Am I being unrealistic?

Hi folks!
I am a newbie investor putting in my 1st offer today. I have been working with a new realestate agent, who has been great about showing us properties as well as pulling comps, etc… Just as I expected (and told her) her boss called me and told me what I am planning to offer is ridiculous and that she contacted the listing agent for the REO and HE said don’t even bother to bring the offer as the bank won’t even respond to it. I kind of expected the listing agent to not admit that the price HE has the property listed at is way too high, but I still feel a little shaken (as does my RE agent). Here are the numbers, am I being unrealistic, or do banks actually take these kinds of offers.

listed price $124,000
ARV $123,000
70% $86100
costs (HML, rehab, holding, $36,000
closing, etc…)

My max offer is $50,000

My starting offer is $40,000

Is the realtor just being difficult? or am I being unrealistic

Thanks in advance

The manager of the office/broker is only looking out for their commission and is probably concerned that both the office and this new agent are not going to get anywhere near what they expected if your offer is accepted.

Perhaps there is “another way to skin this cat”. Some suggestions might be to raise your offering price (some) but ask for attractive financing and maybe a moritorium on payments or interest only payments for the rehab period.

Another approach might be to look to a grant or grants to make the improvements. - Or, you might combine both of these ideas.

My suggestions are only to give you a couple of other tools besides a low-ball price as ways to reach your goals with this property. After all, when you go to sell the property, one of the considerations will be the capital gains on the low-ball price. So, pay now or pay later!

Just some food for thought.

Also, a realtor legally is obligated to submit any offer you want to make. If they are uncomfortable with it or see it as lowballing, get another realtor. Thank God there are only like eleventy billion of them out there!! :smiley:

You are being unrealistic! Banks/REO companies will not accept this kind of offer. The listing agent is 100% correct. Though, there are times when a “low ball” offer might be entertained by the seller. These factors might include the condition, location, days on the market and possibly the kind of portfolio this asset might be in for the sellers. But the property will have to be in extremely bad condition backed by BPO’s, and it won’t happen with new listings. The numbers you show are outside the box. Managers won’t approve these offers, way to low from their own opinion of value. Something else to remember, the asset reps and managers are often have bonus insentives. Really hurts their numbers accepting offers this low from the list price.

The deal with the agents. Agents who put in low ball offers are most always newbies or they are working for themselves. It is the kiss of death as an agent to do this. REO listing agents will never take these guys seriously. That only hurts their clients. Good agents educate their clients and consult them on their offers. Good agents do not submit ridiculous offers, they understand more on how the game is played. My advice is to always try to work with experienced REO agents, usually the listing agent. Especially as a novice investor, you can get the short end of the stick dealing with non-experienced agents. I see it everyday!

REO: I see your point but what you say makes sense? Pay top dollar for a home that needs a fair amount of work. The banks have backed themselves into a corner. You really can’t expect to forclose on a home where the owner had probably no equity because the went into it with $0 down on an 80/20 loan and then destroyed it on the way out. So the bank prices it at market value and won’t budge or will budge very little on price. It’s unreasonable for an experienced or unexperienced investor to pay anything more than what its going to cost plus a little on the side for themself (10% as a rule).

I look at it from this point.
Asking price- repair cost, commission fees, transfer taxes, title work, misc closing fees, insurance and any other carrying costs + my 10% take on the deal. Add/subtract all that and come up with your offering price. It usually equals in my case anywhere from 65%-75% under what the bank is asking depending on the condition. In some cases and currently

I have an offer in on a short sale that is 85% of asking. It’s close but with minimal repair I should be able to walk away with my 10% minimum profit. Keep in mind though that the property is already priced 15% under MV currently.

To pay any more on these would be foolish. Especially here where the market is so volitol right now.

DR. Rick, I think you are right on target. Here in Michigan I am a Realtor and by law we have to submit ALL offers. Stick to your guns you will find that diamond in the rough. If your Realtor and their broker won’t submit an offer or they try to head off an offer I would find another Realtor.
As a realtor I have submitted countless offers that go nowhere. But the ones that do by far make up for the 15 minutes that it takes me to throw an offer together. On average for every 50 offers I write I make $20,000. at 15 minutes an offer that’s 12.5 hours worth of work. You can add in an hour to show each one of those homes and we will just round it up to a mere 70 hours for the sake of it. That’s only $285/hour. MAKE THEM WRITE EVERYTHING! They will be paid well.

Dr. Rick,

Certainly some valid points have been made. Something to consider: If you go way way way low, the bank will not take you seriously. The Realtor will present the offer, and will probably preface a 25% of asking as “you know we have to present all offers but…” The bank will not even counter.

I encourage all readers to google “PriceWaterhouse + Real Estate Cycles” there is a PDF report which shows the approximately 10-11 year price cycle in Real Estate. Also, listen to Dave Lindahl. (there should be a recording of a teleconference) He also talks about the Real Estate Cycle. We are just now skiing down the mountain from the highest of prices. (Here I come back to the thread here on banks) The banks have been crazy this time around. In the 80’s banks started to give 90% mortgages. And old-timers thought that was crazy. Well, how about 110% mortgages, and interest only loans. To me, this is worse than the handshake loan of yester-year. I think we are in for some very tough times financially. People are not going to be able to afford their loans as rates rise, and banks are going to go under when all of this property and debt comes back to haunt them.

There is a strategy for every step along the way in the Real Estate Cycle. Find the one which is right for now. Do not rely on a fast flip or wonderful appreciation as we have had in the past. If you should strike a deal at any price with the bank, expect to hold the property longer. So you will want some good tenants.

Good luck.

Good points vickyS
There are some cases where a bank will price a house fairly (very few) but they are out there. Take advantage of those when they come along. Don’t mess with the formulas. If you find something that is $50k under market value and it makes sense, jump at it. Still only after you have done your homework and figured ALL of your costs. I have lost a couple like this but there’s no looking back only forward. It just wasn’t meant to be on those. Either way keep at it and things will happen. I agree with you there will probably be many closings of banks because of their lending practices. It serves them right. I don’t think anyone should be able to make the biggest purchase of their life without having to put any money in to it. Too many irresponsible people out there who are not ready to own a home.

There is one other piece of the puzzle that we haven’t mentioned.

The previous owner. (The foreclosee - if you will).

Banks want their money back. If they are not going to get the full ticket from re-selling the house, they will then turn to the previous owner for the deficiency.

If they think the previous owner has other assets, say they owned a property for investment and they weren’t seeing the revenue they had hoped out of the property, and let the property go, but owned their primary residence and the bank sees the primary residence as an asset they could sink their teeth into, they may be more willing to “negotiate” on the foreclosure. We don’t know Dr. Rick’s property well enough to comment on this, but maybe Dr. Rick will want to look into this on the land records.


Not only that, If the bank does not get their money back they will write the deficiency off as a loss on their taxes. Then they will file a form 1099misc (I believe that’s the form they use) and will send it to the previous owner. That deficiency that the previous owner got out of paying the bank by filing bankruptcy or maybe they don’t have any other assets to go after has now become income and they have to pay taxes on that.

As far as what real estate the previous owner owns. Public Records is the place to search for that. As a realtor I can pull that info through my MLS system. I’m sure most Realtors can do this too. It’s integrated. It only takes a couple of minutes to find everything one person might own. Even if its in multiple counties.

Thanks for all the input folks! Can you believe it, we put our offer in, only to find out that Fannie Mae pulled the listing the day before (after only 6 days listed)! Is that normal? Well, off we go to find another one!! ;D

David, I will probably give you a call to pick your brain a little, as I am in Northern MI.

Thanks again everyone!! Great Forum! 8)

Ok Rick,
Anytime. Sorry to hear they pulled the listing. It happens. Keep an eye out though, chances are it will appear again!

Do stick with the formulas! Maybe the one you’ve got, maybe not. The formula (whatever you decide to use) is what ensures that you’ll make money in a deal.

If you find something that is $50K under ARV and it needs $40K in work, it’s not going to make you anything because $10K will get eaten up quick. On a $500K house, $50K is simply negotiating!

If your numbers are correct, then it’s the bank that is being unrealistic, not you. Would they accept that offer? Doubtful. At least, not until they come to terms with what they actually own as opposed to what they think they own.

If you’re going to be making offers on MLS listed properties, it’s simply a numbers games. The rule of thumb is 100 offers presents three potentials (counters) and one closing.


I agree with Roger. For anyone considering getting into buying properties wholesale, the formula’s don’t lie. If you try to “cheat” the system by adding a few thousand here and a few thousand there pretty soon you’ll be working for free and taking all the risk.

You can’t make a motivated seller, in this case a bank, from an unmotivated one. That 70% of ARV is a tried and true number and can easily be justified and in fact, imho, is still high.

Your problem isn’t how much the bank makes or even the previous owner. Your job is to run your business profitably. No profit and you’ll be out of business fast…for many it’s after the first property.

Don’t fall into the trap of “raise the 70%” because our market is different or the bank will never accept that. Again, your job isn’t to make the bank a profit. It’s to make you a profit. If they balk and ask why just tell them, “Because I want to be around to make the payments on the loan. You do want me to make the payments right? For me to do that I can’t pay more than X.”

In the end, nobody can fault you for telling them what you can do. If they don’t want it then just move on. In fact, you should move on while they’re trying to decide what to do. Good luck.