Negotiating REO Properties

29 Replies

I've never invested in an REO. I wonder how willing banks are to negotiate their prices when it comes to their REO listings?

From what I've heard, there isn't much room for negotiation, but it never hurts to try, right?

I understand that when you make an offer on a REO, it has to be different then a normal listing. What do you need to do different? Also, are there any experienced people who can let us know how to negotiate on a REO property?

That's a good question, any info would be appreciated.

I'd say they're flexible like any seller, especially if it's already listed with an agent and in MLS. This may not apply to all situations but when I bought a primary residence 5 years ago as a REO from a finance company they actually lowered the asking price before I even made a written offer. It was listed in the MLS at 96k and when my agent contacted the listing agent they'd lowered it to 91k. I offered $86k and it was accepted. All before the sign went on the lawn.

Based on the subsequent confusion in closing the deal it could be this company or agent just didn't do a lot of REO sales and didn't know the market well or had a new guy handling it........

Hey Everybody:

Buying an REO is no different than any other home. Your seller is just the bank. I just closed on one last week. A few offer/counteroffers and it's a done deal. Just don't submit a rediculously lowball price because all your credibility will go out the window. Also, don't make the mistake I did by offering them the asking price ( I did this because they dropped the listing price by $40,000 on a $115,000 house). Opps!!

I don't know if all of your credibility goes out the window, but just as any other property, depending on the equity spread, I never offer more than 70%.

As Johnny said, making an offer on an REO property is not different that making an offer on any other property...except that I will add that there are a few more expetations from the bank.

First, they have a lot of properties to sell and they are not interested in messing around. You will most likely have to send proof of funding and proof of earnest money with the offer.

Also, you will have to accept the property AS-IS without warranty. Don't expect that the bank will fix anything or allow you to negotiate upon an inspection. They are not interested in admitting any knowledge of the problems with the property. They will also not allow you to turn on the utilities for further inspection - take it AS-IS or go away.

DO NOT be afraid to make "low-ball" offers on bank owned properties. Many will be reject, but you can only pay what you can pay. That is not to say that you should make it a practice to just make a blind low-ball offer - make sure that you make an offer that is good for your needs.

Banks usually have a policy to not negotiate. You will find that they might counter offer you once on an offer, but they will not usually engage in a long negotiation process. In fact, they will usually just reject an offer outright if it doesn't meet their needs. If your offer does meet their needs, they will get back to you. The best situation is when the agent calls you back and tells you "We are in multiple offers, please present your highest and best offer". What they are saying is that they are interested in getting rid of the property and you are close. Just up your offer by a little and tell them that is the best you can do. They will either accept or reject.

Don't give up on bank properties. The bank has needs and goals and you don't know when those needs and goals change. You can find yourself in the right place at the right time if you just keep offering.

Originally posted by "ProHabber":
.... take it AS-IS or go away.

Very accurate description of the "attitude" I got from them. Be prepared to sign many documents saying that you take it as-is in different ways.

speaking of inspections, does the bank allow for inspections before putting together an offer sheet? and prohabber, what do you mean by "They will also not allow you to turn on the utilities for further inspection - take it AS-IS or go away" Will the inspector have to guess about electrical, plumbing, etc. Thanks for your reply.

I just wrote the contract contingent upon satisfactory inspection results. The power/water was on if I recall.... that may vary according to the bank/institution that's holding it.

What ProHabber means and this is my version, is the property is AS IS. There are no inspections unless you can get an inspector you know to go in with you. The bank doesn't really care about the condition it is in. They are looking for someone to take it off their hands. All they care about is price, what they can get out of the property. So, if your inspector needs the electric or water turned on, they usually don't allow it. I have never seen them do it. It's a gamble!

Tough --many times banks will not negotiate directly with buyers

Especially if you are trying to buy only one REO.

even though the contract is as is, you will still usually get 3-5 day inspection period. You can still renegotiate your offer duringvthe inspection period if the inspection brings up issues that were not disclosed.

While this may have been re-started by a spammer it still brings up a good point. On all three foreclosures I’ve bought the power has only been turned off at the breakers the meters where still installed, but this may just be my utilities polices. I just go turn it on check what I need to the turn it back off.

Originally posted by Jimmy C.:
Strange. Why would this spammer spam if they aren't selling anything?

He used this thread to get to the minimum number of posts he needed to start about 10 new threads with links. Those threads were removed a couple days probably didn't even see them...but I had just seen them when I noticed this thread that he had revived... :D

I know this is an old post, but it does bring up some good points for investors who haven't seen this.

This is a blog I posted a few months back:

Investors are constantly asking me 'Why can't I get my offers accepted by the banks?'. So many investors are making multiple offers on REO properties, and aren't closing on any REO's. The answer is simple: banks are pricing the properties to sell. They are getting close to, if not more, than asking price in almost ALL cases. In order to get your offer accepted by the bank, you need to come quick and come high. In many cases, offer's $20,000 below list won't even get you a counter offer. Sure, in some markets, it is a good start if you and the seller are willing to meet in the middle. But in the inner city areas, multi family properties are stripped of the plumbing, need to be 203k or cash only, and are priced below $50,000. Cash investors are pouncing on these income producers, resulting in multiple offer situations and prompting the bank to request highest and best from all parties, sometimes up to 20 offers the first week, depending on the area, but regardless of the condition.

It's always a good idea to look at the days on market of the REO property. If it's been sitting for a month or so, check to see if it has been reduced. The banks will almost always reduce list prices monthly until a sale is procured. But hold out too long, and you'll miss it. Best bet: Come quick and come high. Offer too low, and you're spinnin' wheels. Yours and your agent's.

Regarding inspections/utilities: You are entitled to inspections if it is written in the contract. If it's not, have your attorney put it in in attorney review. The bank can accept or reject, but they WILL NOT put the utilities on if they are not already on. Every bank is requiring their broker to put the utilities on in their name, if they are safe to be on. If they are not safe, they will not be put on for inspections.

Originally posted by Ed Beck:
Regarding inspections/utilities: You are entitled to inspections if it is written in the contract.

Good post. This is the one thing I was clarify (above)...

You are entitled to get inspections regardless of whether it is indicated in the contract or not. An inspection period (where you have the opportunity to renegotiate or back out of the deal) has to be written into the contract, but even if you don't have an inspection period, you have the option to get inspections done before closing. I've never seen a listing agent not allow a buyer into a property that the buyer has under contract for inspections or any other reasonable reason.

We are *almost* under contract on an REO and we have an inspection clause in our contract. That being said, the bank is not going to re-negotiate based on the inspection. It is for us to know what to expect after closing and get out if there is a *huge* problem we did not notice in the walk-through. This has been an interesting negotiation with BofA and I can't wait to post the details once it's all signed off on.

Originally posted by Jimmy C.:
even though the contract is as is, you will still usually get 3-5 day inspection period. You can still renegotiate your offer duringvthe inspection period if the inspection brings up issues that were not disclosed.

Um, where I'm at the REO seller NEVER has any kind of disclosure (other than "as is" :wink: ) - they have one of the few exemptions from the state of PA seller disclosure law. So are you saying that you get a seller's disclosure for REO properties in your area?

After reading the responses here, I have determined that many have different perceptions and experiences when dealing in REo deals.
Some think banks rarely deal direct with a seller, especialy if you are buying one at a time. This is simply not true, but again, anyone is entitled to post their opinion. For me, I deal direct with banks everyday, but do so through the contacts and relationships I have developed. It was not easy and it was not rapid, but over time, others can repeat my process.

Others seem to think that banks will not re-negotiate after a buyer inspection. That is correct as far as common averages, but not alwas. I have re-negotiated on at least 4 deals and got a reduction because the items in question were hidden and only uncovered with a professional inspection or it was an item that the seller was aware of, but did not disclose. Upon finding out about the problem and their awarness, I requested and received a credit.

Others play the numbers game and make many offers on many REO in hopes to get one accepted. This is a common strategy that does work with persistance, but it takes a lot of time, paperwork, and dissapointment. I prefer to use my relastionships to have deals brought to me which does two things, saves me time and eliminates my competition.

Others state that offering low ball offers will likely not even get a counter offer. In some cases, this is true, in others, not true. Every market is differemt so to make such blanket statements is rather bold in my opinion. My market is different than your s, which is different than the next investor's. Knowing your market will provide you the answers to the strategies you should be implementing.

At least in my market, the key to being successful in REO acquisitions is to be all- cash (real cash in bank funds, not POF letters), be able to close quickly, and having the contacts who can provide product with good spreads.

Ed, I thought your post was spot on. This is the way it is in my Market. Investors are snapping up everything on the low end. You have to get your offer in quick and it has to be clean.