Offering 20% of the banks listing price

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Offering 20% of the banks listing price

Rob Ratch
Homeowner · PA · Member since 2010 · 7 posts · 0 votes

Hi all,

I'm relocating and looking for a house to live in, not necessarily invest in, although I have some RE investment questions I'll ask in other forums if I don't find the answers with some searching...

I found a REO property I really want as a home. The house is large and by it's surface specs, already underpriced.
However, the structure has never had a CO or U&O, it has significant construction flaws, including what appears to be a garage built over the un-approved septic system. No septic permits, either.

The bank listed the property in the low $300's. The peak value on Zillow was around $550k, comps are in the $300-400's. The bank has owned it almost a year and a half, unsuccessfully auctioned it twice, and lowered the listing price 3 times.

In light of the problems, is it ludicrous to consider offering $50k for the property? I'd pay that in cash through family gifts.
Assuming I find a lender (which I'd do before making an offer), I'd use a conventional mortgage to demo the house and build a new house.
I've found a few builders that are willing to give me very good deals (thank the economy).
I'm not attached to the property and can walk away, but if this could come together, it would be the best home I could find in the area.

As people that deal with banks and REO's, what are your opinions?

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Jon Holdman
Rental Property Investor · Mercer Island, WA · Member since 2008 · 22k+ posts · 14k+ votes
16y

I will tell you that if you're going to bid on REOs for a primary residence, you need to be prepared for a long slog. You need to be prepared to make 10-20 offers to buy one house. I'm not buying right now for several reasons. But when I am, I will review 50 listings a week, try to look at 12-15, actually look at 10-12, and make 3-5 offers. Per week. My offers all have about 7-10 day deadlines, and say "EM to be provided by certified funds within 48 hours of MEC". That way I don't have lots of valid offers outstanding and don't have money tied up. Most offers generate no response at all. A few generate a "give us your highest and best". And every once in a while you get a counter. Plan to make 20 offers to get one accepted contract. Every rejected or ignored offer is one more of those 20 that's done.

Something else to keep in mind is the response. Sometimes agents say "that offer is insulting". Who cares if they're insulted. You're trying to buy a house, not make a friend. There's more houses where than one came from. The worst possible response to an offer, IMHO, is "we accept". That tells you they would have taken less and your offer was too high. Even being ignored is better than an acceptance. You can always make another offer at a higher price. You can't say "wait! I really meant ". Its just a house.

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  • Jon Holdman
    Rental Property Investor · Mercer Island, WA · Member since 2008 · 22k+ posts · 14k+ votes
    16y

    Regardless of what you think of the property, its extremely unlike they will take an offer that low. But with it having been on the market for 18 months, it doesn't hurt to try.

    You're looking at it as a scrape and offering (I assume) the lot value. Even with the issues, the bank will look at it as the value with these issues fixed, less the cost to fix the issues. I would guess, that even though these issues may be significant, they can be remedied for less than $250K.

    3Reply
  • Jon Klaus
    Developer · Garland, TX · Member since 2008 · 8k+ posts · 4k+ votes
    16y

    I agree with Jon, that the chances of a 20% offer being accepted are extremely low. I only win about 6-7% of my offers, and that's with me bidding an average of 70% of asking price.

    0Reply
  • Rob Ratch
    OP
    Homeowner · PA · Member since 2010 · 7 posts · 0 votes
    16y

    That's what I figured.

    The house is just short of being condemned. It's potentially structurally unstable and loaded with mold. The list of rehab it needs could go on and on, and after that, it's still poorly constructed and was never approved for occupancy by the township. My contractor said it's a knockdown, and my realtor said no way we could build in it's place for less than $300k (although I found builders for less).
    The homeowner also poured a cement floor and built a garage over the septic system to hide it, so that was estimated to be around $50k to correct, assuming the land perc's and a system is approved.

    As an investment, I wouldn't even look twice at this, but for a homesite, I was really into it. No one has been able to tell me if it's worth the effort to submit an offer like that, and my realtor agreed it was barely worth that, so I'm glad I found a forum with experienced folks to ask.


    Thanks for the insight, I'll walk away from this one.

    0Reply
  • Jon Holdman
    Rental Property Investor · Mercer Island, WA · Member since 2008 · 22k+ posts · 14k+ votes
    16y

    I will tell you that if you're going to bid on REOs for a primary residence, you need to be prepared for a long slog. You need to be prepared to make 10-20 offers to buy one house. I'm not buying right now for several reasons. But when I am, I will review 50 listings a week, try to look at 12-15, actually look at 10-12, and make 3-5 offers. Per week. My offers all have about 7-10 day deadlines, and say "EM to be provided by certified funds within 48 hours of MEC". That way I don't have lots of valid offers outstanding and don't have money tied up. Most offers generate no response at all. A few generate a "give us your highest and best". And every once in a while you get a counter. Plan to make 20 offers to get one accepted contract. Every rejected or ignored offer is one more of those 20 that's done.

    Something else to keep in mind is the response. Sometimes agents say "that offer is insulting". Who cares if they're insulted. You're trying to buy a house, not make a friend. There's more houses where than one came from. The worst possible response to an offer, IMHO, is "we accept". That tells you they would have taken less and your offer was too high. Even being ignored is better than an acceptance. You can always make another offer at a higher price. You can't say "wait! I really meant ". Its just a house.

    4Reply
  • Doug Haisten
    Mobile, AL · Member since 2010 · 238 posts · 44 votes
    16y

    Jon:
    do you send in the offers to the listing agent without really consulting or discussing the offer with them?

    The LA said my offer of about 56% of list based on fairly accurate comps from MLS and rehab est (not really cosmetic up grades but must fix type work) was ridiculus, that he expects the house to go for more than the list. With the repairs this property needs I don't see how an investor could buy this at list and not loose money. Should I just send my offer in any way?

    0Reply
  • Jon Holdman
    Rental Property Investor · Mercer Island, WA · Member since 2008 · 22k+ posts · 14k+ votes
    16y

    I do them through my agent. He does sometimes call and chat with the listing agent, sometimes we just send them in. Never hurts to send in an offer. If you're this far apart, though, you just aren't very likely at all to get it.

    2Reply
  • Bill Gulley
    Investor, Entrepreneur, Educator · Springfield, MO · Member since 2009 · 21k+ posts · 12k+ votes
    16y

    Hi, just a simple FYI thing. When you have listing agents that want to reject an offer before it's made (they want the commission and they are not losing a dime while it sits there, except advertising it) they may not explain why your offer is based so low. Not that all sellers will read it, but I have written it all out before and included it as an addendum.....like....seller is to be notified of the basis of the offer made as fully contained in Exhibit "A" attached and made a part of this Contract, ...at least you can write out and show your comps, repairs, etc and justify your offer. It really made the listing agent ticked, but I really didn't care and she lost the argument, they accepted my offer. After a year and a half, they might read it....anything can happen if you justify it well enough. Bill

    3Reply
  • Doug Haisten
    Mobile, AL · Member since 2010 · 238 posts · 44 votes
    16y

    Jon, are you using a buyer's agent? The difference made me look real hard at my number. I got a 2nd opinion on repairs (which didn't include any inspection of the mechanical/electrical of the house).

    Bill I like the idea of sending in an attachement showing comps and repair costs. The LA's price isn't allowing any holding costs, selling costs, or profit.

    0Reply
  • Steve Babiak
    Real Estate Investor · Audubon, PA · Member since 2009 · 13k+ posts · 8k+ votes
    16y

    Would this property happen to be located in Parkesburg by any chance? If so, and it sounds like one I've been told about, the bank is local and refuses to budge.

    0Reply
  • Mike Lee
    Member since 2008 · 50 posts · 0 votes
    16y
    Originally posted by Jon Holdman:
    My offers all have about 7-10 day deadlines, and say "EM to be provided by certified funds within 48 hours of MEC".
    . What is mec?

    0Reply
  • Rob Ratch
    OP
    Homeowner · PA · Member since 2010 · 7 posts · 0 votes
    16y

    Steve, it is not in Parkesburg, and the bank is a national chain.
    I'll give you a call tomorrow or friday at the number in your signature if you're interested.
    I'm pretty confident someone's going to lose their shirt on this place, be it the bank or a buyer. I'd rather it be the bank that can usually survive the hit...
    Jon H., great advice and perspective, thank you!

    FinanceExaminer, that's a good idea. I had figured with such a low offer, I'd be better served to send in an explanation/justification with it.
    The listing agent hasn't returned my call, going on almost a week now. I have a realtor, but I think she said she's bogged down with tax-credit closings.

    0Reply
  • Steve Babiak
    Real Estate Investor · Audubon, PA · Member since 2009 · 13k+ posts · 8k+ votes
    16y
    Originally posted by Mike Lee:
    Originally posted by Jon Holdman:
    My offers all have about 7-10 day deadlines, and say "EM to be provided by certified funds within 48 hours of MEC".
    . What is mec?



    I believe it stands for "Mutually Executed Contract" - i.e., both parties have agreed and signed.
    0Reply
  • Jon Holdman
    Rental Property Investor · Mercer Island, WA · Member since 2008 · 22k+ posts · 14k+ votes
    16y

    MEC is "mutually executed contract". Maybe that's a Colorado-ism, never heard that term in CA or TX. Basically, the point where you have a real contract that everyone has signed.

    If its a short sale, use "SSA" instead. Short sale approval. The seller's approval on a short means absolutely nothing. Its the bank's approval that matters. I had an EM check tied up for several weeks on a short sale after the bank foreclosed and the seller wouldn't release my money.

    Yes, I have a buyer's agent. Other people deal directly with the listing agent. If you have your own agent, let them deal with the listing agent. If you're going to deal directly with the listing agent, don't use a buyer's agent and let the listing agent collect both halves of the commission. There are some old threads on pros and cons both ways on this topic.

    I'm with you. If someone's taking a bath on a deal, I don't want it to be me!

    0Reply
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