Typical REO discount?

Question

I've been looking into REOs in my area. While there aren't very many, I've tried to think about what kinds of offers are generally accepted for REOs. Outside of (and most importantly) making sure that an offer I make is conservative, makes sense, and is profitable, I have no basis for what is typical. Anyone have any first-hand experience that may be helpful here? Everyone loves thumbrules, but even a few examples from experience would help me. Thanks everyone!

Shawn Holsapple · Answer

Here in Indianapolis we are seeing REO's located in moderate to good neighborhoods go at or near list price.  Ones in the better areas are going highest & best plus, usually over list price.

With that said, however, I have success making hundreds of offers per month and picking up 5-10 REO's at big discounts [sometimes 60% off list price].  It's all about timing [and luck].

If you want some accurate numbers, hire a VA for $2 per hour and have them track the solds in your market for a few weeks/months to see what the market it doing.

If your market is heating up like Indy, I wouldn't wait too long - however!

Shawn Holsapple · Answer

I buy the bulk of my homes off of the MLS.  A few are HUD and very few are Fannie.

Vonetta Booker · Answer

I actually have gotten back my EMD based on a failed inspection (stuff the seller didn't mention in the disclosure like mold, termites, etc.)--but since this would have been my 1st rehab, I made sure to include an inspection contingency in my offer.  No contingencies may be cool for those more experienced, but I didn't want to go there just yet--and glad I didn't! ;-)

Bryan L. · Answer

eh, cash-flow not so great since I refied it for more than I invested in it.  But oh well.

Micheal Waldrup · Answer

@Walt Payne Great advice! Thanks for sharing your experience. Definitely something I will think about as I proceed. Nice to hear persistence is the key. I definitely have it, and it seems to keep tire-kickers out of things when it's required.

@Joe Gore Wow! They could reach up here to Virginia also and I wouldn't mind. I have the money, I'm concerned right now with the knowledge and opportunity side. Haven't had a whole lot of luck so far finding decent deals.

@Bryan L. Thanks for sharing that. Sounds like great cashflow on the rental. And the rehab sounds like an owner's nightmare, especially if they don't have the resources to fix it. Good opportunity for you though maybe. Wish you success there!

Bryan L. · Answer

@Micheal Waldrup Like others have said, many factors come into play - condition, location, market, days-on-market.

I have bought REO properties at SIGNIFICANT discounts to list price.  One of my best examples is a rental house that I picked up for 22,000.  It was listed for 59,900.

Also, I looked at an REO today that is listed somewhere around 40.  I seriously thought about asking the listing agent if the sellers would pay me to take it off their hands since it was in such bad shape.  I'm talking about 30-40 in repairs, and then you only get an 80 ARV max.

Account Closed · Answer

@Micheal Waldrup,

The banks in Texas are over loaded with REOs but no real buyers. I spoke with my contact, and she said that the bank had to reach out to Canada to find real buyers.

My experience,

Joe Gore

Walt Payne · Answer

@Micheal Waldrup besides the factors mentioned is time on the market. If it is overpriced and nobody buys it, eventually they will see reality. With the right timing you might get lucky and get a steal. I saw one go contingent 3 times, each at a few thousand less. Each time they put it up as a "new" listing. The fourth time it was listed I offered 60% of asking, cash, no contingencies and 50% EM. I got a steal because I knew it was an old listing.

And I knew before buying that it had Chinese drywall. The others didn't and lost their EM when the inspector told them. I bought based on a gut rehab and made good money. That is the other important thing to know about REOs, don't think you will get your EM back based on an inspection. Do your due diligence before the offer.

Micheal Waldrup · Answer

Thanks for all the replies.

Really I ask to get a feel for different areas. It's not that I plan on using the answers I get here to setup some rule for myself on bidding. More just curious what others are experiencing in their local markets.

@Shawn Holsapple , funny that you mention that tactic, as I already have a VA doing just that. Great suggestion! Glad to hear you're having success with a bunch of offers like that. Are you talking mainly with HUD's site and Fannie / Freddie sites?

@Mike D'Arrigo I meant discount from market value. Sorry about the ambiguity.

@Joe Gore At least there's opportunity in those locations. I may be moving up to Ohio after I'm out of the military. I will make sure to check that area before I do. I see more people on these forums from Texas than anywhere it seems. Have you found many great REO deals in your area?

Again, thanks everyone for sharing your valuable time with me. It's very appreciated!

Mike D'Arrigo · Answer

@Micheal Waldrup

I'm not clear whether you mean discount off asking price or discount from market value. If you're asking about discount from asking price, that number is easy to get. Every real estate board tracks the sold price as a percent of asking price. If you don't have access to that, ask a real estate agent.

Typical REO discount?

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