for this neighborhood in todays market? Please run me a comp. mktg. analysis - I need to see sold comps in the last 6 months. Let the agent demonstrate to you where they are coming from in this process. Hey, you might find her to be ready to work to get this thing sold quickly (with no other realtor involved!! = full commission stays with here) and then you can open up and get aggressive but I would do lots of listening in this first mtg.
Just my nickels worth


Re: Dave, SCook, others… - Posted by Dave T

Posted by Dave T on February 26, 1999 at 24:36:34:

Not sure I see a contradiction. Either pay their price but get your terms, or, pay your price and accept their terms.

SCook gave you a strategy for getting the property at your price. I was suggesting a strategy for getting the property at your terms.

Remember that the bank’s “investment” in this property is not just the balance of the foreclosed mortgage. They also had foreclosure expenses that they will want to recover, in addition to carrying costs for the property during their holding period.

The bank once held the mortgage on the property, and now holds the property. By allowing them to finance it on your terms, you give the bank an opportunity to turn a non-producing asset into a performing loan. Usually, the bank REO manager does “originate” a mortgage for REO properties. Just call the REO manager and ask if they will provide financing for one of their REO properties.

There is only about a $15 difference in monthly mortgage payments on 67K at 8% versus 89K at 5.5%. I buy for my rental portfolio, therefore after tax cash flow is important to my purchase decision. I would get a depreciation deduction for the 89K purchase price that is greater than the $15 per month that the larger mortgage is costing me.

I realize that this strategy will require a larger down payment, and it may be a viable alternative if you have adequate cash on hand to implement it.


Re: The latest…EL DUMPO! - Posted by SCook85

Posted by SCook85 on February 24, 1999 at 22:40:29:


Sounds like you found a winner. At this point you have no choice but to work with the realtor. An agreement is already in place and the bank won’t back down from it. It is most banks policies to list everything with realtors (they are not in the business of selling properties and don’t want the liability). 9 out of 10 times the bank takes less for there propeties than what they bid at auction. Don’t let the 89k figure influence your offer. From what you have told us I would be offering 65-70k on this property. Just ingnore the 89k figure and work backwards from the FMV to come up with an accurate figure. I have bought many REO’s and I can tell you from my own experience that the banks will take less, and in some cases much less then they bid at auction. The reason they bid so much at auction is because of policies that for some reason or another make sense to them. They usually get less for the homes later. It makes no sense but I am glad that they do it.



So an assignment would explain… - Posted by Krista(WA)

Posted by Krista(WA) on February 25, 1999 at 01:08:35:

I did go to the courthouse today and with the clerk’s help (a few minutes worth of help, anyway, before I was turned loose on the complicated software) found that the previous owner’s deed for 141k was under a different bank’s name. Then it must have been assigned/sold to the current bank, right?.. and they eventually bought it at the Trustee’s Sale. Does that explain why the purchase price of 89k at the sale is lower than what was owed? They had bought the loan at a discount from the original lender? I’m just trying to understand how this works.