Buying / Bidding REO Answers

There are so many questions out there about REO’s. How much do I offer? What percentage owed will they take? Why wont they get back to me? ETC, ETC, ETC…

Let’s break this down really simple like for everyone. REO’s are sold for as much money they can possibly get out of the property. End of story. There is no magic percentage, there is no magic number. There is simply luck. being in the right place at the right time and not having anyone else out bid you, luck.

I have been bidding on REO’s for many years. I have never been able to find a pattern among them in their bid acceptance. There are however a number of key points which will greatly increase you chances of buying an REO at a good price.

Most REO’s are not sold by the bank who owns the property. This is generally sub contracted out to a third party. These people who sit day after day in little cubical care only for the numbers. They are generally titled ‘Asset Managers’. They get addresses of properties from bank portfolios, then they place them with a Realtor in the appropriate area. It’s up to the Realtor to secure the property and perform a BPO for the Asset Manager to review. You all should know what happens at this point…if you need help…they wait for offers to come in.

That’s it, they just wait. And after ‘X’ amount of days have passed they begin dropping the price a little at a time. Generally 90 days on the market is when they drop for the first time. In all honesty, it is really up to the Asset Manager when and how much the price drops. When it comes to REO’s the Asset Manager is the person who holds all the cards. Every aspect of their portfolio is their decision. There is generally nobody above them of which they require approval from. They are the ‘TOP DOG’ as far as we are concerned. It really isn’t all that difficult to get REO’s at good prices as long as you put yourself in the Asset Managers shoes and you realize what their bottom line is.

As I mentioned above, there are a few things you can do that will greatly strengthen your chance of getting the REO approved. For those of you who are well versed in Short Sales this part will be a piece of cake. When doing a short sale one of the key factors is to prove to the bank the value of the property in it’s ‘AS IS’ condition. We accomplish this by performing a property inspection and rehab expense sheet. These two documents show the bank the condition of the property and the expense to fix it up. Our goal here is to get the Loss Mitigation Rep to accept less than what they are owed because of the money that must be spent on the property. Putting together a bid on an REO is no different.

Just last week I was bidding on a 17 unit REO apartment building. I spent two weeks putting together a rehab expense report. My first offer was for $68,000 and I worked my way up to $75,000 in three bids. When I made my last bid for $75k the Asset Manager countered at $80k. I told the Realtor to inform the Asset Manager of the standing frozen water that was at least 1 and a half feet deep which filled the basement. This created an unknown situation that could cost us much more than $5k in repairs to the foundation. I requested that they accept my $75k offer based on that fact alone. They did…for about an hour. As luck would have it after two weeks of bidding some other jackass came along and offered $80k…LESS than an hour after I got the phone call that they had accepted my bid. Because I/we had not yet signed any paperwork there was no legal requirement for them to honor their verbal acceptance of my offer. So the other guy got the building for $80k. (Oh yes, Commercial Real Estate is dirt cheap in Cleveland. But you need the cash to do the rehabs, and they can be expensive.)

There are two points in my above story I want to point out. The first is the obvious…the Asset Managers will take the highest offer. It is also important to know that they take cash offers over financed offers. Both of the offers above were cash. They have hundreds of properties in their portfolios that they are trying to get rid of. Cash offers close faster than waiting for financing so they generally get the property. Even if a financing offer is higher than the cash offer, they may take the cash offer just because they can get it out of their portfolio faster. Asset Managers get paid bonuses for liquidating a percentage of their portfolio each month.

Point number two I want to point out in the above story is that initially my stance at $75k was accepted because I justified my offer. Just like in short sales, you should put together a property inspection report and a rehab expense report. The Asset Managers have to write a ‘Market Analysis’ on each property in their portfolio. This is the note to the bank on the condition of the property, how marketable it is, and how they plan on structuring their bidding. The information they use to create this analysis is provided solely by the Realtor they have it listed with. This information is generally very limited and can sometimes be conflicting. By submitting our own information to the Realtor we are more than likely providing more information than what the Realtor has already provided to the Asset Manager. If this information is accurate and makes sense based on the information that was submitted by the Realtor you have a much greater chance of getting your offer accepted.

GooD Luck! :beer

Nice post. It’s good to see you back.

Thanks! I wish I could get on here more often, but the boom in REO’s and Foreclosures is getting insane. I’m finding less and less time to post. Kind of sad that I actually miss my daily posts in here… :anon

With all the foreclosure right now there is tons of opportunities for short sales, but man… if you know what you are doing and you are organized the REO market is really getting out of control. 17 unit apartment building just went for $80k. I bought a single family a few months ago for $13k and put $2k into it…now its FMV is at $90k. For those with the capital, REO portfolios are building to such high numbers that if you were to show proof of funds to asset managers you could purchase properties anywhere from .30 to .50 on the dollar. But to do this you really need to have an ‘in’ with an asset manager.

I’m pretty excited to see what '08 has in store for the real estate and financial industries.


Hi Foreclosure Negotiator.Where do you live? Iam shocked.You can buy house for $13k spend $2k for repair andFMV is $90k.It is amazing.I live in Chicago area and I made an offer on SF,bank price was $189,900 repairs $40-$50k ARV$240,000 I offer$115.000.They do not want to sell it.It is total wreck,water in the basement mould everywhere.You are lucky guy.

Hey Matt,
I have missed your posts also!
I’m in Richmond VA and wonder how to find these third party “asset managers”?
Thanks for your insight!

I know this post is old but its mentioned that you can submit an expense sheet to show how much rehab will be done and this applies to REO’s??
Where can I get this template thats professional looking so I can submit it to the banks??

I’m an REO Broker, and this is pretty much spot on…

I just googled “rehab & repair expense sheet” and got this
Maybe you could you it as a template. HTH