REO Discounts
Hi,
Is there a general guideline for making an offer to a bank-owned, vacant, already foreclosed on property?
I want to purchase this property that needs roughly $25k in repairs for a discount off of what the bank is selling it for through a realtor. Now, there is already a pretty good spread between what the bank wants and the ARV, but that is just it, THE ARV. It has been on the market for over 100 days.
Will banks take a discount on an REO? I know you can short sale pre-foreclosures for sometimes .20-.50 cents on the dollar, but what about REO's?
Thanks!
In my experience in brokering REO properties, the REO departments of different banks operate differently. Often the bank mindset depends on the particular property, how long it's been on the books, time of year, and internal "politics." Market conditions are always a factor. Although the property has been on the market for over 3 months (over the Winter), the perception may be that they're heading into "prime" selling time - Spring - and may wait a bit longer before reducing list price.
No need to guess... determine it's as-is FMV, project how long it will remain unsold at it's currently listed asking price, and make a compelling, business proposal.
You can bid whatever you want on an REO. Both of the previious replies are good points. You are saying that the After Repair Value has a good spread. Do you have an idea what the repairs will cost you? Will you be keeping the property or selling the property? Do you have to take out a mortgage?
I generally try to figure all these questions out before making a bid. Some properties no one wants. Did you look at the log in the property to see how many people signed in to look at the house? The more people that looked at a property the less I bid. You can bid and if the bid gets rejected you can bid again. When looking at these properties know the highest you want to spend to be in a comfort zone and if you get them cheaper you outdid yourself.(sometimes hidden costs come up)
They only way you will know is if you bid.
Lori
[addsig]
I actually called the listing agent today (Coldwell Banker) and spoke to her. She has had 7 contracts on this property and the bank won't hardly budge. One person even countered the bank by only $2k less than what the bank wanted and the bank said no. This house has been flooded somehow, I could tell by the water lines about a foot above the baseboards! It has central heat/air but like 4-5 window units in it. The house is not that old, about 20years. I figure it needs gutting- drywall, floors, roof, whole kitchen, hvac repair, carpet... I was told at a recent investor's meeting that here, about $15 a sq. ft. is a good figure for complete gutting. If so, you will have 25k in repairs. But it is in a good location- low property taxes, real pretty houses just across the street, blocks from a popular lake... The house next door is bright pink and purple though...
I decided to pass for now. I may check and see if it is still there in another month. And considering that 7 others have walked away at this point as well...
Next.......
Before you make an offer on this house go and take pictures of the damage. Submit these with your offer and point out the cost of repairs. After you submit your offer be persistent and resubmit the same offer weekly until your offer is accepted or the house is sold to someone else.
From what you are saying the bank sees the same potential as you. Why not buy it for the asking price? If you bought it for the asking price, does the deal work for you?
Lori
[addsig]
I called on a REO house the other day. The Agent said they already had two cash offers over the list price and didn't need any more. In some markets you may be forced to pay more than the bank is asking.
JohnCl
A WORD OF CAUTION!
$15 a foot will in no way cover the complete gutting and rehab on a house. I am not even sure it will cover the materials involved.
THis would depend on what rooms your redoing and how many baths and kitchens are involved.
I am doing a 1900 sf and am into it 25K and am only redoing 1 bath and no kitchen (albeit wiring and plumbing). Kitchen is the most expensive.
Get bids just to make sure, if it is just drywall "no problem" if your replacing fixtures etc......
caseycat,
Wierd that they have 7 offers even though the house has been listed over 100 days. I don't know much about this. Is this normal? Can anyone help explain why the sudden demand or does it normally take this long for the first offer to go through and the others just came in why they were negotiating with the first? Possible scenarios?
JohnCl
The agent said it has only been on the market about 45 days but the foreclosure report says over it was posted as a foreclosure 10-23-03. Maybe it took that a little while to get it actually listed with an agent, I don't know.
We are going to look at it again. We have only just seen through windows but we could see a lot to know it needs extenxive repair, especially from some flood issue. The ARV is about $120k from what I can tell. The tax rolls also say $120k and I know the value of a home is usually slightly higher than the taxed value. (Also, the 'drive by' appearance isn't that bad from the front. The back yard is a mess!) At a list price of $87k, and I am estimating $25k in repairs, I just don't know if the property is worth it. The fact that so many offers have been made tells me it may be a hot item. I will be asking a rehaber for an estimate soon.
Thanks for all the replies. I will keep you updated.