Oakland, CA · Member since 2014 · 5 posts · 0 votes
Hello,
I'm new at thins and looking at an REO to buy and hold. I have my eye on a particular property that did not sell at auction and really have no idea what a reasonable listing and accepted offer price will be once it's on the MLS.
The fair market value is about $180k, it got no bids at auction at $140k. It's underwater, and total outstanding debt is $300k.
A few things I'm wondering:
Was the $140k starting bid at auction just a teaser rate and the reserve would have been much higher?
Am I dreaming if I think it didn't sell at auction for $140 so they would accept lower when it's listed?
Contrary to what a lot of people think, banks don't set the price of properties based on the past loan. They base their prices on what REO listing agents suggest through a formal process know as a PBO or Brokers Price Opinion. Banks usually get at least two per property from completely different agents. (Agents can do BPOS - they don't have to actually be brokers)
Banks want to get the best possible price in the shortest amount of time, but they are no longer allowing investors to steal houses at 40% or lower off of retail - no matter what the gurus are teaching.
Banks are also instructing us REO listing agents to give owner occupant buyers first shots - sometimes not even allowing investors to offer on a property for 15 days after its listed to give owner occupants time to line up financing. Banks are also getting into the rehab business through their REO listing agents, who submit repair lists and make sure the repairs get done.
If a property is in a neighborhood where there are a lot of REOs, banks are even sitting on properties so they don't flood any particular area with REOs which will cause prices to drop.
It is still possible to get a good deal on an REO - especially if your a buy and hold investor, but if you're looking for huge paydays and swinging for the fence, you'll need a time machine to return to 2010 & 2011.
As Brent P suggested, find an agent who specializes in REOs - especially one who lists them becasue they get to keep the whole commission when they sell you one of their REO listings.
Be prepared to wait though, because sometimes it can take a month for a bank to respond to an offer, even if the offer only give them two days.
@Rob Forest Fair market value may well be $180k, but the ACTUAL market value is determined by the ACTUAL market (which currently won't even pay $140k)!
No harm in dreaming of a lower price. They happen!...
That's what I'm getting at. If the difference between auction is, as I understand it:
Auction: may have liens, no inspections, lower information purchase.
REO: Bank is looking at outstanding debt, doesn't know the market.
So the question is: if there were no bids at auction, does that give you good information about the market or is the starting bid a pipe dream ? Is that a reasonable starting point for valuation or does that price represent the additional risk premium bidders take when buying at auction?
@Rob Forest Whether for sale by auction or otherwise, every property should be treated on its own merits, always requiring "due diligence" research. Regarding this particular property that has taken your fancy, please keep us apprised of the results of your research.
Don't assume that the selling Bank doesn't know the market (otherwise they might still be asking what they are owed)! On the other hand, don't give the bank any reason to believe that YOU don't know the market!
If for example your first Offer ends up being quickly accepted, how will you ever know if you paid more than you needed to?
Contrary to what a lot of people think, banks don't set the price of properties based on the past loan. They base their prices on what REO listing agents suggest through a formal process know as a PBO or Brokers Price Opinion. Banks usually get at least two per property from completely different agents. (Agents can do BPOS - they don't have to actually be brokers)
Banks want to get the best possible price in the shortest amount of time, but they are no longer allowing investors to steal houses at 40% or lower off of retail - no matter what the gurus are teaching.
Banks are also instructing us REO listing agents to give owner occupant buyers first shots - sometimes not even allowing investors to offer on a property for 15 days after its listed to give owner occupants time to line up financing. Banks are also getting into the rehab business through their REO listing agents, who submit repair lists and make sure the repairs get done.
If a property is in a neighborhood where there are a lot of REOs, banks are even sitting on properties so they don't flood any particular area with REOs which will cause prices to drop.
It is still possible to get a good deal on an REO - especially if your a buy and hold investor, but if you're looking for huge paydays and swinging for the fence, you'll need a time machine to return to 2010 & 2011.
As Brent P suggested, find an agent who specializes in REOs - especially one who lists them becasue they get to keep the whole commission when they sell you one of their REO listings.
Be prepared to wait though, because sometimes it can take a month for a bank to respond to an offer, even if the offer only give them two days.
Great answer jeffmorelock, thanks. This is exactly what seems to be happening. I called the listing agent and it sounds like the two BPO estimates have gone in and they are deciding whether or not to repair the place or sell it as it is. My original question still stands though. If the auction bid started at 140k, and the BPO estimates are in the 200 range, there must've been a reserve price, correct?
I hope I don't have my expectations set so high that I expect to get it for 40% off retail. It would be nice to get it at 75%, as an as-is sale, and do some repairs myself. If for some reason they prefer owner occupants, that may be a possibility as well. Financially I don't understand why they wouldn't just go for best price, quickest though.
I don't mind haggling or waiting or any of that. I'm not a high turnover investor or anything.