making offers on reos?

Member since 2009 · 23 posts · 0 votes

i've been told that on reo's banks normally don't take less than 20% of asking price and its a waste of time to go out and offer half of list or below even if the property has been sitting for 5 months to a year or more. is this a good rule to follow?

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J ScottPro Member

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Investor · Sarasota, FL · Member since 2008 · 18k+ posts · 17k+ votes

16y

Like the others have said, offer based on your requirements, not based on the listing price.

Of the 20 or so REOs I've purchased, at least a few have been at 30-40% below list price. Probably close to half of them have been at 50% or more below the original price where I first submitted my offer; for example, it may have been listed at $100K, I offered $50K, got rejected, the bank dropped the price to $70K, I resubmitted my offer, and then got it for $50K or less.

So, make the offer based on what it's worth. If your offer is rejected, submit again after the next price drop (or a couple weeks later). The worst that can happen is that your offer can get rejected.

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Christopher Davis
Real Estate Investor · St. Louis, MO · Member since 2010 · 153 posts · 104 votes
16y
I personally make my offers right in the range im willing to pay for that property. This gives me some wiggle room if they counter (reasonably) or if I don't get it and have a chance to make a run at it later. If I do get it then I've saved a few bucks. The risk is that someone offers them asking price which is not uncommon around here on distressed properties in decent neighborhoods.
My opinion , the bank is not usually going to give a huge discount on an already discounted item.
The only way to know to know for sure though is to get some offers in and see what they accept.
Good Luck
Chris
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Jeffrey K.
Real Estate Investor · Milwaukee, WI · Member since 2008 · 1k+ posts · 671 votes
16y
Most of my single REO purchases have been within 10-15% of asking price. I did do a deal where I picked off 6 buildings at once and go them at about 40% off asking. Depends on the bank and how badly they want it off the books.
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Tony Zamberlin
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Member since 2009 · 23 posts · 0 votes
16y
Ok thanks guys. from what i hear around here its the 20% below asking rule if its been on the market for more than 30 days.
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Chris ClothierBusiness Member
Rental Property Investor · memphis, TN · Member since 2009 · 2k+ posts · 3k+ votes
16y
Tony -

We make about 400 offers a month to buy the 20-30 that we actually move to investors. I can tell you that what both Jeff and Christopher said is correct to a point and I will take it one step further. You will never know what price a bank is going to accept on an REO until you make it. If you are not embarrassed by the price, then it is too high. You can never go back and negotiate a buy price down so make sure you make an offer that is going to make you great money first.
We have been doing this for a long time which helps us to buy properties really cheap and we normally purchase below half of listing price.
Get out there and make some offers and be prepared to be laughed at. But when you close on time and get some deals going, you will find the prices get better and your price will be considered a serious offer.

Good Luck -

Chris
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Tony Zamberlin
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Member since 2009 · 23 posts · 0 votes
16y
Chris,
Thanks for the reply. So at what percentage below asking are u guys offers normally accepted at? I spoke to a couple other people yesterday and there saying the only time its really a good idea to offer even 30% below the list price is if its been on the market for 6 plus months with no price drops. other than that 10% below on 1st 30 days on market and 25% tops!! below market after that is about all there gonna take if that... let me know your thoughts. sounds like u just blast out a ton of offers and my broker says better to just make like 20 smart offers and get 5 accpeted then 100 and only get 2 accepted....
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Steve Babiak
Real Estate Investor · Audubon, PA · Member since 2009 · 13k+ posts · 8k+ votes
16y
Make your offers based on your evaluation of the property, not the price the bank has it listed for. Sometimes the banks get stubborn and are still trying to recover the entire debt amounts owed to them, even when the REO condition is poor. Doesn't make sense, and that's why you only offer what you think it is worth.

How much discount they will accept and how far along in time also varies from bank to bank, so you have to learn them all, or guess, or just keep putting offers in on the same property repeatedly until it sells.
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J ScottPro Member
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Investor · Sarasota, FL · Member since 2008 · 18k+ posts · 17k+ votes
16y
Like the others have said, offer based on your requirements, not based on the listing price.

Of the 20 or so REOs I've purchased, at least a few have been at 30-40% below list price. Probably close to half of them have been at 50% or more below the original price where I first submitted my offer; for example, it may have been listed at $100K, I offered $50K, got rejected, the bank dropped the price to $70K, I resubmitted my offer, and then got it for $50K or less.

So, make the offer based on what it's worth. If your offer is rejected, submit again after the next price drop (or a couple weeks later). The worst that can happen is that your offer can get rejected.
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Tom C
Real Estate Investor · OH · Member since 2008 · 1k+ posts · 86 votes
16y
I usually watch a property sometimes for several months until the price comes down to what I am willing to pay. I then go in and usually offer 1/2 of the listing price. My last REO went from $42 to $36 then to $24K within 6 months. I offered $12 and they countered at $14K plus CC.

I grabbed it. It was a Fannie, they never pay closing cost. Like others have said. It's all based on what you are willing to pay for it, then low ball the offer. Worst they will do is counter.
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Tony Zamberlin
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Member since 2009 · 23 posts · 0 votes
16y
thanks for all the input guys...It helped me tremendously. I didn't wanna waste time offeing lowball like less than 20-40% below list, but u guys are saying u get them accpeted, so if that the case here goes! I'll lowball the crap out of them..
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Jaime Vasquez
Investor · San Antonio, TX · Member since 2009 · 51 posts · 10 votes
16y
Tony, dont even look at what percentage your offering below asking price. Go off your buy formula exclusively.
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Tony Zamberlin
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Member since 2009 · 23 posts · 0 votes
16y
Ok Thanks. Great!
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Tony Zamberlin
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Member since 2009 · 23 posts · 0 votes
16y
ok im a little confused. some of you guys are saying be withing 20% of asking and others are saying it dont matter just offer what u can pay end of story!! which is the best rule??
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J ScottPro Member
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Investor · Sarasota, FL · Member since 2008 · 18k+ posts · 17k+ votes
16y
Originally posted by Tony Zamberlin:
ok im a little confused. some of you guys are saying be withing 20% of asking and others are saying it dont matter just offer what u can pay end of story!! which is the best rule??

There is no "best rule"...you have to do what's right for you...
Some people aren't comfortable making low offers, some people don't think it's worth the time to make lowers when only 1 in 50 is going to get accepted, some people don't have agents who will even put in very low offers, etc.

For those people, offering less than 80% of list price isn't worth the time or effort. So, they employ other strategies to ensure they're getting great deals.

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Tony Zamberlin
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Member since 2009 · 23 posts · 0 votes
16y
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Tom C
Real Estate Investor · OH · Member since 2008 · 1k+ posts · 86 votes
16y
Tony,

It's actually pretty simple. It depends what you are doing with it. If it's rent to hold, then you have figure in your cost of purchase, rehab and holding cost based on the rents you can obtain. If you are flipping it, then it's based on your rehab, holding cost and the expected profit. Once you get a couple under your belt, then you will know how to walk in and make an offer. The most important thing is getting in there and make the offer, it's too low, they will kick it back with a counter offer.
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Tony Zamberlin
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Member since 2009 · 23 posts · 0 votes
16y
k
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Tony Zamberlin
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Member since 2009 · 23 posts · 0 votes
16y
Ok what do u guys think is a good number or % net to make, or rule to follow when doing a rehab? say under 150k sell price and over 150k sell price? also do u try and make the nicest house in the area and still sell for 10% or so less than the other houses are listed for or above what the other are listed for?
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Tom C
Real Estate Investor · OH · Member since 2008 · 1k+ posts · 86 votes
16y
I buy most of the time, the crappiest houses in the best areas. Since I don't sell them, it depends how much holding cost you have into it. Don't get greedy, the most important part is to get rid of it while still making enough profit to justify the work you put into it. IMO.
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J ScottPro Member
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Investor · Sarasota, FL · Member since 2008 · 18k+ posts · 17k+ votes
16y
Originally posted by Tony Zamberlin:
Ok what do u guys think is a good number or % net to make, or rule to follow when doing a rehab? say under 150k sell price and over 150k sell price?

This really depends on you and your market. Some people would be happy making $10K on a part-time flip of a $200K house...others would want to make $30K on that same flip. Sometimes, it's impossible to consistently make more than 10-15% returns on sale price just because the market in that area just won't support it.

Personally, I like to focus on selling more houses so that I don't have to try to get the most profit out of each. If I can make a quick $20K, I'll take that offer before I hold out for $30K, even if I think the $30K is realistic. A bird in hand...

also do u try and make the nicest house in the area and still sell for 10% or so less than the other houses are listed for or above what the other are listed for?

If you have the nicest house at the lowest comparable price, you should never have too much of a problem finding a buyer...
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Doug Haisten
Mobile, AL · Member since 2010 · 238 posts · 44 votes
16y
Hey guys, so how do you get the listing agent to take a discounted price? I don't want to buy a property just to say i bought one but when I price it at what I think I can turn it around for (and make a modest profit), say 65 - 70% ARV plus repairs, the listing agents don't want to take the offer. Are the listing agent bound to take the offer?
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J ScottPro Member
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Investor · Sarasota, FL · Member since 2008 · 18k+ posts · 17k+ votes
16y
Doug -

First, it's not the listing agent who decides on whether to sell you an REO property or not...that's the bank's decision.

Legally, listing agents are bound to present any written offers to the seller/bank (unless the seller has previously provided guidelines for what to present and what not to present).

Of course, I know of some listing agents who probably don't submit all offers, as many listing agents believe a low offer is a negative reflection on them. If you can prove they didn't submit an offer, you can report them to the local Board of Realtors or NAR, but proving this can be difficult, and would also likely get you a bad reputation among REO agents.

All that said, make the offers you are comfortable with. If they tend to be very low, just expect that 99% of the time you'll get rejected. But, occasionally, you'll be surprised and will get a counter-offer, at which point you know the bank is motivated and serious.

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Jaden Ghylin
Developer · Prior Lake, MN · Member since 2010 · 118 posts · 46 votes
16y
I've got another question for you all. When you submit offers on REOs are you writing full length Purchase Agreements or are you submitting short 1-2 page offers with price and basic terms? I ask, because I've been forced to write up 18 page purchase agreements for my last few offers and if really limits how many places I'm willing to go through the trouble of offering on. It seems like such a waste of time to do all of that paperwork if the terms and price haven't even been negotiated yet.

Is there a good way to keep it simple and negotiate price and terms before going through all of the PA legwork?

Any thoughts would be appreciated.

-Jaden
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Steve Babiak
Real Estate Investor · Audubon, PA · Member since 2009 · 13k+ posts · 8k+ votes
16y
Jaden,

I agree with you - standard realtor contracts are lengthy - especially when you expect that the offer will be rejected.

How you present an offer will depend on the type of listing and what the seller has instructed the listing agent to do. Often, the listing information will tell you how to present your offers. The experienced REO listing agents will likely have a website that tells you how to present offers to them.

I have posted in this thread what I normally do:
http://www.biggerpockets.com/forums/311/topics/39771-the-art-of-negotiating
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Jaden Ghylin
Developer · Prior Lake, MN · Member since 2010 · 118 posts · 46 votes
16y
Steve,

Do you use your 1 page offer form even if the listing agent is asking for a full purchase agreement for the offer?

Just curious, because so far every listing I've seen wants a full PA with addendums, etc. Seems unreasonable to me. Can I just submit 1 page offers anyway?

-Jaden
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Steve Babiak
Real Estate Investor · Audubon, PA · Member since 2009 · 13k+ posts · 8k+ votes
16y
Jaden,

I always tell them the 1 page is an "offer summary" and that upon acceptance the full standard realtor agreement will be executed. Many of these REOs are handled through asset management companies, and there is a web-based portal where the offers are entered; that web portal has no clue what type of paper is in the offer. If rejected, I saved some trees; if accepted, we execute the full documents as promised in the offer summary. And then there is the addendum on top of that.

However, certain loan types and lenders won't do anything without the full agreement, so the 1 page offer doesn't work with those; off the top of my head, HUD listings are in this category.

I suggest you specifically ask whether they are willing to work this way to cut down on amount of paper on rejections.
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