My 1st Offer On An REO (Thoughts?)
Went to a house yesterday that a bank owned.
The house is located in a great neighborhood on a golf course. Every house in this neighborhood is in great condition, its an upper middle class area.
Anyhow, this house is being offered at 119,900. It has foundation issues (don’t think too major), water damage, needs a new roof, and lots of cosmetic TLC. Fixed up this house could be sold for 160-170.
It’s been on the market for 120+ days now.
I want to make an offer, my estimate is that I could get this house into A-1 selling condition for no more than 25-30k, and that’s if the foundation is much worse than I think.
I was thinking to offer the bank about 85k for the property considering it’s been on the market so long and the condition it’s in.
I would take pictures of all the damage and problems the house is having and submit that with my offer explaining why I’m offering what I’m offering.
First off do you think this is a realistic offer? Secondly do you think it would be advisable to submit my offer with the pictures and explanation or should I just submit an offer without the fluff?
Thanks!
Short sale deals are all cash. When the lender agrees to a discount they expect to be paid all cash at closing and they want a very short escrow periods.
. Your goal is to present whatever evidence you can that will influence the person doing the inspection to submit the lowest BPO possible.
You must either have cash in hand or have arranged to get the cash.
Calculate what you can pay to satisfy the loan considering any repairs, costs and closing costs. Start low and negotiate up, if necessary.
Costs should include rehab, legal, closing, taxes, interest and so on.
After paying the lender $85,000 your equity would be $85,000 (if home sold for full market value). From the $85,000 equity you must deduct all costs to arrive at your estimated profit potential.
Market Value = $170,000
Repair cost = $30,000
Interest = $2,125
Real Estate Taxes = $900
Insurance = $918
Utilities = $1,020
Realtor commission = $10,200
Closing cost = $2,250
Cost of project $132,413
Possible profit $37,587
This is based upon a 6month hold time and if all goes well in the repair area.
To assure the lender’s mitigation division that you are capable of closing the sale it is a good idea to include a proof of funds. This can be a letter from your bank, from your hard moneylender or a copy of your monthly bank statement.
Also the following documents will be of great help as well:
A copy of the Purchase Contract/Sales Agreement.
HUD-1 (or net sheet) Download HUD-1 at http://www.hudclips.org/sub_nonhud/cgi/pdfforms/1.pdf
Photographs of the property.
Contractor’s estimate of repairs.
Comparable sales.
Proof of funds letter.
Escrow details.
You should have a contractor prepare the list of repairs and you should get 3 estimates to justify your repair cost.
When I speak to a contractor I simply advise them that I want this home in perfect condition and money is not an object. I call this the power of suggestive comment.
I do not contact a painter, but an interior decorator!
This provides me the numbers I need to justify the short sale
Take the least flattering possible photos of any damage to the exterior and interior of the home. If there’s junk in the yard make sure it is visible in the photos.
Take the photo in late afternoon when light is dim and shadows are hard and dark.
Take photos of properties in the neighborhood that will justify your short sale – I look for homes within a 3 to 4 block radius that are not vary faltering.
Get comparable sales for homes in the area. When you compile your list delete the most expensive. You want to honestly emphasis that the home in its current condition is worth far less than is owed on the REO talk back loan.
Some lenders will hire an appraiser or realtor to go to the house and determine the value of that property. Make sure you are the contact person who meets them at the house. At that time be sure you have prepared a list of some low comparables ("comps"
Let us know how your deal works out!
[addsig]
Since the question was about an REO offer... and has nothing to do with a short sale... I'd suggest the following:
Presumably, the Offer will be made thru the Owner's real estate broker. Attaching photos, estimates, etc. denigrating the value would be best served upon the Owner, not the broker. Why?
Because in an attempt to get the listing for the REO, the broker affixed a value to the property. To go back now, hat in hand, with a lowball offer isn't something the broker would do easily.
Don't avoid the broker, but advise the broker that you'll be sending a copy of your Proposal to the Owner, via Fed Ex. Then, send your Proposal directly to the REO rep who is handling that particular asset.
The following major lenders or backers that I have dealt with consider the term of "Short Sale" when it is a pre foreclosure and or "REO" real estate owned:
Bank of America
Commerce Bank
Freddie Mac
Great Southern
UMB Bank
No matter what word one prefers to use the above information that I posted has helped me accomplish a large number of discounted offers, short sales or what ever word you prefer to use.
So for the sake of avoiding the nit picking process of others, the above steps has just simple put more profit in the bank for me so just take it for what it is worth and my effort to help.
[addsig]
Sounds great. Offer 60 with the report and pictures and contractor www.estimates.I have bought a home from a bank and went back and forth with them untill i talk them way down .I am the investor and the contractor so i do things slightly different but the other tci folks are right on how to make your offer.Here is a few things i have learned that might help.
1.it always costs more and takes longer .
2.just do it ,and dont waste time.
hope things go great for you ,keep us informed good luck.James......