REO Experience so far - Agents and Offers.

13 Replies

Hi Gys,

I have a day job and hoping to do some Real Estate investment. I dont have the time for reabbing, or fixing/ selling.

So I am hoping to buy REOs below market, and reselling at market to make the difference.

I am in Hudson county in NJ, lots of high-rise condos along the waterfront here. I only pick condos, because they generally dont have exterior issues like SF homes, and dont have a tonne of other hassles like sewer.

I shortlisted a few REO condos. Did the math. I figured 10-15% below market price just breaks me even - (see cost breakdown below athe bottom of the post). And then if i want to make 10% - I have to offer total 20-25% below market/ asking.

I spoke to the listing agents over the phone. My experience has been very bad. The agent tells me

outright that he wont represent me because its 20% below market.

It seems to me that the listing agent themselves - are an obstruction to this whole REO investment for resale. And wont let you do it.

I even offered him to relist with him - but he wont budge. Now, this is not just with one agent, I tried two others. They are equally or less hesitant.

To make matters worse, the banks keep giving properties to the preferred agents in this region - so its not like I can piss off one and move to another.

So overall - it seems - offering 20% below market/ list is not easy if not impossible. And the listing agents themselves are a roadblock in this process.

Two questions:

1 - Has anyone had a similar experience? Is there a way out?

2 - Assuming I have a brokerage license, can I submit the offer myself to the bank? Or do Banks only take offer via their listing agent?

3 - Will I need a Agent or Broker license, to be able to submit the offers?

Looking forward to some responses. My math for 20% below is below.

Sample Breakdown:

Condo list - 250K

Market price - 250K

Buying Closing Cost - 5000

Selling Closing Cost - 5000

Selling Commission - 6% of 250 = 15,000

Management Fee - 3 months HOA deposit - 3 x 450 = 1350

Three months vacancy period HOA - 3 x 450 = 1350

Three months vacancy period Tax - 3 x 500  = 1500

Total Cost = 30K.  

Breakeven Price - 250-30 = 220K.

That's 11%of List Price.

If I want to make 10% - 25K

Offer Price = 220-25=195, say 200K

That's 20% below asking.

The first question you have to ask yourself is why would you be the benefactor of a 20% discount to market over anyone else trying to do the same thing you are doing? What do you possess that every other Tom Dick and Harry doesn't possess? I'm not trying to be harsh or anything, just trying to see if you are employing the correct logic with your proposed process. Everyone else wants the same thing you want. You are only looking at it from YOUR perspective.

The agent's are the gate keepers for seller's so they don't have to deal with the tire kickers and their fantasy objectives. They aren't an obstruction. Quite the contrary. To them and the sellers, you are the obstruction. They could waste their time dealing with you when they could be spending productive time with a buyer that presents a valid offer commensurate with the subject's market price.

1) The way out - Offer a price that is reflective of the market.

2) As a broker, I'm surprised you would even ask that question.

3) Huh? If you are the buyer, you submit your offer through your agent that you hire to represent you.

Sounds like you have the math correct but that's not a formula based on reality. If it's selling for $250M and it's worth $250M why in the world would you expect to get it for $200M? I'd be more worried if you DID get an offer accepted for $200M. That would imply they know something you don't.

You are finding out the reality of buying properties, verses the delusion of what you thought you could do.  If your house was worth $200k, would you sell for $150k so that guy could resell it for $200k?  Do you think the banks are dumber than you, as to market prices?  They already lost money once on the foreclosure, they don't need to lose more selling to wannabe flippers for a discount.

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Originally posted by @Ron S. :

Sounds like you have the math correct but that's not a formula based on reality. If it's selling for $250M and it's worth $250M why in the world would you expect to get it for $200M? I'd be more worried if you DID get an offer accepted for $200M. That would imply they know something you don't.

Understood.

But then my question is - what is this whole REO investment thing about? BP itself has dedicated sections to REO's - with the rule of thumb of never buying above 30% of list.

How does REO investment work?

Originally posted by @Account Closed :

James,

REOs are everywhere all you need is the funds to buy but don't think for one minute you can buy 20% to 25% below FMV. Real buyers are paying FMV and paying in cash and still making a few dollars.

 Understood. Can anyone answer then whats the whole big deal about REOs?Why talk about it at all - theres dedicated forum on REOs in BP - why?

https://www.biggerpockets.com/forums/16-reos

What am I missing?

Anyone??

Originally posted by @James W. :
Originally posted by @Ron S.:

Sounds like you have the math correct but that's not a formula based on reality. If it's selling for $250M and it's worth $250M why in the world would you expect to get it for $200M? I'd be more worried if you DID get an offer accepted for $200M. That would imply they know something you don't.

Understood.

But then my question is - what is this whole REO investment thing about? BP itself has dedicated sections to REO's - with the rule of thumb of never buying above 30% of list.

How does REO investment work?

 @James W.

I think you are confusing list price with ARV. The price that an REO is listed for sale at is not the ARV. ARV is after rehab value. What would the property be worth once rehabbed.

The list price of the REO is the value that an appraisal and/or BPO (broker price opinion) deem the value of the property to be in it's current condition before rehab.

The 70% rule that rehabbers use is: ARV x .7 -rehab costs = your top offer price. If your top offer price is not usually within about 95% of list price, either the property is overpriced and you need to wait until the price is dropped or your numbers are incorrect and need to be recalculated.

To think that you can go in and offer 20% below list price of an REO and get it accepted is not realistic. And to expect an agent to submit that offer for you is not realistic.

It's a good rule of thumb but the days of REO at a 30% discount are gone on a global scale, in my opinion. That is, unless you are buying in bulk. Even the bulk buyers bidding on my portfolio are paying 88% of UPB. Granted UPB may or may not have anything to do with value but, they are taking some of my garbage in exchange for some of the low hanging fruit I'm offering. Volume, scale of economy, efficiency, managing fixed costs, and other prudent business executions will be the key to being successful in this game. No one is going to hit a home run on one deal. Yes, they are out there but then again, so is the Beck 950 Porsche Spyder driven by James Dean before his death, sitting in a barn with 20 miles on the speedo, waiting under a dusty tarp for the return of the son that went off to war long ago, for $500.

James,

I have bought REOs in the past and am working with 2 different agents who are putting in my offer and all of them are more than 30% below listing price so it can be done. However in all the listings above there are issues which will not qualify most buyers with conventional mortgage so the pool of buyers is limited for the selling bank and I am only competing with fellow investors who put in all cash offer. Also most of the listing are on market for couple of months so the seller realizes that getting an offer itself is a sign in positive direction. 

Before I submit any offer I send POF to the listing agent to show that I have the capacity to purchase the property in its current condition and then they call me rather than me calling them.

Think about it, why would a condo which needs no work and is listed for market value be given to you for 20% below market just so you can flip it back at market price. There has to be some reason you get a deal, either it needs work, there are other issues related to title, have other liens (not for REO but only with short sales).

Don't expect to ever get anything in or around JC in the condo market 20% below asking especially if no work is required.  

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@James W. ..REO Land has gotten more competitive. It's true that you CAN find good deals, but even with modest discounts you may be putting in multiple offers just to snag one deal due to competition. And I'm seeing more REOs priced much closer to local market comps even with things missing, like refrigerators and dishwashers. If you have a way of locating off market leads, that may be a fruitful aporoach to add to your search "tool kit".