HELP! Trying to make an offer on a REO Property

7 Replies

Hi BP,

I just looked at a REO property with a realtor. He said there was 5 offers on the property

Q1: Can/Do realtors actually lie (or exaggerate) about the offers they have? This property has been listed for 45 days (extremely long for my market) and all of a sudden the day I look at it it has 5 offers. It just doesn't seem likely.

Q2: I am trying to make an appealing offer to the bank. I want to offer to pay all closing costs. (I previously bought a short sale and the bank paid some closing costs but they made a big fuss about it). I was hoping that including all closing costs would make it more appealing to the bank and actually make it a higher all in offer. 

Here are the Numbers:

Listed: $98,000 

Assume they have a full price offer of ($98,000- (6%commission+1.5-3%misc closing costs) = $89,180-$92,120 would be the net to the bank depending on actual closing costs (it is unlikely that it will actually be 9% but...)

I was going to write up an offer for $85,000 plus all closing costs (capped at 9% of offer). so my offer would be up to $92,650 net to the bank (at best).

Q3: Is the above a stronger offer than the offer they may be getting at full asking price less closing costs?

It sounds like I am competing with some first time homebuyers. They plan on moving into the pace "as is" with out doing any work. The place doesn't even have a functional septic system and is in very rough shape (I plan on $100K in reno) so I am not sure how they are going to move in let along get financing for it. They "are going to write an offer" with a financing contingency for getting approved for a conventional loan on the place. Maybe they can get this I don't know. 

I have a few different ways of financing the place myself. The problem here is financing the large reno budget ($90-100K). I am 90% confidant I can get money for the house plus the renovation costs (from traditional bank financing and/or private money and/or HELOC on my property) but there is always the change that I cannot.

Q4: Should I put a financing contingency in my offer? I know the offer will be more appealing the less contingencies I put in it however is there a way to back out it my financing falls through? (Most likely on the renovation side)

Q5: Should I put in an inspection contingency? I inspected the property myself. I am no expert however I know what I am looking at and don't expect any surprises from a professional inspection. However, there is always the possibility of something popping up that I missed. Should I put the inspection contingency in just as protection for myself?

Thats a lot of questions! I hope someone can help. Today is supposedly decision day for the bank. I am looking forward to everyones feedback and advice. Thanks in advance.

Michael

@Michael S.

Michael,

I was in a similar situation last Fall. I bought a flip, had 3 other offers and I bought a little over the bank list price. The good I still made a little money at the end of the deal, the bad number DO NOT LIE. Do not force a deal because you feel others are competing or it is a game to get this particular house. Stay with YOUR numbers always. If the deal is meant to be bc you stuck to your guns with your purchase, rehab, holding costs and an ARV selling price then you will be successful.

With that being said I have few answers to some of your questions above:

1) I am not a realtor however I do believe realtors have to follow a ethical code when representing facts about a property?  Maybe another realtor can pipe in on your above scenario.

2) You never know what a bank will accept.  Stick with the numbers that make sense to make money on this property and stay firm.  Banks can budge.  If another investor out bids you well let them have it.  Not enough fat to be worth your time more than likely.

3)Financing-- You stat you are 90% sure you can get bank financing without a functional septic and 100K of repairs? You sure about that? I needed to paint a house once and the bank barely gave me a loan. I say this because I am a private lender and we lend to people trying to do just what you are doing. Banks will not loan on the above property. You will need to find short term money to acquire this property, renovate and then flip or refinance out (conventionally) and hold/rent. And for a reference most hard lenders will lend at 65% LTV of what the property is worth. I didn't see a CMA or BPO of this property.

4)Inspection--In my opinion YES!!!!! I purchased a VA foreclosure with busted boiler pipes and all kinds of stuff wrong. I paid cash and YES I got a 10 period once my contract was accepted by the VA to get a home inspection. It the inspection was not to my liking then I could of pulled my offer after my 10 days and got my deposit back. Always get an inspection.

Lots of words but I have been in your shoes.  Run your numbers and stay with them.

Good luck!!

As to offered price, the bank calculates their Net.  It makes no difference if you offer $90k and they have $10k in closing cost/fees, or if you offer $80k and pay all the fees.  Keep it simple, and offer with them paying their normal fees, as most offers they are comparing against will be structured that way.  Yes, agents lie. 5 offers now on a 45 day old listing?  Not likely.

No financing contingency will certainly help your odds, but hat's your call, as well as the I spction.  You should probably have the inspection period though, just keep it short.

@Michael S. , I gave a thumbs up for both responses above. Especially about these two points:- 1. "Do not force a deal because you feel others are competing or it is a game to get this particular house. Stay with YOUR numbers always" said by Account Closed.

In your theoretical example, you said "I was going to write up an offer for $85,000 plus all closing costs (capped at 9% of offer). so my offer would be up to $92,650 net to the bank (at best)", but didn't you get the "Net" figure skewed? If you were Offering the same purchase price as your competitor but giving the Bank a greater "Net" amount, you would say to the bank that your Offer was $85k NET (with closing costs then paid by you, but not "Netted" by the Bank), whereas the other Offer might say $85k (with closing costs being paid by the Bank) resulting in up to $9k LESS than $85k being the Banks "Net". (Do you see why you DON'T want to try to out-guess what others might be doing)? Cheers...

Hi Michael, 

1. Figure out what is the highest number at which you can make a reasonable profit. Don't go over that number!! It's so easy to let others talk us into believing that rehab won't cost that much, or that the ARV will be more -recent experience talking!

2.Once you have your highest number you can evaluate how true the claims of 5 other offers are and if you want to offer less than your highest number.  If it's been on the market for 45 days and hasn't changed price I can't imagine it has 5 offers.  And 1 possible offer from first time buyers who need financing and will move  right away into a house with no septic?  Sounds very doubtful.  

3.  Be 100% certain you can finance the house and reno budget.  If you can pay cash for the house and already have a loan for the rehab, great.  If not then keep the financing contingency.  Although, you could maybe skip the financing contingency and then if you can't get financing it sounds like the house is in bad enough condition that you could back out of the deal because something new came up during the inspections.  

4.  Don't give up your inspection contingency!  I would encourage you to do as many inspections as possible.  But even if you only do more inspections on your own it's good to have the opportunity to go thru the house with a fine tooth comb.  

5. Best of Luck!  Hope you get it for less than expected!  :)

Thanks for all the help! Great input all around. 

UPDATE: Unfortunately there were 9 offers, it went to a bidding war and it was sold for "well over asking". Oh well, hopefully I can get the next one.

I'm really curious about what happened that it sat around for 45 days and then all the sudden had 9 offers?  Did they lower the price?  Did the neighborhood somehow suddenly become desirable? 

@Debra R. When I asked the realtor the same question he said they "changed up the marketing campaign for the property" I found it on realtor.com. It just happened to be a coincidence that I expanded my search 5 miles outside my area and they "changed up the marketing campaign" on the same day. I am going to keep an eye on it just out of curious. It still does not show as being under contract yet...