I am interested in buying REO for
myself. The one in particular is 100k..
what kind of offer would the lender
consider much too low...I was thinking
90k....it needs work....
If they are asking 100K, In my opinion, your offer of 90K is too high. I would start around 75K and negotiate upwards from there. Especially if the property needs work.
Rumsfield,
It sometimes helps when you make an offer that you put an addendum with th e offer as to the reason for your asking price. If the house needs work, make up a list of repairs and take pictures to substantiate your offer. It can be helpful for the lender to make an educated desicion. I would also not offer even close to 90K. I might start at 55K if it needs much work. and negotiate from there. Good luck
When Clients express an interest in a particular REO that they wish to acquire...but at a discount... we employ very much the same techniques as when pursuing a preforeclosure short sale.
If your Proposal to Purchase is compelling, factual, and supportive of a reduction in price.... it will be given due consideration.[ Edited by TheShortSalePro on Date 02/10/2004 ]
We have a partner that buyers REO all the time. He gets many of the houses he offers on just by removing all contengencies and putting a $5,000 non refunable deposit on the house. The bank figures that if he can't close they at least get the 5K and he offers 65% LTV in good condition. or 70% less repairs.
The formula works for him.
Sire
It would be nice if there was a hard-and-fast rule of thumb to follow, but it all depends on your local market and the individual property. If, for example, the After Repaired Value is $250K and the house needs $25K in repairs, then you might be wise to offer the full 100K asking price. And do it quick before someone else snatches the property.
I just started this a couple of months ago and I've been involved with 2 REO's so far. The first one was listed for $55k. It sold in 3 days for above asking price (not sure how much), and the bank had 5 offers on the table (not including the one I was writing up when we found out it was already sold). The house came back on the market about 6 weeks later for $125k and I think they sold it for close to that price. I'm estimating that the investor put less than $15k into the property. That property was worth a full-price (plus more) offer. The BPO (brokers price opinion) that the bank got was obviously quite low.
I got the second one myself. Mine was one of at least 3 offers on the table, and all were above asking price. It won't have as large a return as the other one, but I should make about $15k to 25k on it after all of the expenses. Was that worthy of a full-price offer? I think so, especially for my first deal. "A bird in the hand..." as the saying goes.
It worries me when I see advice like "offer 65% of asking price". Blindly using a simple formula like 65% of asking price wouldn't be smart. What if they are asking 50% above FMV? Then you'd be offering above FMV. Or maybe it's a situation like I described above, in which case you're throwing away a golden opportunity to make a significant profit by offering too low.
Bottom line is that I think you need to hook up with a good realtor who has a handle on what the local market is like. (No, I'm not a realtor. ) They can give you a good idea of ARV and then you can figure your offer price from there.
Quote:
On 2004-02-10 12:04, tinman1755 wrote:
I always offer low and see what their counteroffer is. Then let the show begin
Lori
My point is simply that depending on your local market you may never get a chance to see a counteroffer. Both of the properties I mentioned sold within days of going on the market. Both sold for above listing price. Both are still good money makers. If you offered low on either of them you are out of the game. Better to get a moderate profit than nothing, right?
If your local market is slower than mine, then by all means feel free to offer low. A big profit is better than a moderate one.
Quote:
On 2004-02-10 09:27, sire wrote:
We have a partner that buyers REO all the time. He gets many of the houses he offers on just by removing all contengencies and putting a $5,000 non refunable deposit on the house. The bank figures that if he can't close they at least get the 5K and he offers 65% LTV in good condition. or 70% less repairs.
The formula works for him.
Sire
We recently did this on a REO and had our offer accepted. List was $97,950., ARV is $119,000, needs repairs of $4-5k. We offered $92k cash, $5000 earnest money, no contingencies. Our offer was accepted over higher offers with contingencies. We close on Friday. It is higher than I would have liked to pay, but the market here is still red hot and it's very hard to get a steal of a deal. It's ok though, we already have a signed lease on the property for $1200 a month for as soon as we get the work done (nothing major, paint, carpet and appliances).
Your offer has NOTHING to do with the asking price.
If the asking price is $100k and the FMV is $1 million, are you really going to offer $65k?
If the asking price is $100k and the FMV is $40k, are you really going to offer $65k?
This kind of "logic" shows a complete lack of understanding of how to make offers.
If you want to make a lot of OFFERS, blindly follow a simple formula based on asking price....if you want to acutally BUY houses, base your offer on the FMV and repairs needed.
My last REO was listed at $29,900 it was already under contract when I saw the MLS listing. I was told that if it did not close that any offer had to be close to the list price to be accepted. A few weeks later the agent called and said to meet him 1/1/04 to present my offer. $28,000 offer accepted and we closed yesterday. As is appraisal came back at $56,000.
Good LUCK and Thank You
Hope this helps some
Ted Jr
It sounds like you want to buy this house for yourself not to flip. If so, you don't need to be as worried about profit margins. If this house is a potentially desirable house in an area you would like to live in, I doubt you are going to get it at a tremendous discount. I would start out at about 20% below the asking price if you think the list price is reasonable. Now what they will accept is totally dependent on the lender and competing offers. You will probably have ample opportunities to adjust your price even if they reject your first offer.[ Edited by davmille on Date 02/11/2004 ]
Wow I simpley stated how he offers and everyone gets a bit excited. Lets clear this up. If a house is 100k and the bank is asking 40k common sense would tell you not to offer 65k. Please forgive me if some figured this was a hard fast rule for investing. There is no standard rule. You must use common sense. He has many offers like this for many years, because we have bough from him for years. Most of these houses are 10 years or less and only need cosmetics.
"This kind of "logic" shows a complete lack of understanding of how to make offers. "
For such a "lack of understanding" he closed on 20 plus house last year. That is a very profitable "lack of understanding". Sorry for ruffling your feathers.
Best to you
Sire
I've found it interesting that often times it seems the uglier the house the more the offers on it. I think it may be because there are plenty of investors looking for these homes and the list price is usually closer to reality. When the home is in moderate condition and the REO list price is close to ARV, then the home tends to sit a while. Usually waiting for an owner occupant with vision to purchase the home. These aren't hard and fast rules, just an observation from an agent/investor.
Neill7 is right, sire. I didn't intend to attack you with my statement about "65% of asking price". Unfortunately, I randomly choose the same % that you mentioned, so it implied that I was directing my post at you. Sorry it came across that way.
If anything, my rant was directed toward the other posts that just threw out a different value based only on the asking price without consideration of the FMV, ARV, repairs, local market conditions, etc. Perhaps in that posters local area 75% of asking price is a good place to start, but it may be a terrible place to start for RUMSFIELD. You mentioned that your partner considers repair costs, makes offers based on LTV (by which I assume you mean FMV or ARV) and has actually bought several. That means that his "formula" works for him and I have no beef with that.
Just to show that I wasn't attacking your position of 65% of ARV -- If we consider the 2 properties I specifically mentioned, that formula would have given the following offer prices.
Prop 1:
estimated ARV = 115K
Repairs = 10K
(ARV - repairs) * 0.65 = 68k
Asking price was 55k
Purchased for (>55K, not sure how much)
Prop 2:
estimated ARV = 120K
Repairs = 15K
(ARV - repairs) * 0.65 = 68k
Asking price was 69k
I purchased this one for 71.5k and was told that the other 2 offers were also above asking price.
If they are asking 100K, In my opinion, your offer of 90K is too high. I would start around 75K and negotiate upwards from there. Especially if the property needs work.
JMO
-rup
Hey,
You haven't given us anywhere near enough information.
How much in repairs are needed?
What is the FMV?
NO ONE can answer your question, without this information.
Rumsfield,
It sometimes helps when you make an offer that you put an addendum with th e offer as to the reason for your asking price. If the house needs work, make up a list of repairs and take pictures to substantiate your offer. It can be helpful for the lender to make an educated desicion. I would also not offer even close to 90K. I might start at 55K if it needs much work. and negotiate from there. Good luck
When Clients express an interest in a particular REO that they wish to acquire...but at a discount... we employ very much the same techniques as when pursuing a preforeclosure short sale.
If your Proposal to Purchase is compelling, factual, and supportive of a reduction in price.... it will be given due consideration.[ Edited by TheShortSalePro on Date 02/10/2004 ]
We have a partner that buyers REO all the time. He gets many of the houses he offers on just by removing all contengencies and putting a $5,000 non refunable deposit on the house. The bank figures that if he can't close they at least get the 5K and he offers 65% LTV in good condition. or 70% less repairs.
The formula works for him.
Sire
It would be nice if there was a hard-and-fast rule of thumb to follow, but it all depends on your local market and the individual property. If, for example, the After Repaired Value is $250K and the house needs $25K in repairs, then you might be wise to offer the full 100K asking price. And do it quick before someone else snatches the property.
I just started this a couple of months ago and I've been involved with 2 REO's so far. The first one was listed for $55k. It sold in 3 days for above asking price (not sure how much), and the bank had 5 offers on the table (not including the one I was writing up when we found out it was already sold). The house came back on the market about 6 weeks later for $125k and I think they sold it for close to that price. I'm estimating that the investor put less than $15k into the property. That property was worth a full-price (plus more) offer. The BPO (brokers price opinion) that the bank got was obviously quite low.
I got the second one myself. Mine was one of at least 3 offers on the table, and all were above asking price. It won't have as large a return as the other one, but I should make about $15k to 25k on it after all of the expenses. Was that worthy of a full-price offer? I think so, especially for my first deal. "A bird in the hand..." as the saying goes.
It worries me when I see advice like "offer 65% of asking price". Blindly using a simple formula like 65% of asking price wouldn't be smart. What if they are asking 50% above FMV? Then you'd be offering above FMV. Or maybe it's a situation like I described above, in which case you're throwing away a golden opportunity to make a significant profit by offering too low.
Bottom line is that I think you need to hook up with a good realtor who has a handle on what the local market is like. (No, I'm not a realtor. ) They can give you a good idea of ARV and then you can figure your offer price from there.
[addsig]
I always offer low and see what their counteroffer is. Then let the show begin
Lori
[addsig]
Quote:
On 2004-02-10 12:04, tinman1755 wrote:
I always offer low and see what their counteroffer is. Then let the show begin
Lori
My point is simply that depending on your local market you may never get a chance to see a counteroffer. Both of the properties I mentioned sold within days of going on the market. Both sold for above listing price. Both are still good money makers. If you offered low on either of them you are out of the game. Better to get a moderate profit than nothing, right?
If your local market is slower than mine, then by all means feel free to offer low. A big profit is better than a moderate one.
Quote:
On 2004-02-10 09:27, sire wrote:
We have a partner that buyers REO all the time. He gets many of the houses he offers on just by removing all contengencies and putting a $5,000 non refunable deposit on the house. The bank figures that if he can't close they at least get the 5K and he offers 65% LTV in good condition. or 70% less repairs.
The formula works for him.
Sire
We recently did this on a REO and had our offer accepted. List was $97,950., ARV is $119,000, needs repairs of $4-5k. We offered $92k cash, $5000 earnest money, no contingencies. Our offer was accepted over higher offers with contingencies. We close on Friday. It is higher than I would have liked to pay, but the market here is still red hot and it's very hard to get a steal of a deal. It's ok though, we already have a signed lease on the property for $1200 a month for as soon as we get the work done (nothing major, paint, carpet and appliances).
Hey,
Lets try this one more time...
Your offer has NOTHING to do with the asking price.
If the asking price is $100k and the FMV is $1 million, are you really going to offer $65k?
If the asking price is $100k and the FMV is $40k, are you really going to offer $65k?
This kind of "logic" shows a complete lack of understanding of how to make offers.
If you want to make a lot of OFFERS, blindly follow a simple formula based on asking price....if you want to acutally BUY houses, base your offer on the FMV and repairs needed.
My last REO was listed at $29,900 it was already under contract when I saw the MLS listing. I was told that if it did not close that any offer had to be close to the list price to be accepted. A few weeks later the agent called and said to meet him 1/1/04 to present my offer. $28,000 offer accepted and we closed yesterday. As is appraisal came back at $56,000.
Good LUCK and Thank You
Hope this helps some
Ted Jr
Bruce hit the nail on the head.
Your offer should be based on the after repaired value or FMV of the property minus your costs to repair, hold, close, etc.
The listing price has nothing to do with your offer (well its IF it is less than what you want to offer. It means GOOD DEAL ).
I've even offered more than the asking price (a little anyways) if it was really that much lower than FMV just to try to get the deal.
Roger
It sounds like you want to buy this house for yourself not to flip. If so, you don't need to be as worried about profit margins. If this house is a potentially desirable house in an area you would like to live in, I doubt you are going to get it at a tremendous discount. I would start out at about 20% below the asking price if you think the list price is reasonable. Now what they will accept is totally dependent on the lender and competing offers. You will probably have ample opportunities to adjust your price even if they reject your first offer.[ Edited by davmille on Date 02/11/2004 ]
Wow I simpley stated how he offers and everyone gets a bit excited. Lets clear this up. If a house is 100k and the bank is asking 40k common sense would tell you not to offer 65k. Please forgive me if some figured this was a hard fast rule for investing. There is no standard rule. You must use common sense. He has many offers like this for many years, because we have bough from him for years. Most of these houses are 10 years or less and only need cosmetics.
"This kind of "logic" shows a complete lack of understanding of how to make offers. "
For such a "lack of understanding" he closed on 20 plus house last year. That is a very profitable "lack of understanding". Sorry for ruffling your feathers.
Best to you
Sire
Easy Sire,
I dont think anyone directed anything at YOU.
Did you mention bids as a percentage of asking price? No. You mentioned LTV, right?
That is appropriate if LTV is related to ARV.
N.
I've found it interesting that often times it seems the uglier the house the more the offers on it. I think it may be because there are plenty of investors looking for these homes and the list price is usually closer to reality. When the home is in moderate condition and the REO list price is close to ARV, then the home tends to sit a while. Usually waiting for an owner occupant with vision to purchase the home. These aren't hard and fast rules, just an observation from an agent/investor.
Neill7 is right, sire. I didn't intend to attack you with my statement about "65% of asking price". Unfortunately, I randomly choose the same % that you mentioned, so it implied that I was directing my post at you. Sorry it came across that way.
If anything, my rant was directed toward the other posts that just threw out a different value based only on the asking price without consideration of the FMV, ARV, repairs, local market conditions, etc. Perhaps in that posters local area 75% of asking price is a good place to start, but it may be a terrible place to start for RUMSFIELD. You mentioned that your partner considers repair costs, makes offers based on LTV (by which I assume you mean FMV or ARV) and has actually bought several. That means that his "formula" works for him and I have no beef with that.
Just to show that I wasn't attacking your position of 65% of ARV -- If we consider the 2 properties I specifically mentioned, that formula would have given the following offer prices.
Prop 1:
estimated ARV = 115K
Repairs = 10K
(ARV - repairs) * 0.65 = 68k
Asking price was 55k
Purchased for (>55K, not sure how much)
Prop 2:
estimated ARV = 120K
Repairs = 15K
(ARV - repairs) * 0.65 = 68k
Asking price was 69k
I purchased this one for 71.5k and was told that the other 2 offers were also above asking price.