REOs: How low can you go?

20 Replies

I'm on the hunt for my first deal and feel a bit confused about bank owned properties that are in foreclosure.  I'm finding many listings for these properties at a close to retail price, but can tell from the online pics that they need full rehabs.  Will banks entertain a much lower offer than what the listed price is?  

Yes, sometimes you can make an offer at 50% of the list price and they'll take it other times you can make an offer at 95% of list price and they'll reject it.  Generally the longer it's been on the market the more flexible they become on the price but it depends on the bank and the situation.  Make an offer where you're comfortable, the worst they can say is no.  If they reject stay on top of the listing and you can always resubmit later.  

These days, it's tough to find great deals on REOs in this area (Maryland). A couple years ago, every REO was priced pennies on the dollar (it was a good time to be an investor), but these days, any publicly listed properties are going to have a lot of buyer competition and sell for around market value. Unfortunately...

For your first deal you might want to look other places then the foreclosure market. find a good property owned by an individual that has been on the market a long time and see if they will work with you. Individual sellers are usually easier to work with then the banks. Not always but sometimes. 

Peter MacKercher, Real Estate Agent in MO (#2010004223)
(314) 210-4414

What a shame. Seems like many of these homes will just sit, because the price they're asking for these rundown properties is pretty unreasonable. 

Originally posted by @Rachel Gill :

What a shame. Seems like many of these homes will just sit, because the price they're asking for these rundown properties is pretty unreasonable. 

 They're all going to sell eventually.  The bank isn't going to keep them, they're just going to start as close to retail as they can to see what they can get and try to maximize their value. 

I find it's about having a very good system of keeping notes and time tables. When to bid, when to check again to see if something's fallen out of contract, when to resubmit, how long your inspection period lasts. Keeping a good spreadsheet and a good calendar is the key to staying on top of REO's and HUDs

@Rachel Gill  - The problem you are learning is that there is no rhyme or reason to the prices some banks put on their REOs. You have some asset manager sitting in an office, likely in another state far away who has never personally seen the property. They have some internal formula to determine what price they market the property for, as well as how long they wait to drop the price. This seems to continue until the price they drop it to is a realistic price someone is willing to pay. What you THINK might be common sense is usually not followed when it comes to bank owned properties. 

That being said, you never know what a bank is willing to consider until you make them an offer....so make them an offer you feel is justified, the worst they can do is reject your offer outright and not even make a counter to you. 

Originally posted by @Peter MacKercher :

Most the time its the appraiser that don't know what they're doing that set the price too high.

These days, most banks don't do appraisals before they list an REO. They rely on BPOs, which are much less reliable.

Additionally, prices are typically not set in order to attract investor buyers -- they are set to attract homeowners, who can typically afford to pay more than investors (will they?  maybe not, but they can afford to).  This is different than 5 years ago when it was tough for homeowners to get conventional debt -- these days, it's not that tough, so banks don't need to just target investors.

Rachel

@J Scott 

is correct without question in Maryland, especially around me in Annapolis & Anne Arundel county. I'm a cash buyer and have been looking for about 6 months. Foreclosures, REO's, distress of just about any type I can find. There have been about 4 possibilities during that time frame, was outbid on all of them. Don't give up, they're there. Time & Patience.

Same story in nearby New Castle County, Delaware. A couple of years ago I was buying REOs at very good prices, and it seemed like no one else was bidding. Nowadays I can't seem to win a bid, no matter how high I go! I got one as a back-up bidder because the winning bidder backed off (it had an illegal addition that he did not want to mess with. I just tore it down).

Patience!  Prices going up for sure in my market..

A guru podcast I watched once mentioned that they bid on 20+ REO's every week for what they need to get the property for to be profitable. 99% of the time their bid is rejected. But if they pick up one property, it is a win.

Remember anyone can sell anything for any amount they want, makes no difference what price they put on it, you just focus on YOUR price.  If they accept, great, if they reject, so be it. It will be there again.

@Ryan Harthan , I like your idea of using a spreadsheet to track listings.  Do you have an example of one you'd share?

Thanks,

John

@John A.  We've actually had software developed to help us keep track of everything.  With a couple of guys doing full time acquisitions we don't want to go doing the same work twice or offering on the same house twice.  But if you're doing it on your own a simple excel spreadsheet should work pretty well.  I'd have one of the first columns be something like an action date - like when is the first day you can submit an investor offer, when it went AO, when it went pending and with whom.  

@Ryan Harthan  , thanks.  That'll give me something to start with.

Good info, I'm going to look at some REO's this week and I focus on the ones with a high days on the market. Then I put my offer at least 30-40% off list price and see what they say. Also have you thought of getting a list of absentee owners from list source, or are you just looking for REO's?

One thing I've found too is that deals tend to run in cycles for me.

There are gaps during the year where it just seems like there's nothing there and not a deal to be had. Panic mode sets in and you figure you're never going to get another good deal again.  And just when you start thinking that, you'll go on a run where all your lowball offers magically get accepted.

So best advice I have is always to stick with it. You'll get some deals eventually. But its definitely about remaining diligent and watching the houses pop online. Sometimes some of the best deals are the ones that were put under contract and then come back. The bank may discount them significantly at that point but they may only be out there a day or two so you have to be ready to jump on them.  They don't last long.

And given the area you're in - based on the other posts - one of the hardest things to do is to stick with it given how much competition there appears to be there. Just remember. If other investors are getting deals, you can too.

btw: Try hud if you can. Or try expanding your area a bit too. Sometimes, you have to get away from the investor-centric areas and maybe go further out to smaller/mid-size towns to get away from the heavy hitter competition.

I know up north of me there are several big time corporations taking tons of houses down. And I also know that I probably can't compete with them. But down by me, where I'm in a bunch of smaller towns, there aren't as many buy and hold guys and I've actually been on quite a run over the last year or so.

I have to be willing to expand my area to about 8 or 9 different towns. But they're still within 30 minutes of where I live and there always seems to be one town "in play" that I can pick something up in.

Maybe wait for rates to rise, if they ever do...

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