Buying a bank repo home with lowball offer

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Buying a bank repo home with lowball offer

Michael Mcguniess
gainesville, FL · Member since 2011 · 22 posts · 0 votes

I am looking into purchasing a tri-plex rental property and could use some advice when it comes to making an offer.

For starters, this home is a bank repo and has been on the market for well over a year. The home is in distress and is not in marketable condition by any stretch of the imagination.

While looking over the house I noticed a water issue in the basement (Apartment number 3). There is evidence of moisture and mold growth. The growth of mold has been encouraged by the fact that it has been closed up and not rented for 1 to 2 years.

In short, this home will need some type of water remedy, cosmetic repairs, new carpet and possibly drywall in basement, and who knows what else.

The real estate agent representing the bank has been encouraging the bank to drop the price due to it’s condition and mold problems but the bank is dragging their feet and not responding. From what the realtor told me, the bank is looking to get this one off their books.

The home is currently listed at price that is comparable to similar triplexes in the area that are in move-in ready condition. For illustration purposes, let’s say that it is listed at $155,000.

I was able to get the bank to agree to an inspection (at my expense of course) prior to making an offer.

I am guessing that the inspection will come back indicating costly repairs somewhere to the tune of $20,000.

The house is listed at $155,000 and I plan to give the bank a lowball offer after inspection somewhere between $85,000 and $100,000, depending on how much work it needs. To sweeten the deal, I will place no contingencies in the contract and agree to close ASAP. I will present my offer and also justify it by telling them what is wrong with the home.

Now that you know the background, here is my question:

What are the odds of the bank accepting an offer that is nearly 50% below the listing price? Keep in mind that it is listed high and needs some serious work. Also, the bank has owned this house for a while and wants to clear it off the books.

Also, is it a good idea to spend the money on an inspection prior to having the offer accepted? I am doing this so that I can feel comfortable making an “As is” offer with no contingencies.

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Jeff B.
Rental Property Investor · Taylor Mill, KY · Member since 2011 · 105 posts · 24 votes
15y

Using your numbers and what is kind of the general rule of thumb on BP for purchasing investment properties....

ARV 155000
ARV * 70% = 108500
expected rehab cost - 20000
Max Offer price = 88500

That's all assuming you have estimated properly.

I'm not sure I would have paid for an inspection prior to getting the property under contract. If you are unable to come to an agreement on price, you just wasted your money.

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  • Jeff B.
    Rental Property Investor · Taylor Mill, KY · Member since 2011 · 105 posts · 24 votes
    15y

    Using your numbers and what is kind of the general rule of thumb on BP for purchasing investment properties....

    ARV 155000
    ARV * 70% = 108500
    expected rehab cost - 20000
    Max Offer price = 88500

    That's all assuming you have estimated properly.

    I'm not sure I would have paid for an inspection prior to getting the property under contract. If you are unable to come to an agreement on price, you just wasted your money.

    1Reply
  • Bienes Raices
    Orlando, FL · Member since 2009 · 2k+ posts · 282 votes
    15y

    Is it a mold inspector? I would pay a reputable mold remediation company that will come out and do a written estimate that you can submit to the bank, as long as they aren't charging more than around $100 for the inspection. Make sure they can provide you the written estimate quickly because I found one co. that wanted me to wait a week to the estimate!

    Also take photos on your own and submit to the bank with a description of the issues. The more evidence you can provide, the more likely it is that they will accept your offer.

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  • Bienes Raices
    Orlando, FL · Member since 2009 · 2k+ posts · 282 votes
    15y
    Originally posted by Jeff B.:

    I'm not sure I would have paid for an inspection prior to getting the property under contract. If you are unable to come to an agreement on price, you just wasted your money.

    I agree with this--I would not waive my 7 day inspection period either, then you are just putting your escrow at risk, if that's what you are referring to by "no contingencies".

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  • J ScottPro Member
    Moderator
    Investor · Sarasota, FL · Member since 2008 · 18k+ posts · 17k+ votes
    15y
    Originally posted by Jeff B.:
    Using your numbers and what is kind of the general rule of thumb on BP for purchasing investment properties....

    ARV 155000
    ARV * 70% = 108500
    expected rehab cost - 20000
    Max Offer price = 88500

    That's all assuming you have estimated properly.

    That's one formula you can use if you plan to rehab or wholesale the property, but if the goal is cash-flow, this isn't the best way to analyze the deal.

    Regardless, save your money on the inspection. I'd be willing to bet (a lot of money) that the bank won't consider a $100K offer on a property listed for $155K.

    Think about it from their perspective -- why would they accept $100K from you when they could just as easily drop the price by 20% to about $125K and see if they get an offers at that price. If not, drop another 10% and see if that get offers. If not, drop another 10%. Etc...

    Eventually, they'll get bidders, and they know there's a decent shot they'll get those bidders before they have to drop the price 35%...

    Of course, if you dead set on getting the inspection, it can't hurt to put in a lowball offer and see what happens...

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  • George P.
    Property Manager · Livonia, MI · Member since 2011 · 4k+ posts · 1k+ votes
    15y

    that's still high in my book, but then again, i am used to dirt cheap prices.

    btw, unless you are paying cash, more likely no bank will give you a loan. i was denied a loan because of a repaired crack in the basement. no leaks, nothing.

    they wont give you a loan if the hardwood has buckled due to moisture.

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