Banks and the Games they Play with their REO Properties
There is nothing special about 9430 W. Monroe Street. Although from the Realtor remarks section of the multiple listing service plano you would think this house was decked out like a Beverly Hills mansion:
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GREAT OPPORTUNITY TO OWN THIS 3 BEDROOM HOME WITH NEW CARPET, NEW PAINT, PRIVATE FENCED POOL, VAULTED CEILINGS, INSIDE LAUNDRY, STORAGE SHED, AND MUCH MORE!
Yes, 9430 W. Monroe is a little nicer than other bank owned homes you’ll find priced at $73,900. Especially when you consider it’s 1,352 square feet with three bedrooms, two bathrooms, a 2 car garage and pool. But the reality is this house is average in size, features and neighborhood. The only thing above average about it is the list price. And by that I mean it’s priced below market.
I checked the comps in the neighborhood and two identical bank owned houses had just closed for $95,000. So I wrote an offer on the house â along with about 27 other people (okay, not really but the listing agent wouldn't tell me how many offers he received). When this happens you get an email like this:
We have received multiple offers, so the seller is requesting your buyer’s Highest & Best offer by 12:00pm on 07/14/2011.
Let the games begin! Now you’d think because I wrote a full price, all cash offer closing in two weeks with a 5-day inspection and $5,000 in earnest money my offer would be immediately accepted right? Wrong. The owner of this house, Bank of America, wanted to create a bidding war.
I don't do bidding wars so I told the listing agent our offer was highest and best. Here's how he replied:
The seller selected another offer. Sorry, for the bad news.
I guess that means someone else offered more than I did. But here’s the funny part – the house is still active on the multiple listing service a week after highest and best offers were due.
So why is this house still for sale? Is the listing agent too lazy to change it to pending? Did he forget?
No. The answer is the bank is still fishing for higher offers. Now that’s what I call gamesmanship.
The truth is I never expected the bank to accept my offer. Based on the comps, the condition of the home and the flurry of buyer activity here in Phoenix I knew this house would sell for above list price. The bank figured that too, which is why they put the house on the market for so cheap. It’s actually a better strategy for them to create an auction-style environment on the local multiple listing service. They’ve learned that this approach drives up the price.
As real estate investors we can’t afford to play the bank’s games. If you’re shopping for a bank-owned house, whether it’s to fix and flip or buy and hold – don’t be first, be last. In other words, look for houses that have been on the market 60 days or more and that need extensive cosmetic and/or structural repairs. There’s less competition that way.
If at any point during the acquisition process you discover you’re competing against another buyer then consider bowing out. You may lose the bidding battle but ultimately you’ll win the war.