Mortgages & Creative Financing

8 Tips for Bidding on and Buying REOs

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14 Articles Written

Many people visit Jamaica to see waterfalls, parrot fish and nude beaches. But the Jamaican scene that investors enjoy is the bustling marketplace where people are passionate about buying and selling. Want one of those wood figurines? Some jerk chicken? Ackee fruit? Well . . . time to negotiate.

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Investors thrive on haggling for the best deals. Unfortunately, most are buying REOs from US banks not Jamaican marketplaces. Bidding on REOs can leave an investor wishing for some Jamaican style bargaining. Problem with REOs: No human is around to dicker back and forth about price and terms. Everything is done remotely via email or fax. So what can the investor do to negotiate the best deal when the only way to bargain is through the use of a bid?

Below are a few tips to help you negotiate better through bids.

8 Tips for Bidding on and Buying REO Properties

1. Cash Is King

Need I say more?

2. Be an Oddball

Most people submit bids with round numbers such as $50,000. Why not try investor Steve Babiak’s idea and use oddball numbers? 14 is my lucky number so my bid would become $50,114. If someone else bids 50K, the bank would take the offer for $114 more.

3. Holiday Boom

Choose your time to make an offer. To get properties off their books, banks are willing to negotiate at the end of the quarter or year. Save some time between Thanksgiving and Christmas to double up your bidding efforts.

4. Inspection Contingencies: Inspect It Quick

Have short or no inspection contingencies. Not having an inspection contingency is not for the neophyte, but having no contingencies does work. You must make sure you will pull the trigger or feel comfortable forfeiting your ‘earnest money deposit’ or EMD. For those of us who need to hire an inspector, decrease the normal inspection period to 3-5 days. Often banks have a specified inspection period anyway, but the shortened time “shows” the bank that you are serious.

5. Close It Quick

Decrease the number of days to close. Write in contracts that you will close in 10-20 days, rather than the standard 30. Don’t worry if the bank can’t close fast. Your quick close bid is “telling” the bank to go with you, a strong buyer.

6. Make Offers with Motivated Banks

Find out which bank owns the property. Foreign banks and smaller non-local banks are more likely to say yes to a lower price.

7. Make New Friends with Listing Agents

Get to know the listing agents. If agents know you have experience with rentals or flips, they encourage banks to accept your offer. Investor Will Barnard says: "My successful REO deals have usually been through relationships. The listing agent ends up gloating about me and my offer." Another investor, J. Scott, solidifies relationships after closings by personally bringing the commission check, lockbox and sign back to the listing agent. Making life easier on the listing agent can help them remember you for the next deal.

8. Learn to Hint

When buying a lower end property, I write a special stipulation asking to add an HVAC cage before closing. By asking the question, I accomplish a few things. First, the bank sees that I’m willing to invest money before a deal closes. I’ve even had them split the cost of the cage with me. More importantly, I’ve “communicated” to the bank that they need to be worried about the security of their property and would be wise to accept my offer and close quickly. Also, if the HVAC disappears before closing, the bank is more likely to cough up the funds for a new unit.

Landing good deals is what it’s all about in this business. Don’t just sit back and write in the same old offers if you aren’t getting contracts. Try some creative ideas to see if you can acquire more deals. Getting good deals through REO bids can allow you to earn more. With your newfound earnings, you could take that Jamaican trip and brush up on your everyday negotiation skills.

Reader Question: What other creative bidding ideas have worked for you?

Image: FreeDigitalPhotos.net

    John Fedro
    Replied over 7 years ago
    Hi McKellar, Wonderful post. This info is very helpful to me now. Do you have any tips for identifying property that will not get bid up to retail prices. This seems to be an issue I am seeing happen more and more. best, John
    McKellar Newsom
    Replied over 7 years ago
    Hi John, Sorry for the late response. I’ve been on vacation. I’m seeing the same thing in terms of some foreclosure properties being bought at retail prices, but there are still plenty of good deals. For me, it’s a matter of doing a lot of work – looking at a lot of properties and making a lot of bids. I also follow up on properties that I didn’t land the contract to make sure they haven’t gone back on the market. I also like to re-bid every 2-3 weeks if I don’t initially get the contract with my first time offering. Here are a few other ideas. Try going to the house without a picture or the one that has a bad picture. Sometimes these get overlooked by the competition, especially end users. Negative descriptions or a lack of description can further discourage end users from even looking at a property. I also notice a lot of REOs have mistakes on their listings. You often find 2/1s that are actually 3/1s. Good luck. mck
    Sharon Vornholt
    Replied over 7 years ago
    Great post McKellar – I’m going to hang on to this one. Sharon
    McKellar Newsom
    Replied over 7 years ago
    Hi Sharon, Sorry for the late response. I’ve been on vacation. Thank for the comments!! Talk to you this week. mck
    McKellar Newsom
    Replied over 7 years ago
    Hi Sharon, Sorry for the late response. I’ve been on vacation. Thank for the comments!! Talk to you this week. mck
    Ayaz
    Replied over 7 years ago
    Hi MCKELLAR ! Great post and I want to be there in jamaica and this post gives a great idea. Thanks for sharing 🙂
    McKellar Newsom
    Replied over 7 years ago
    Hi Ayaz, I hope you get to Jamaica! It’s wonderful there. Thanks for your comments. Good luck with the bids. mck
    McKellar Newsom
    Replied over 7 years ago
    Are you buying buy and holds or flips? mck
    McKellar Newsom
    Replied over 7 years ago
    Hi Ayaz, I hope you get to Jamaica! It’s wonderful there. Thanks for your comments. Good luck with the bids. mck
    Brandon Turner
    Replied over 7 years ago
    I’m one of those who offers without an inspection contingency – because I always do my own inspection before offering. It might be a bit risky, but you are right – banks love it. A clean offer is an accepted offer. Great info! Thanks McKellar! Reply Report comment
    Brandon Turner
    Replied over 7 years ago
    I’m one of those who offers without an inspection contingency – because I always do my own inspection before offering. It might be a bit risky, but you are right – banks love it. A clean offer is an accepted offer. Great info! Thanks McKellar!
    McKellar Newsom
    Replied over 7 years ago
    Hi Brandon, Not having a contingency works but not everyone can do this. I’ve done it a handful of times. I’d like to be able to make no contingency offers every time but I’m not there yet. What market are you in? mck
    Joseph
    Replied almost 6 years ago
    While hunting for a new primary residence, I located a home that foreclosed in Dec and is just wrapping up a DIL with the borrower. No auction date is set. How can I approach the bank to see the inside and make an offer? Other than touch up on the exterior the house appears in good condition in a great neighborhood. I have funding lined up an a sizeable down payment. Do I call the foreclosure attorney? The bank is GMAC. Thank you
    Debra
    Replied over 5 years ago
    First time doing this for a buyer. Wish me luck. Thanks
    Justin Peters Realtor from Fort Worth, TX
    Replied over 4 years ago
    Great post. I’ve been purchasing REO’s here in Fort Worth for quite some time. The trick is to be able to communicate effectively with the Realtor. Why should they choose you opposed to the other 10 bids? Since I am a realtor I also offer to waive my 3% commission to give the real estate agent more incentive to want to take my offer. I just picked up a house where I bid 6k less than another investor and still got the deal using this tactic! For you new guys. Take action. Put in the work. Don’t give up. Lean towards the ones who have “been there and done it”. Did I say don’t give up! “Help enough people get what they want and, in return, you will get everything you want”.. Zig Ziglar Hope this helps!
    Vicki Gleitz from bennett, colorado
    Replied about 4 years ago
    Saving this one and sharing it with my Autistic group.
    Syeda Hussain
    Replied 11 months ago
    Thanks for the tips. Do you know how can I find out about REO properties before hitting the market in NYC? In NYC, its very very competitive. Normally it gets bid up over the retail price.