Hi everyone, first-time poster, long-time reader. I’ve been researching everything I can find…every single RE podcast, literally w/o exagerrating…EVERY RE book in Brick, NJ & Little Egg Hrbr, NJ Libraries and a slew of RE sites. I have 2 partners and we’re setting up an LLC to buy our 1st rental.
But in the meantime I found an REO prop 5 miles from my work and have looked at it and will make a bid by weeks end. Realistically, how much below asking can I expect to get an acceptance from the REO bank? i was planning on putting my bid package together as a PP presentation; that make sense?
marshmellow1982,
No, a powerpoint presentation (PP, right?) doesn’t make too much sense to me. Bankers are busy, and that’s just one little property they have on their books. More importantly, you ARE going to owner-occupy the place you are buying, right?
I don’t think anyone knows how low of an accepted price you can get. A good resource for you would be a local real estate agent who deals in REO’s; he or she could tell you what to bid. The seller (bank) typically would pay the commission as well. Then you could also find out comps (comparable sale prices) of similar homes in the area.
What furnishedowner said is right. What I would do is find out what each house just like the subject house sold for in the same neighborhood in the last 6 months. I would average those sold amounts. Take that number subtract whatever acquisition costs and fix-up costs are required. That number is the retail price of that house. Take off a percentage for your trouble. Your trouble is what it is worth to you to do the work instead of finding a perfectly maintained house and bid that.
If I may add to the wisdom you have already received.
Comps don’t tell the whole story. You also need to know the direction prices are moving in your market today, and what percentage of list price homes are selling for, today.
If your real estate agent can give you a market snapshot for this month versus last month, look at the median home price each month. It is less this month than last month? If so, by what percentage?
If you have this shapshot of the market, what is the ratio of the average sold price to the average list price? Is the percentage down from last month?
If these two market metrics suggest that your market is still in a declining trend, then you may want to offer less than full price to protect your equity.
There are some who will say that this market is probably near a bottom anyway so if it drops a little more, the drop won’t be that significant. After all, this purchase is your primary residence which you will hold for a long time. If your holding period will be at least five years, then “they” are probably right. Housing prices should hit bottom and stabilize soon (maybe by the end of next year), so that if you hold for five years you probably won’t lose any money when you sell your house.
I’m in Burlington County… not very far away at all. My recent experiences with banks has not been very positive. I bid on one REO once a month, every month for 6 months until it was sold for $10K more than my bid but $55K less than the original asking price. Another short sale was 5 months in the making before the bank finally declined my offer. The property is still for sale and headed for foreclosure next month. A second REO I’ve bid on twice so far and the bank still isn’t budging from their original asking price. All offers were all cash with absolutely no contingencies, settle in five days or at the bank’s convenience.
I hope you have better luck than I am experiencing.
The property that I bought had an asking price of 119k and I got it for 65k. It was an auction so the dynamic is probably different than a regular REO being sold by the bank. My price was below the reserve price set by the bank for the auction, but they decided to sell it anyway.
I usually agree with furnishedowner’s advice - however in this case I don’t like his advice to ask a good real estate agent to tell you what to bid. I believe most agents will tend to suggest a higher price (their commission is based on the sale price) and even if they are completely honest and try to give you a good number, I still think most of them are wired to think that real estate is worth more than they are selling for and as a result they will probably end up give you a high price. Just the way I think.
A good resource for you would be a local real estate agent who deals in REO's; he or she could tell you what to bid.
I see nothing wrong with asking an agent. Find one who works with REO investors however, get references, and call them. They’ll tell you what works and what doesn’t. I also suggest visiting a few local real estate clubs. You’ll meet experienced investors there as well.
The REO market is a numbers game. You have to make many offers to get one hit. Your problem is you want to live in the house so you have to be a bit more careful about what you try to buy. The good news is that you could probably pay a bit more than an investor, who has to have a built-in profit. You might be better off buying a home from a wholesaler. In any case, forget impassioned letters or PowerPoint. Your offer will likely be submitted electronically and the asset manager won’t give a rip about you, why you’re a wonderfully deserving person, or why you think the deal is right for his bank. As previously noted, your greatest chance of success will come with an all cash offer, no contingencies whatsoever, and a quick close.
Another suggestion is that if you are looking to do an owner occupied and the property that you are looking at doesn’t work out, take a look at the HUD homes in your area, owner occupants get first dibs on the newest listings as they come out.
As far as pricing I would do as the others advise, do your own research, comps don’t mean $hit in most markets right now as homes are decreasing in value in many markets. Find a good RE agent that you can take all of your deals to whether your buying from he/she or not.