how low is to low
So how low is to low when making a offer on a bank owned property? some basics that i am working with right now, the property is listed at 85,000 and i know i have to get it for a min of 75k but i would love to get it for less. does anyone have any experience on this? how low do you normally go when starting to make offers with the bank? is it a % of the price? and ideas would be awesome!
I don't really know, but I can share an experience I had.
I found a property listed by the bank for $50k. I offered $38k, but they responded and said they needed to get the full $50k for it and couldn't pay closing costs, because the property had a reverse mortgage on it.
That doesn't answer your question, but just thought I'd share.
I've heard (often) that if you're not embarrassed by your offer, it's too high. That was certainly the case when I bought the place I'm currently working on - but they took it!
@Jeremy Davis - you need to do an analysis based on the arv and the amount needed. most people use the rule of 70% of arv minus repairs. notice that the list price is not in that equation. but i have bought reos at less than 50% of list.
@Jeremy Davis - what's to lose if you put a low offer in? Unless you think you're going to lose the property to other offers, put in a 50k offer (roughly 60% of asking) and see where it takes you. I assume the bank would come back and tell you their best price at which point you need to stick to your highest and best, which I assume that's the 75k you mention. good luck and keep us posted on how this turns out.
I think you'll find that there isn't an answer to your question. Trying to get in the bank's head at any given moment is a waste of time IMO. Today they'll say anything below 80K is a no go, then 6 months from now will relist for 15K more when it hasn't sold, then eventually sell for 55K and I have actually seen something like that listing process happen on a REO. What thought process brought about those actions no one really knows. I'd make your 75K offer expecting to reaffirm it should they counter, or make something a little lower planning on coming up to 75K if you end up needing to on a counter.
First and foremost thank you all for the reply! You all kinda touched on my thoughts of this. I honestly am thinking of offering 60 and just seeing what the bank says. i know the highest and best i could go would be 75 but we all know anther 15k in my pocket would be great!
@Bryan L. Yes i am aware of the 70% rule and am following it :D i have already comped out the house. and if i get the house at 75k after the rehab i will be close to 70% into the house. i would have around 95k into the house and the ARV is 130k so i would be a little over 70% ( 73% so u don't have to do the calculations ) but as i am able to finance it with out lenders i don't have to pay points/interests so it makes my profits a little larger so i am able to move the 70% some if needed to make the deal work.
For almost any bank owned (REO) property, you aren't going to offend the seller with a lowball offer; some smaller local banks might get a little miffed. So it comes down to the agent you are working with, and whether that agent feels that some lowball number is a total waste of time. If your agent is OK with the lowball number (don't tell them your highest and best up front) then I say go with it and see how the bank counters. If the bank doesn't budge much, you know they aren't yet ready for that low of a price; then you have to decide how badly you want that property.
@Steve Babiak Sadly i am my own agent but most of my deals are not bank owned. so ill write as many low offers but i was looking for others opinions so i can tie up the proper tie as fast as possible.
@Jeremy Davis There are lots of ways of looking at it. The lower you buy at, the more money you make out of it. But the lower you offer, the less deals you get approved. My philosophy is to ignore listing price totally as far as deciding what I can offer. I look purely at what number works to allow me to be guaranteed a profit. I have paid over list in a "bidding war" for a property that even after bidding it up was bought at 60% ARV. I have turned down properties at under list because the numbers just don't make sense.
And guessing what motivates a bank? Good luck. I have had them counter at full asking on a property that sat for months. I have had them accept way under list for a property that was newly listed. I know the inventory of non-producers factors into it, but it still can be totally unpredictable. Offer what makes sense for you to make a profit. But excessive penny-pinching will cost you some good deals.
Also, I don't respond to a full price counter offer if it is not a reasonable price, then go back in a month with $1,000 or $2,000 less if it is still on the market.
@Walt Payne Awesome advice thank you!
@Jeremy Davis ... Start low to get an idea of what works for the bank. If you really want the property, increase in increments of $500. However, in todays market properties are going fast and many over asking...
Originally posted by @Bryan L.:
@Jeremy Davis - you need to do an analysis based on the arv and the amount needed. most people use the rule of 70% of arv minus repairs. notice that the list price is not in that equation. but i have bought reos at less than 50% of list.
I'm currently in the same boat Jeremy. I've put in two offers the past two days. One foreclosure and one private residence that was a rental. The foreclosure offer was 50% below list and the private offer was 56%. Both homes are old and need a lot of work. The private home has been on the market for over 3 months and the foreclosure was just listed. These homes are located only a few blocks away in a small town in northern MI. The private home sellers countered with a 38% off list. I've countered them 50%. No word back on the foreclosure yet.
I'm curious how you've been doing with regard to the % off list price. Thanks in advance.
Paul
When offering on an REO there's one important point that is often overlooked: Earnest money.
When I have the cash and know I want the property I'll offer full offer as Earnest money. So, if I offer 10K, I offer 10K earnest money.
Many banks have been burned by investors who are tire kickers and not super serious and have lots of weasel clauses etc. Having to go under contract over and over is not something banks like to do.
So, by offering high earnest money, you're showing that you're serious and might have a better chance than someone with a higher offer, but $ 500 earnest money.
Just something to think about.
Originally posted by @Paul Harvey:
Originally posted by @Michaela G.:When offering on an REO there's one important point that is often overlooked: Earnest money.
When I have the cash and know I want the property I'll offer full offer as Earnest money. So, if I offer 10K, I offer 10K earnest money.
Many banks have been burned by investors who are tire kickers and not super serious and have lots of weasel clauses etc. Having to go under contract over and over is not something banks like to do.
So, by offering high earnest money, you're showing that you're serious and might have a better chance than someone with a higher offer, but $ 500 earnest money.
Just something to think about.
I totally agree with this @Michaela G
I'm a reo listing broker. The tricky part is every bank acts differently and some banks act differentry on different properties. There is no right answer on what percent to offer based on that the seller will do. You should consider what you need and what your current market is like first.
In most cases the banks will not take low offers right off the bat. It can happen, but usually they will not go less than 10 or maybe 20 percent less than asking at a max.
You also have to remember you are dealing with real people who are busy. If you do things that they think is a waste of time, it could hurt you. If you offer 40 percent of list right away or send in ten offers slowly increasing your offer it could bug the agent and asset manager. If you bug them it could make them less likely to negotiate.
Originally posted by @Mark Ferguson:
I'm a reo listing broker. The tricky part is every bank acts differently and some banks act differentry on different properties. There is no right answer on what percent to offer based on that the seller will do. You should consider what you need and what your current market is like first.
In most cases the banks will not take low offers right off the bat. It can happen, but usually they will not go less than 10 or maybe 20 percent less than asking at a max.
You also have to remember you are dealing with real people who are busy. If you do things that they think is a waste of time, it could hurt you. If you offer 40 percent of list right away or send in ten offers slowly increasing your offer it could bug the agent and asset manager. If you bug them it could make them less likely to negotiate.
Great advice Mark. The human factor is something that can easily be overlooked. And you're spot on with the number of offerings. I've found that I can only offer a few times before the owner has had enough. Especially when dealing with financing terms they have never heard of.
Another thing that I do when dealing with REO's, that cuts down on paperwork and tediousness and might help the overall picture, that the seller has of you:
I deal directly with the listing agent and make an offer by just writing an email, nothing formal written out. They get back to me by email and we negotiate back and forth that way. Only once we've come to an agreement do we deal with a formal contract.
Don't know if this works for everything, but all of my REOs were low priced and everyone worked that way with me. Wouldn't work, if there was another agent in the mix.