Banks and the Games they Play with their REO Properties

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reo for sale on MonroeThere is nothing special about 9430 W. Monroe Street.  Although from the Realtor remarks section of the multiple listing service plano you would think this house was decked out like a Beverly Hills mansion:


Yes, 9430 W. Monroe is a little nicer than other bank owned homes you’ll find priced at $73,900.  Especially when you consider it’s 1,352 square feet with three bedrooms, two bathrooms, a 2 car garage and pool.  But the reality is this house is average in size, features and neighborhood.  The only thing above average about it is the list price.  And by that I mean it’s priced below market.

I checked the comps in the neighborhood and two identical bank owned houses had just closed for $95,000.  So I wrote an offer on the house – along with about 27 other people (okay, not really but the listing agent wouldn’t tell me how many offers he received).  When this happens you get an email like this:

We have received multiple offers, so the seller is requesting your buyer’s Highest & Best offer by 12:00pm on 07/14/2011.

Let the games begin!  Now you’d think because I wrote a full price, all cash offer closing in two weeks with a 5-day inspection and $5,000 in earnest money my offer would be immediately accepted right?  Wrong.  The owner of this house, Bank of America, wanted to create a bidding war.

I don’t do bidding wars so I told the listing agent our offer was highest and best.  Here’s how he replied:

The seller selected another offer. Sorry, for the bad news.

I guess that means someone else offered more than I did.  But here’s the funny part – the house is still active on the multiple listing service a week after highest and best offers were due.

So why is this house still for sale?  Is the listing agent too lazy to change it to pending?  Did he forget?

No.  The answer is the bank is still fishing for higher offers.  Now that’s what I call gamesmanship.

The truth is I never expected the bank to accept my offer.  Based on the comps, the condition of the home and the flurry of buyer activity here in Phoenix I knew this house would sell for above list price.  The bank figured that too, which is why they put the house on the market for so cheap.  It’s actually a better strategy for them to create an auction-style environment on the local multiple listing service.  They’ve learned that this approach drives up the price.

As real estate investors we can’t afford to play the bank’s games.  If you’re shopping for a bank-owned house, whether it’s to fix and flip or buy and hold – don’t be first, be last.  In other words, look for houses that have been on the market 60 days or more and that need extensive cosmetic and/or structural repairs.  There’s less competition that way.

If at any point during the acquisition process you discover you’re competing against another buyer then consider bowing out.  You may lose the bidding battle but ultimately you’ll win the war.

About Author

Marty (G+) is the Chief Financial Officer for Rising Sun Capital Group, LLC, a real estate investment firm based in Gilbert, AZ. His firm purchases homes at the courthouse steps and public REO auctions. They have two exit strategies, either fix and flip or seller financing.


  1. That is the norm here in Tampa with bank owned homes. Many buyers don’t realize the strategy of the bank and their will be several offers and a waste of time for many people involved. It is very frustrating working with bank owned properties here.

    I agree with you having a better chance with homes that have been on the market for a while.

    • Danny, about six months ago our local newspaper profiled three families trying to buy a home. One of them descibed buying a bank owned home as one of the most dehumanizing experiences she’s ever been through. I think that says it best.

  2. Another Investor on

    Hi Marty:

    Based on my recent experiences in Phoenix, I think they did select another offer and they are going back and forth with the paperwork. The listing agent will not status the listing as AWC until the addenda are signed. Heck, the buyer’s agent is probably still trying to crowbar the signed offer out of the bank so he or she can quit worrying about the deal.

    We don’t bother much with bank owned homes now. No point in wasting time only to be outbid by new investors or the poor owner-occupant buyers presenting financed offers. Short sales seem to be the best opportunities on the MLS.

    Phoenix is heading back to an overbought market. If anyone is looking at buying rentals there, be sure to check the available rental inventory in the area before writing the earnest money check. And look at the available for sale inventory. Last time I checked, there were around 11,500 houses listed as active (not AWC) with at least 1.75 baths and a two car garage in ALL of Maricopa County, at all price points. That’s a seller’s market.

    • You’re probably right. But I checked the MLS again right now (7/23) and it’s still showing active. Imagine the stress the buyer of this home and their agent must be under waiting to get this deal locked up. It shouldn’t take a seller 10 days to sign a contract. And for what it’s worth I didn’t intend for this post to discourage investors from buying REO properties. There are good deals out there. However, I want our readers to know that the banks will jerk you around. I just had an agent bring me a great REO deal he found on the MLS here in Phoenix. The house was on the market about 80 days and needed a lot of cosmetic rehab. The bank was asking 170K and we got it for 155K with no highest and best nonsense. There are deals out there. I also agree with you that short sales are a great way to go too.

      • Another Investor on

        Hi Marty:

        The house is still showing active, but the status update shows “multiple offers received, REO approval indicated.” ARMLS added the status update line for this specific situation. Also, the remarks state the seller will not consider any offers until the house has been on the market for 6 days. That’s the signal the bank is conducting an auction. The lister added the verbiage setting the deadline for highest and best offers at some point fter the listing was published.

        To me, this is reminiscent of the glory days of 2005 and 2006. The prices and the players are different, but the behavior is the same. As of a few minutes ago, the number of active listings of houses in ALL of Maricopa County with at least 1.75 baths and a two-car garage is below 11,300. I haven’t seen this low level of inventory since 2005/2006. There are listed deals out there, but they are either overlooked short sales or properties needing more work than the retail buyer can or will do. It takes patience and a firm resolve not to overpay to snag a deal right now.

        • So the fact that the bank has this information published on the MLS plano means they are not playing games? I’m not sure what your point is here. If the banks want to conduct an auction they should get everyone in the same room at the same time and sell the house to the highest bidder. And I respectfully disagree that the market here is reminiscent of 2005 and 2006. First of all, nearly 50% of the buyers here now are paying cash. That was not the case in 2005 and 2006. Secondly, prices are not going up 3-5% a month like they were five years ago. They’ve been flat since the beginning of January. With supply waning as you described then prices should be increasing but that has not been the case. A Realtor I respect told me recently that Phoenix is not a buyer OR seller’s market – it’s an investor’s market. I tend to agree with her.

          Again, the purpose of this post is to inform our readers about the frustrations of buying an REO property. By no means did I intend to discourage anyone from writing offers on bank owned homes. As you wisely pointed out there are properties out there that require more work than a retail buyer is willing to do. That’s where we investors can play a part in helping the market to recover.

  3. Great article Marty! It’s crazy what banks are doing with their REOs (only one of the reasons I don’t fool with them). I had a “best-ie” who told me she had a full, all cash offer summarily rejected by a bank in FL. Reason? She wasn’t going to live in the property! WTH??? Why should they even care?

    • Bill, I don’t get that either. Even more frustrating is the 90-day deed restriction Fannie Mae puts on it’s bank owned inventory. It doesn’t seem legal that a bank can restrict what the new owner of a home can sell the property for.

  4. John Evan Miller on

    You are absolutely right–this is the game that the banks are playing. They continue to be greedy and selfish. It is sad to see that your offer, which met the listing price and went above and beyond to secure the home quickly was turned down. This post hit the nail on the head.

    • John, I can understand the bank’s desire to get the highest and best offer on their inventory. They have a responsibility to their shareholders and investors. But this business of creating bidding wars on the multiple listing service doesn’t seem right. Forget about the investor. We are equipped to deal with these games. But for a retail buyer it’s a frightening experience.

  5. Great Article! So true….it’s been very frustrating working with these banks! It’s ALL a game with them! I agree about waiting for older listings, but even then, the game is still played with whoevers left!

  6. Marty,

    I’m a newbie. Here is a deal I came across in early March in L.A.:

    3 bed/2 bath, 1800 sq ft, 6,000 sq ft lot, built 1938, Spanish Med…Beautiful.
    Ask: $245,000. ARV: $400,000 — $450,000. Repairs: $60,000

    Wells Fargo wouldn’t look at my offer for two weeks! NSP/Owner Occ offers, only thank you very much. I get a call from the listing broker two months later — the property was back in play. The owner occ couldn’t close at the brand new price of…$290,000! Same repair estimates of $60,000 but the new ARV was $378,500.

    Wells was firm on the new $290,000 ask. All my mentors have drilled into about the sticking to my numbers; not doing a deal just to do a deal. I told the listing broker, “See ya”! These banks are playing the auction game. It doesn’t mean I have to participate.

  7. This scenario just happened to my husband and I. Our REA who is also a local investor found us a side be side duplex 2 blocks from the beach in Norfolk, VA. LP was $59 flat. We put a FP cash offer in, termite contingency and 10 day closing. (Side note: Only offers entertained were home occupant. This was great for us because we are planning on living in one side) They came back to us 3 days later with the “highest and best” stuff. Since we knew that $59 was an awesome deal for a 3/2 each side with all new replacement windows and brand new HVAC…one side rent ready…we did submit a higher offer. I have to admit it was clouded by our desire to live there, great location, and size of each unit (1700 sqft). They made us wait what seemed like forever (nearly 2 weeks), but finally gave us the good news. Had this home not been so close to the beach and we were not intending on occupying it, we probably would have said “no thanks!”. This “highest and best” tactic has been used on us several times while making offers on the MLS.
    for those of you wondering what our offer was?….probably too much but our agent still says we got the deal/steal of the century!

  8. I am seeing this in Atlanta too lately, 6 months back banks were quick in replying back and had some offers accepted in an hour or less than a day.

    Now i have offers on three towmhomes in atlanta suburbs and all three owned by Banks REO and three came back with Highest and Best and we went back with the same offer and just increased the Escrow by couple of thousand dollars to make them feel that I am serious but didnt increase the price. No reply from them for almost a week and still waiting for a response and also the houses are still available so bank is waiting for the best offer still.

    This strategy of H and B looks new and its with all the banks I am dealing with right now BofA and couple of other banks.

    Its just plain frustrating but sticking to numbers is important than falling for this and getting emotional.

  9. Perhaps it’s location-dependent, but I know in my market our local MLS board will not allow you to change the status until all relevant documents have been executed. But I’m in agreement with the main point, trying to purchase REO’s can be a completely dehumanizing process. And what compounds the issue is that potential buyers are infatuated with REO’s as though those are the only deals on the market.

  10. I just completed a VA Foreclosure flip. Purchased through the MLS at $134,000 after five days on market. Put $12,000 into it. Listed it for $179,000 and had it in contract at $177,000 after the first showing. A great deal and for whatever reason, no investor competition on the front end. However, I broadly agree that there are too many investors chasing after the same deals and in many cases once I see what was paid for a property, I cannot understand how the math works for the investor in order to capture a reasonable ROI. As well, I believe that banks are holding back on processing foreclosures. The inventory making it’s way to the market is just too low given where the economy is, especially in central Ohio. That brings me to my point which is to completely agree with you that Short Sales is where I am targeting my acquisition efforts. Much less competition from investors. I have the ability to make numerous offers at any given point in time (given standard opt-out contract language that goes along with the short sale contract) and can be relatively aggressive in positioning the offer price. Hopefully it plays out well.

    • Vito, there will always be diamonds in the rough. I’m glad you find a profitable deal. And I agree with you that there is a lot less competition for short sales. Many of the agents for these buyers are grateful for the offer too. That’s a nice change.

  11. I totally agree with your article. I find that the best deals in the Colorado Springs area are bank-owned properties that have been on the market for 60+ days. Many times I find that they are priced too high for an investor at the start of the listing; and since most of them need work many home owners can’t (or don’t know how) to get financing for them. Hence they stay on the market, and the bank starts to be more agressive on the pricing.

    • Kathy, an old major league baseball player named Willie Keeler once said “hit’em where they ain’t”. Right now the investors here in Phoenix are everywhere, but less so on the older REO and short sale listings. Sounds like it’s the same in Colorado Springs. Kudos to you for finding the diamonds int he rough.

  12. Love this article and all of the comments and experiences. I can’t be bothered with the waiting game that short sales are famous for, so I do focus on REOs, estate sales, etc.

    We put an offer in Monday last week (8/22). The next day, seller’s side says they are in a multiple-offer situation and want highest and best, and I stuck with my initial offer. No word until Friday (8/26) from seller agent until my buyer agent persisted and finally got some response. She was told that the seller received multiple offers in AUGUST 11th but still had not received a decision from the seller.

    How about I make the decision for you–at least as it concerns MY offer? I have other prospects to pursue, and I’m not tying up my time and money so you can play games. Monday they will receive a notice that I have rescinded my offer.

    I’m movin’ on!

    • Terri, I want to be the bank’s ONLY option. When I get into a multiple offer situation I let the listing agent know that my original offer IS the highest and best. I don’t want to get into a bidding war. Let the retail buyers fight it out. Kudos to you for moving on.

  13. Marty,
    Do u follow up on all your offers til the bank sells it to u or someone else? We are still making offers on some houses a yr after the bank listed it. Its the same when dealing with private sellers and direct mail. Keep mailing, keep following up til they sell to me or some other investor.
    Just keep dripping on them…drip, drip, drip!


    p.s. especially keep making offers with REO’s…no costs to make offers/follow up offers

  14. I don’t want you to think that I’m characterizing you as a “Sarah Palin-type” and that I’m about to go all “Katy Couric” on you. 🙂 But I have a question I’d like to put to you because of the manner in which your presented this information. When you say “banks playing games” that smacks of something possibly unethical, “gray” or even illegal. As you know banks are highly regulated. Would you happen to know if any provision in the Dodd-Frank Act financial reforms can or does address this “game-playing”, if it really is that I was only concerned with the financial reform’s impact on private owner financing. I don’t know how or if it there are provisions would apply to the situation you describe. Do you?

    • Treathyl, many experts have accused the banks of acting unethically since the global economic crash in 2008. You don’t think they’re above this type of behavior? Many think the banks, even after the crash, remain grossly under-regulated. And yes, the Dodd-Frank absolutely affects private owner financing. I’m not an attorney so I don’t want to misrepresent the facts. However, the bill forbids an unlicensed person from originating more than three loans a year. There are other important pieces of the bill that limit the terms of the loan as well. I recommend you speak with a real estate attorney like Clint Coons about all the moving parts.

      • Thank you for your reply, Mr. Boardman. Your observation no doubt paints a true picture. Fact is, when it comes to real property and money there’s no limit to the kind of “games” people will play – if they can get away with it! Those people can be banks, non-banks, individuals, corporations, etc. 🙂

  15. OK, question for ya – wonder if you’ve ever gotten this as a bank response to an offer rejection for an REO:

    “you offer has been rejected by the investor”.

    What does this even mean? When the bank’s asset manager uses the term “investor”, do they mean… themselves?

    So strange, have you ever gotten this response? The REO listing agent for this property says they have never seen that response before – so we’re all a little confused by the term “investor rejection”. Just to clarify, this is NOT a short sale – it’s a home that went to foreclosure auction and is now a bank owned REO.

  16. We put an offer in on an REO it was accepted. They have taken our deposit and cashed the check. It has been three months now and we still have nothing in writing. They said the first asset manager left the bank and they had to start the paperwork all over again. We have no purchase and sale agreement signed. They keep telling us it will be just a few more weeks. It is over three months now. Is this legal?
    Thanks for any help.

  17. Hi Marty, They is the REO, won’t tell us or our realitor who the Bank is. We could ask for our money back but want the house. We sold ours and really have no where to go. They just keep stringing us along. Telling us it will be a short time more but never tell us a date. Been over three months now. ????
    Thanks for responding.

    • Mike, your Realtor should be able to tell you who the bank (seller) is. It’s a matter of public record. In Arizona, the purchase contract must include the seller’s name and buyer’s name. I’ve purchased REOs in the past that took months to close so what you’re describing isn’t that unusual. However, I find it strange that your Realtor doesn’t know who the seller is and you don’t have an executed contract.

      Your earnest money check is probably with a title company or in the broker’s trust account and can be returned to you because the seller has breeched by not providing you with an executed contract.

      At this point you need to decide which will take longer – the bank selling you this house or finding another house to buy in the area.

  18. Hi love this site, and all the comments..have learned thanks ahead of time!
    I have to agree that I think the banks and LA are starting these bidding wars..listing them way low..and than not excepting bids.

    I have found a Tucson. It has been on mls since 6/12 started at 230k and is now at 180k needs some repairs, appl, etc. I’d believe about 20-25k worth of work. It has sat empty for over a year.
    It was under-contract last “back on the market.” It was bought at auction for 155k by BofA..I’ve heard by listing agent that if it doesn’t sell it will go back to auction in a couple of weeks.
    My question is, should I make an offer now or try my chances against investors at auction..I am not an investor..just a single lady wanting to get a good deal..and live in it. If you suggest I do make an offer..should I start at what the lender bought it for..155k?

    Again thank you..

  19. Christian Bors on

    Great article! I actually just put in an offer on a reo today. The listing agent said there are multi offers and they will recieve more then the asking price. On Monday, the bank will take the best offer on the table. I don’t know if my offer will be high enough. I know the bank is trying to create a bidding war, and I’m not experience enough to compete. I’m going to keep my eye on this property and see what happens. This is exciting stuff. And who knows, maybe my bid will be high enough. But like your article said, the bank is definitely playing games.

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