Lots of savvy home buyers and investors want to hit the top prize and procure that REO foreclosed home many of which are often under-priced. With the REO market continuing to climb for the next 4 to 5 years before there is some relief, many of the banks price REOs under the comparable sales. The results are multiple offers. This means the competition for that bank-owned property is stiff. Depending upon the area of the country that is hit hardest by home foreclosures, it's not uncommon for various REO homes to receive 15 or 20 offers. Now and then the bank will dismiss at home all but two offers and then ask the selected buyers to resubmit what is called "Highest and Final" offer. Occasionally the bank simply accepts the top offer at inception. If you're wondering how you can make your offer shine greater than all the competition and be the winning offer, here are a few tips to help you choose the right offer and terms:
1) Understand the History of the Property - Ask your buyer’s agent to find out the bank's purchase price on the Trustee's Deed or Sheriff's Deed. In general, it is noted on the record itself, which you can obtain from the tax rolls or a title company. Compare the purchase price to the value the bank is asking. Look at the amount of loans that were previously held to the property. Somewhere between the first mortgage balance(s) and the foreclosure sale price is the amount the bank will take, if the property is under-priced. This is a good time to mention the consequence of working with a realtor that specializes in REO homes. You can effortlessly find these real estate agents in your area. Whoever has the largest REO's listed on MLS is who you want to work with. Their task is to promote the properties and be the mediator involving you and the bank.
2) Assess Market Comps - In many cases, the asking price has little influence on the worth of the home. The market value carries the most weight. If you are up against competing offers, other buyers will offer more than asking price.
• Look at the previous three months (90 days) of comparable sales, a mini CMA (Comparative Market Analysis) for that vicinity to determine how much this REO is worth. Try to use only those properties that most closely match the REO regarding square footage, number of bedrooms, baths, amenities and condition.
• Look at the pending sales. Ask your agent to call the listing agents of those pending sales to try to determine the accepted offer price. Some will share that information and some will not.
• Look at the active listings. Those are most likely the listings other buyers will use to put together a price because they are the only homes those buyers actually tour.
3) investigate Listing Agent's REO Sold - Most REO agents work for several banks. Some listing agents are exclusive listing agents for REOs, and they do not list any other type of property. Since REO agents deal in volume, they typically apply the same pricing principles to all their REO listings.
• Ask your buyer's agent to look up the listing agent in MLS.
• Run a search using that listing agent's name to find the last three to six months of that agent's listings.
• Pull the history of those listings to determine the list-price to sales-price ratio. If many of those listings are selling for, say, 5% above list price, then you may need to offer 6% over list price, and vice versa.
4) Inquire About the Number of Offers - If there are no offers on the REO home, you can probably offer less than list price and get your offer accepted. However, if there are other than two offers, you will most likely need to offer above the asking price. If there are 20 offers, bear in mind that some of those offers might be all cash. Banks like all cash offers. If you are obtaining financing, then you may need to increase the price on your offer to be considered.
5) Submit Preapproval Letter - It goes without saying that you do not want a prequalified letter. You should have a preapproval letter. Get preapproved from your choice of lender in advance. If you are using a hard money source, they can provide you with a letter as well, in most cases. Moreover, get preapproved by the lender who owns the property. Do not expect to use this lender for your loan, but submit the preapproval letter from this lender, along with the letter from your own lender. Banks don't trust other lender preapprovals but trust their own departments.
6) Don't Ask for Repairs / Inspections - occasionally banks will pay for repairs, but typically will not agree to do so at the offer stage. If there are problems found during a property inspection renegotiate after your offer has been accepted.
7) Shorten the Inspection stage - If other buyers ask in place of 17 days, for example, to conduct inspections, and you ask for 10, you will be deemed the more serious buyer. However, your offer can dash to the top by asking for 0 days inspection. Remember, banks are eager to get rid of the properties.
8) Offer to Split Fees - Some banks will not pay transfer fees. If the buyer offers to split those fees, the bank can feel more open to to accepting the offer. Same thing goes for escrow fees. Many banks negotiate reduce fees for title insurance. If the bank will pay for the owner's policy, the ALTA policy might cost a smidgen more. But it's still a good idea to let the bank choose title if you want your offer accepted.
Consider the Appraisal Consequences
If you offer over list price, bear in mind that the appraisal will need to substantiate that outlay. If you find yourself dealing with a low appraisal, you have options, so don't despair. Remember, the bank will most likely run into this issues with the next buyer who obtains financing.
In conclusion, I have provided you with eight strategies to consider in buying a REO property. Banks are eager to sale just as much as we are eager to purchase. To move to front of the line and dispense your competition, several things need to be oraganized. Find an REO realtor with the purpose of working with the banks and can collect the information for you. Do your own inspection and submit the results with your offer. By doing this, you can give the banks 0 days for the inspection period and they know that you are a serious "as-is" buyer. Your offer be supposed to be compared to sales in the prior 90 days only. You want to make your offer the lowest that the bank will accept, so determine what the bank purchased the property for and what the market will bear. In short sales, you can offer 82% od the BPO (Broker Price Opinion) minus the repairs and still have a good qualified offer that is below market value. After you get the property secured, you can flip the property to a buyers list for quicker profits. Do a back-to-back close and you can make thousands of dollars for working smarter and not harder. Stream line your game plan and you can and will have a very rewarding real estate investing career.
David M Arnold is an experienced Therapist, Counselor, Mediator, and Life Coach that brings his personal experience to help you achieve success. Areas of interests include Relationship Development, Business Development, Real Estate, Financial Coaching, Internet Marketing, and Healthcare.
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