How much too offer for REO/Post foreclosure bank owned home?

Question

How low do you go when making an offer to a bank on a REO Property?

I am looking to flip a property in West Michigan. However, in my opinion, the bank is asking way too much for a property in which they own. They are asking $110/sqft for a home that needs a complete remodel. Remodeled homes in my market sell for $135-145/sqft depending on the neighborhood. A home three doors down just sold for $143/sqft. I estimate the home would need $50-60k in repairs/upgrades. If I paid the price the banks asking price I would lose about $25k.

I did my research and know what the home sold for in 2011. The bank is asking 195% of the price in which the home sold for in 2011. I have done some math and to clear a $40-50k profit on a three to four month remodel, I would have to acquire the property about 75% of what the bank is asking. This sounds low, but assuming the former home owner maintained payments for a minimum of 8 years I would be offering 50-60% higher than what the bank has the home in their books for. Not sure if it matters or not, but we would be putting 30-35% down on the purchase. Down payment would be with liquid assets, so we could close on the home pretty quickly.

Looking for advice and feedback from individuals with experience buying and flipping REO homes. Thank you for your time!

Nick C. · Answer

It sounds like you're wasting too much time analyzing. Researching past sales, price per sq foot, and theoretical bank algorithms can be a fun past time, but none of that stuff matters. Figure out what you need to pay for the property and make the offer. This is more for @Keith W., but OP may need to hear it too; 3 offers is not going to get it done. These days you will need to make dozens, probably hundreds of offers to get a deal. The only way you're making 3 offers and getting one accepted is if you overpay.

Ron S. · Answer

What the home sold for in 2011 is completely irrelevant to everyone except you. What your profit requirements are, are completely irrelevant to everyone except you. Your assumptions about what the previous owner did payment wise are just that, and again, completely irrelevant. The home should be listed for fair market value and will more than likely sell fair market value, all things being equal.

If you can't convince the bank to reduce their recovery by reducing their net proceeds so you can make a profit, i'd move on to the next deal.

Keith W. · Answer

@Nick C. Thanks for the feedback. That’s the direction I’m heading.

Michael Gessner · Answer

All depends on the bank, how long it's been listed, and if and what offers have been submitted. They're is alot of people in the game who are willing to pay top dollar atleast by me. Also if it's a hud propert one thing I've learned is they do 5% price decreases over time. Regardless of the offers they have a guide line they have to follow. Run your numbers and submit an offer, if it works for the bank your offer will get excepted if not on to then next one

Keith W. · Answer

@Josh Wood I don't have a solution but I do feel your pain. I'm trying to get into the game myself and have been rejected on 3 for 3 properties I offered on. (All Bank REO)

An investor/realtor friend of mine mentioned the other day that the banks have their formula and they will just let the property sit there until they get their price. Without regard to what the property looks like.

I googled this and found that they multiply x .80 of the fair market value then subtract repairs and realtor fees, etc. The issue with this is we're taught to multiply by .70 of FMV then subtract the cost of repairs and of course, their repair estimate will be super low. We need solid comps to start with.

In my case, I think the next property I offer on, I will use their formula and if I see I can still be profitable, I'm going to take the plunge.

Bottom line is, I suggest trying to find out the formula the bank is using and if it works for you.

Josh Wood · Answer

@Ron S. Thank you for your candid feedback. I understand that this is all irrelevant to anyone, but me. More or less, I was wondering what others have done and what has worked for others and if my thought process was valid.

Josh Wood · Answer

@Peter Johnson

Thank you, Peter. I appreciate your advice. I’ll try to find a local realtor who specializes in REO.

I am new to this, but found a formula that followed my thought process pretty much to a “t.”

ARV - repairs - realtor fees = final and best offer the first time. No BS back and forth.

Have a good night!

How much too offer for REO/Post foreclosure bank owned home?

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