BiggerPockets

My partner and I spent all of our saturday searching local REO properties in our area. All together we looked at 28 of them mostly semi-attached, single-family or 2 family homes. Now, we got out of the car, checked them out, saw if they had curb appeal, looked if they had any cosmetic problems that we could spot out early, peaked through the windows to see if the interiors were beat up and basically determined if we would want to go any further with them. All in all, we figure probably could get a deal if we could make offers on them.

So, that being said, how exactly does the offer procedure go about? My partner is going to call all the listing agents Monday, and schedule walk-throughs for next weekend. After that, I assume we would make our offers. I've read on other threads that you would only make the offer to the listing agent, and that it should be in contract form. Others have said it should be a cover letter that you give to the agent. I would prefer it to be more of a letter instead of a contract because we will be making several offers, and don't want to be contractually obligated to do anything before we see which figure out which property will be most ideal for us (even if we get accepted on multiple properties).

So whats the best way? I would assume I'd include the following
- Make an offer 70-80% of asking price
- We have ability to close within 30 days
- Paying cash (we will not be using conventional loan)

Should it be notorized?
Should we offer to make a deposit or offer earnest money?
Also, many people say that we should include a pre-approval letter, but since we are using a private loan from a private lender, what should we provide as proof of funds?

To add to what Jon said...

- If the property is a good deal, it won't last until next weekend, so schedule your walk-through for sometime in the next day or two. If the property is still available next weekend, it's likely not a great deal anywhere near the current list price.

- You don't need to deal just with the listing agent. I know a lot of people suggest it, but on your first couple offers, I think there are more advantages to using a buyer's agent to represent you. If you go directly to the listing agent, that agent represents the SELLER, not you! This means, he or she will allow you to do something stupid that hurts your position and helps the seller's position. If you find your own agent to represent you, that agent is required to make sure your best interests are put first; this may keep you from doing anything really stupid. So, go find an agent that is accustomed to making offers on REOs, and ask that agent to represent you. He or she can walk you through the house and then write up your offer for you if you're interested in submitting one.

- When you're ready to submit an offer, the agent is going to want to know some basic information:

o Your offer price
o The amount of earnest money you want to put down
o The date you want to close
o The name you want to make the offer in (your name, company name, etc)
o What contingencies you want and for how long (financing, inspection, appraisal, etc)

If you give the agent these basic pieces of info (he or she will tell you what they need), they can write up the offer for you.

I would second most of what said here, mainly with regard to buyer's agent. BA not only can walk you through the process but would also allow you to put in multiple offers while dealing with only one agent. With regard to offers, every market is different. I assume that Jon could not get such low offers at the door is because Denver, CO seems to be much tighter market than many others. Jason Scott is right about the fact that if the deal is good, it won't last, however the longer the property is on the market, the better chance that a lower offer would be accepted. Make sure your agent tells you how long those properties are on the market (You can also find out at Realtor.com).
Lastly, make sure that you have everything in place before proceeding with any offer. If you plan to use a loan, secure it first. Get pre approval and know how much you've been a proved for. If you plan to buy cash, make sure you have the cash (Real or transactional) and also havean exit strategy.

Good luck.

Eddie may be right that Denver is tougher than other markets. Certainly there is almost nothing to be had at prices that work for rentals. If you've figured out your price and make offers based on that, you're doing all you can.

I will say I have used a buyer's agent on my previous REO purchases. I think it would be tough to do this without your own agent. I can nearly guarantee at least a third of the houses you looked at are already under contract. You just can't see it because you don't have the level of access to the MLS you need to see that a contract is already in place. Even so, you might still get them.

If you say "Could I just say "whoops, my financing flaked out"?" and you don't have a financing contingency in your offer, then the bank will say "whoops, no problem, thanks for the earnest money."

You said you were using private money. That's a loan, and so you MUST use a financing contingency. If you don't, and your lender does flake out (entirely possible, if you're never done a deal with this lender before) then you WILL lose your earnest money.

My experience is that banks won't even bother countering a low ball offer. If they do, they would come down from $200K in your example to $197K so some such BS. The trick is to watch carefully and when a price drop occurs, resubmit your offer.

Originally posted by Phil Mondiello

If the banks counter with something like 197k from 200k than I would just move to the next house...

In my experience, banks will generally make a first counter-offer very near full-price (or even AT full-price), but the fact that you got a counter instead of a flat-out rejection is a good sign, and often the second counter is much better.

For example (I'm making this up based on my previous experiences), if a property I'm going after is listed at $65K, I might offer $45K. Oftentimes the bank will reject the offer outright, but sometimes I'll get a counter-offer at $62-65K. When that happens, I'm fairly confident I can get them down to at least $55K. I'll re-counter at $48K, and will expect the next counter from the bank to be well-below list (maybe $56-58K). I might come back at $52K, and then we may agree on $53-55K.

So, the fact that you got a first counter-offer is a GOOD sign...and I would suggest you make another counter at just above your original offer, and see what happens.

How can I even make offers on more than one house without the possibility of being forced under contract?

The key is to have a financing contingency in each contract (or some other kind of contingency). Based on what you write below, I think you are misunderstanding what a "contingency" is...

A contingency is something you put in your contract that gives you an "out" if you need it. For example, an inspection contingency gives you the ability to inspect the property, and back out (and get your deposit back) if you find something wrong that you didn't expect. A financing contingency gives you the ability to verify that you can actually get your financing in order, and if you can't you can back out and get your deposit back.

By putting a contingency in every contract you submit, if you get one accepted, you can use that contingency in each of the other contracts to back out and get your deposit back.

What are my options for a financial contingency? Our private lender was our only option for getting funds, so what can I do?

See above...I think you're misinterpreting the definition of "contingency" in this context...

Great advice and comments here. I would like to add-Forget about the listing agent, they work for the seller/bank. Find a Exclusive Buyer Agent/Investment Specialist to represent and protect your interests throughout the transaction. Negotiating with the banks asset managers takes some specialized skills and knowledge. An experienced buyer agent knows what to say and what buttons to push to get your offer accepted.

In my experience, banks would accept a copy of the earnest money check with the first offer, which should be in your realtor's hand by the time an offer is accepted. At that moment, the check is to be sent to the seller's realtor.

The listing will specify the minimum amount.

Originally posted by Phil Mondiello

What would be a typical amount of earnest money?

Should it be based on the asking price?

I hear of people making earnest money deposits of $500.00-10,000.00, so what should I base my earnest money amount on?

Minimum $500...

Generally $1000 is standard practice...

The more the better, and the more likely your offer is to get accepted...

Originally posted by Jon Holdman

If you're using a private lender, you're not paying cash. You'll need to put in a financing contingency in case your lender flakes out. You will need a pre-approval letter from the lender.

Okay, I could include a pre-approval letter from the private lender, but will the bank take that as proof of funds? I ask because our lender is just a man, not an institution..

Originally posted by Eddie Ziv

One thing I notice lately is that investors are dropping contingency requirements such as inspection. Couple of my investors lost bids to offers with no contingencies...

Well without a contingency than how can I protect myself from losing earnest money or being contractually obligated? Should I include just a financial contingency and forgo the inspection contingency?



A few more questions I have about Buyers Agents include:


1. How much do buyers agents typically charge for their services?

2. How do I go about finding a buyers agent? Are they the same as a listing agent just on the other side of the table? Are there any websites recommended to find them in my region or is there a way to find through BP (Didn't find any through BP search for Staten Island, NY)?

3. Are there any questions I should ask the buyers agent or certain details about the agent I should inspect beforehand to help verify if he/she is competent in helping me achieve my real estate goals?