BiggerPockets

Since this an REDC auction, I believe means this property is an REO and under an exclusive marketing agreement with REDC. Therefore, I believe you will have to deal directly with REDC.

It would be similar to a seller listing a property with a RE broker and you trying to contract directly with the seller. So, in this case, the seller (the bank) will likely have to pay REDC a commission or fee anyway since they spent marketing dollars and have invested time as well as other expenses.


This does not necessarily mean you cannnot accomplish what you described above, but that you should start with REDC first.

Another thought might be, that if the property is being auctioned off, there may be a limited pool of buyers for a church and in the format you might be able to get a better deal in an auction.

Though I have never offered on or attend auction for REDC properties, they are a less restrictive way for the general public to purchase property by allowing the winning bidder a chance to finance the property through traditional sources. Therefore, the sales price will usually be closer to retail than a traditional sale at the courthouse steps.

Good Luck!

Originally posted by Julie Taylor

Scott,

Thanks for your response. Let me elaborate a little more and see if you have additional thoughts.

I have been in contact with the broker who is listed on the auction site as being the point of contact. I asked her if the seller was open to deals prior to auction, as I would like to avoid the $10k buyers premium that will apply (which seems ridiculously high on a property of this value.) She has provided me with the letter of intent from the seller and believes that they would pull the property from the auction if an acceptable offer was submitted.

I'm doing due dilligence to try to get the best deal. The broker has referenced some other interested parties, though I would expect her to indicate that there was interest so her clients would get the most money. I don't know how much interest their might actually be. We are prepared to pay cash for the property, close very quickly and would love to do so at a discount, so as to be good stewards of the church's building fund.

Based on that info, any other thought?

Thanks again for your help!

Yes, I have experienced this scenario before but not with REDC. The buyer's premium is 10%, does this include the broker's fee? If so, then your looking at only a 5% mark-up because REO commisions are usually 5%. I don't think your going to save a whole lot of maney by going direct, but it could certainly be $5K at least.

For you, since your going to hold the property, I would offer around 75 to 80% of fair market value. Lower if the property needs extensive work. The reason I say 75 to 80% is becuase this is essentially a commercial property and clearly value will be derived from ROI. With a Church property it can be all over the board, so you should pay for an appraisal and submit it along with your offer. I would also pay for a inspection report while I was at it. And, if anything major comes up, include a repair estimate too.

Then offer using your LOI (letter of intent) 75 to 80% of FMV (as valued by the appraisal) less repairs, back taxes, liens, and assessments and emphasize this is a cash deal. Since you will be giving up your a financing contingency, you need to keep the inspection period. Also, keep the earnest money low ($500 or less) becuase you have already invested enough with paying for the appraisal and inspection.

This is how I prepare and submit offer on commerical properties. By using the appraisal and inspection your supporting your offer and also letting the asset manager know your serious. The third reason you offer this way, is Appraisals and inspections are the standard and will equalize any overestimates of value the broker may have told the asset manager.

Churches have limited pool of buyers and unless there are a lot of apples to apples comps out there, you will be removing all the bullcrap and get it down to valuations. Buying smartly will keep your fiduciary oath and the congregation will have a great property.

Good Luck.

You can use the broker's information (BPO) along with your inspection report and include a repair estimate from a Commerical General Contractor noting the extensive structural work needed. Personally, I feel a BPO is worthless unless it is being seriously considered by the asset manager.

Since the structure is compromised, I would rely on land value as a grounds for your valuation. At this point, it might be better to tear down the structure and build new to better serve your congregation.

If I were you, I would determine what it would cost for you to buy land and build new on a similar sized lot in a similar location. I would get an appriasal anyway cause they will have land value and replacement costs on the report.

One you have a basis for the value of the dirt, estimate demolition, waste disposal, permits, etc. This will give you an adjusted cost basis for a new build.

If you get the property for anything less than the adjusted costs basis, it is like them subsidizing your contruction costs. Plus, the existing structure could still be useful.

In your letter of intent, justify your offer by putting in your plan for new construction since the existing structure is damaged and will be cost prohibitive to repair. (Your repair estimate should support this argument)

Tell them essentially that your offering the value of the land and saving them trouble of demolition and further risk of loss. Since your offering cash mainly becuase no lender would finance a building in this condition, you also asking for a discount. ( Your appraisal should somewhat justify the land value less your requested cash discount and demoiltion and debris removal costs)

Your a winner if you get the land for less than market vale and your even a bigger winner if you can utilize or even save the existing structure.

I really think your on the right path, just add the appriasal and repair estimate. In my opinion, you will likely have much more success getting this property at the price you want by supporting your offer with third-party documentation.

Plus, the added benefit is, your going to know that by using all the tools in your tool belt, you will have acted in the best interest of the church becuase you will know for sure at what price this is a good deal.