what to offer on REO?

Question

So im looking at an REO, it was listed for auction Feb 2014. The bank bought it back a month later at said auction. It wasn't reposted for sale as foreclosure till December of 2014 at 125k they dropped the price late January to 94.9k.... Do you think that's their bottom dollar. Would I be wasting my time throwing out an offer less than 90k? It needs probably only 5-10k in rehab. TIA.

My husband wants to low ball. I want to guarantee its ours.

Jeff McCaskey · Answer

Investing is NEVER emotional, not even about money - or you will make mistakes or miss opportunity. It's cold hard facts and that's it. GO CELEBRATE EMOTIONS WHEN YOU SCORE THE BIG PROFIT AT THE END OF SALE OR REFI AT THE BAR etc etc lol.

The bank will go lower, they always will go lower.

Banks are down right retarded about money when it comes to an REO - they make bad choices financially from our perspective looking in, but that is what creates opportunity for people like us.

A good deal......... depends on the ARV and trends in that area (comps) I don't know any markets in Illinois but nationally in compact areas if you can still get it bought 25-30% below the comps then that seems to be good. ALL DEALS ARE INDIVIDUAL THOUGH.

They dropped the price 30k on the first reduction, they want to get rid of the property. they will go lower. If it were me, I would low ball at 45k or something like that and see what happens. If no response then rethink what you want to do. I bet they will end up selling for another 30K drop though. If I got nothing back I would wait a couple weeks checking it daily to track it. Wait for the next drop and offer a new or same offer. Stay on it.

REAL STORY - I made an offer on a house in my area a few years back. It was worth 125-140K and was listed for 125K, dropped rapidly to 90 something right, I offered 70K with no response. I waited but had moved on to other deals, I watched. Was soon dropped to 70 something and sold so I called the agent. It sold for 65K......... real world example.

Daniel Watrous · Answer

As a retail buyer:

You have to look at your market and comparable homes, although it is an REO that doesn't mean a bank will give it away. Ask your Realtor to do a CMA and compare similar transactions in your area. For example in my area it's not uncommon for normal retail sales to be discounted 4-6% off of list.

As an investor (assuming your flipping):

You need to consider your after repair value, fixed costs (commissions, etc.), renovations, etc. You can use the 70% rule as a quick check (ARV*70%-repairs = purchase)

As a buy and hold you need to consider if properties like this are renting and for how much?