I know there are lots of people out there who successfully purchase REO properties, rehab them and sell them and make good money. I wanted to relay my experiences to see if those successful investors can shed light on how I could improve my O-fer results. Here is my current process:
Search FMLS for properties in our target price range ($125k to $250k) where the special circumstances is “Foreclosure”.
We have a buyers agent and he takes us to see the properties we are interested in.
We take accurate repair notes and come up with estimates.
We run comps in the neighborhoos to determine a conservative ARV.
We submit offers through our agent to the property listing agent allowing for net profit of about $20-$30k (after all costs factored in). We also include a 5-day inspection contingency with right to terminate and a pre-qual letter for the offer amount, plus a check for earnest money.
We have been doing this for the last 6 months and have made a total of about 50 offers and ZERO have been accepted. In fact, we have only had two counter offers presented to us. It seems that these properties are always selling so close to listing price that there is no possible way an investor can be buying them. So my question to those experts out there in this niche of investing is what can I change to improve my results??
Some of the things I am curious about:
Will a cash offer improve my results??
Should I deal directly with bank that owns property?? (Not sure if this is possible)
Should I not use buyers agent, and deal directly with listing agent??
Any help would be appreciated as I feel that right now this is just a big waste of my time.
I didnt want to be another of your readers and not respond.
In my area, its pretty much the same, the market here (Northern VA) is pretty good, so banks will just get a realtor and sell the property at Market Value even when they foreclosure on a house that had $150000 in equity when it foreclosed.
If you used the same Buyers Agent to negotiate/submit your offers, make sure you have an agressive one who can find out exactly what the bank is looking for.
I have started in Atlanta, GA and here in Northern VA.
Atlanta, GA has a alot of foreclosures, and most will counter an offer all day, because if the investor doesnt buy that house, there are plenty more for them to choose.
Northern, VA there is hardly and market for foreclosures.
Some of the things I am curious about:
Will a cash offer improve my results?? Probably, cash always seems to speak louder than a “pre-approved” letter
Should I deal directly with bank that owns property?? (Not sure if this is possible) In VA, its not possible, if the realtor is selling the property, then you must go through the realtor.
Should I not use buyers agent, and deal directly with listing agent??
Its kinda of a thin line, but the benefit of using the selling agent, is that the selling agent will get a higher comission for both selling and buying the house. In turn, they may work extra hard to get you around your asking price.
Increase your activity. I know that sounds like alot but the more offers you throw out there one will likely land. Cash is king but a financing contingency is fine. I buy mine with only one contingency and that is the financing. I buy as is. Risky? Sure. But when I go through the property you get an idea of what your up against. I think that might help. I use a realtor for all my offers. He’s not my buyers agent as I told him I don’t sign any contracts. He is on board and we have probably done about 15 offers last month. 50 offers for 6 months time is not enough offers in my opinion.
If you want to deal directly with the bank you have to try to get the house in pre-foreclosure in order to attempt a short sale. If its an REO home you can’t deal direct with the bank. You have to go through the listing agent whether if its Remax, Coldwell, etc.
It seems to me that you are successful. You would much very them not accept your offers, rather than offering them a deal they accept that will put you in the hole. You don’t want to go to bankruptcy for upping your offers.
Stay within your guidelines and you will get a few deal accepted.
You may only get two reos deals accepted a year. But they will be worth the wait.
Should I deal directly with bank that owns property?? (Not sure if this is possible)
Should I not use buyers agent, and deal directly with listing agent??
YES. Cash will make a huge difference. Financing REO properties will cost you deals. A lot of times banks will only counter the cash offers. If you are in a highly competetive investor market, cash is the only way to go.
The larger lenders won’t deal with individuals. A lot of the larger companies also outsource their REO to asset management companies. You have to go through their listing broker.
IMO, most agents do not understand REO. I said most. The listing agents have the inside track. They have more knowledge on all the required lender specifics. Plus, we can save you a ton of time. If you plan on writing a bunch of low offers, good luck finding an experienced REO agent to work with.
Increase your activity. I know that sounds like alot but the more offers you throw out there one will likely land. Cash is king but a financing contingency is fine. I buy mine with only one contingency and that is the financing. I buy as is. Risky? Sure. But when I go through the property you get an idea of what your up against. I think that might help. I use a realtor for all my offers. He's not my buyers agent as I told him I don't sign any contracts. He is on board and we have probably done about 15 offers last month. 50 offers for 6 months time is not enough offers in my opinion.
IMO, this is bad advice. A financing contingency is not fine. Most REOs require pre qual letters and or POF letter from the buyer. Some are now requiring buyers to pre-qual through their own company, like Wells Fargo and Indymac Bank. Writing in a financing contengency on a REO is a bad idea. Banks will not take the offer seriously. Buying bank REO properties is always “as-is”, unless its maybe FannieMae. But “as-is” is the only way. It will be in their addendums also. I don’t think increasing your activity is the answer.
I would like to hear what your agents opinion is on why none of your 50 offers have been accepted. Does this agent have any REO experience? Doesn’t sound like it. Inexperienced agents will cost an investor a lot of time and a lot of money!
Some response to your post. Financing deal will cost you deals? How? To cash buyers? Of course. That is most always the case in whatever real estate investment you are making. I have found two realtors/brokers that will write low ball offers all day long. You have to weed out the ones that won’t do it and find some that will. Its not a coincidence that they are both investors.
For you to say that a financing contingency is a bad idea is absurd. Most of us don’t have the cash so we rely on other funding sources i.e. local banks, HML’s, private money, etc. I am buying these REO’s with a financing contingency so your answer is blown out of the water.
Also as-is is not the way it always is. I can offer any amount on a REO with an inspection contingency, financing contingency, etc. I’m saying the banks want an offer that will go quick so I offer no appraisal, no inspection, no nothing, except financing.
Making more offers would only increase your odds of having one accepted. How could this hurt you and not help you? We are investors and low ball offers is expected. From an owner occupant maybe not. I’ve been beat out many times from an O/O. More power to them.
Butler…you were looking for ideas on how to get past your roadblock. I have relayed to you what is working for me. REO says I’m going about it the wrong way. Maybe. I guess I will just stick with what is making me money. Late,
Thanks to everyone posting so far with feedback. I think the one thing I am going to change for the last 6 months of the year is to make cash offers on the REO properties. I could have been doing that anyway but I just didnt want to tie up the capital, even for a short time, if it wasnt necessary.
I still wish to select the “Property Sold with Right To Terminate” option using a 5 day window in which to have professional inspections. Im just not comfortable with the “Property Sold As-Is” option. Does anyone think that this makes a difference in acceptance of offers??
My only other thought is to deal directly with the listing agent and not have a buyers agent. Would this motivate the listing agent to push my offer through since he/she would get a bigger piece of the commission??
Again, Im just looking for that little extra edge…
Nate,
Would you please tell me what lenders allow for financing contingencies? How do you get around submiting offers without a pre-qualification letter? Of better yet, how exactly do you write that in your contract so the bank doesn’t deny it?
When I say “as-is”, I mean the bank will not repair anything found in a home inspection. You’re buying the property as-is. The seller will do no repairs. Your comment about “as-is” wasn’t clear. Maybe you’re talking about something else. I’ve just never heard of a bank not seller their properties strictly “as-is”.
Maybe in other parts of the country, buying REOs with financing is not that big of a deal. But in my area, it is almost impossible. Hard money lenders yes, but not conventional investor loans. Unless you are buying a property for a rental that’s not in that bad of condition. A majority of our REOs are damaged. It’s also hard to get home owners insurance down here on these properties due to condition and age. Florida insurance has gone completely nuts.
Banks do not care about inspection contingencies for the most part. That is part of the game. They know that. Also, you will have an inspection period spelled out in the banks addendums. A lot of times, the addendums do not get signed until after an offer has been accepted. So putting the contract contingent upon a satisfactory home inspection is not going to kill the deal. But loading the contract up with other stuff will. Ask the listing agent what time frame does the bank allow for inspections. They should know.
butlersw3,
I think your last post is your best option.
I agree buying with cash is the way to go. I just don’t have the 50-100K in cash right now. Soon though
As-is is that the bank won’t fix anything. I’m not looking for them to. As-is to me means when I’m buying the property I get it in the condition it is currently in with no repairs coming from the bank.
What lenders allow financing contingencies? Heck all of them? Don’t know. All I know is I do this with every offer regardless of lender. I write in my offer that I’m buying the property as is with no inspection but with a financing clause. I write in there that I can provide a pre-qual letter within 48 hours of acceptance along with my deposit. I have had HUD homes require a pre-qual with the offer but most of my offers I write as written above.
My whole point is to make this as painless for the bank as possible. No inspections, no repair money, no closing costs wanted, etc. They don’t want a bunch of contingencies tied to an offer. I have never had a lender come back to me and tell me that the financing contingency is a deal breaker. Do I get beat out by cash offers? I’m sure of it. Remember there are alot of O/O looking for homes to and they go with traditional financing as well so its not uncommon at all to see that an offer has a financing contingency.
What lenders allow financing contingencies? Heck all of them? Don't know. All I know is I do this with every offer regardless of lender. I write in my offer that I'm buying the property as is with no inspection but with a financing clause. I write in there that I can provide a pre-qual letter within 48 hours of acceptance along with my deposit. I have had HUD homes require a pre-qual with the offer but most of my offers I write as written above.
Nate,
This is what I don’t understand. I have never worked with a company that would allow for this. Trust me, I’m not argueing with you, but of all the REO companies I represent, none of them would allow or accept a contract written like this. Proof of Funds and copy of Earnerst Money Deposit must be submitted with all offers. This is even written in some of our master Broker listing agreements. We have to have this before we can submit offes to the banks.
IMO, it would make more sense to just use the inspection contingency instead. I’ve personaly never had a lender refuse to release EMD for turning down the property for a home inspection. Happens all the time. As I teach my investors, its easy to tie up bank properties with little to no risk, by simply using the inspection contingency. Governemnt properties is a different story. HUD and VA will keep the EMD if you turn it down for inspection reasons. Got to cover that before you bid.
I hear ya. I have never had to provide proof of funds nor a copy of the earnest money. This is weird REO. We are talking about bank owned foreclosures that are listed thru a listing agent correct? I know some lenders that I have dealt with are OCWEN and Wells.
Both of which are current clients of mine. Wells Fargo/PAS is one of my best. Wells requires buyers to pre qual through them now. Doesn’t mean buyers have to use them, you just have to pre-qual through them.
Ok player. Then how come I am doing what I am doing then? I am not telling you a lie or pulling one over your eyes. This is how I submit EVERY offer of mine. No proof of funds, no EMD, no nothing. Once my offer is accepted I then have to provide an approved financing letter from my bank and the deposit. End of story.
A POF letter is no big deal, guys. I can get a POF for my dog if I need it. And yes, most banks require them when presenting an offer.
As to the EMD, I now always put in my offers that EMD will be submitted upon acceptance. Again, not a big deal, especially if you’re working with an RE agent that has experience dealing with you (ie, you actually close the deals). They can get the offer through and accepted.
Financing contingencies only become an issue with REO’s when you are trying to go conventional. Non-conforming is the box that you should be checking. Remember, it’s all cash at the closing table. All the lender wants to know is that it’ll happen fast. Conventional loans aren’t fast.
As to that, all of you are putting too much emphasis on cash or financing. It’s ALL CASH at the closing table. You can say that you’re buying for “cash” and get financing. You can say that you need financing and buy with cash. The seller isn’t going to know, or care, when you’re at the table. All they are going to want is their money.
Hey REO,
What is the Wells Fargo/PAS website? I know the Ocwen one. What are some other common banks that will list REOs on their site? (please list sites) I am in Washington, I think I am well outside of most of your area, so feel free to share.
Thanks,
Ryan
