I’m debating putting in cash offers on REO houses and i just wanted to take suggestions from some of you folks… Im putting in pretty low offers, is it allright for me to put in an inspection clause, i dont want to get screwed with higher fixup costs than i originally thought… I know everything in a contract is negotiable and everything is “allright” but i kind of wanted to see how the folks doing alot of REO deals work these banks…
Do you guys routinely put in inspection clauses in your offer with banks even if your lowballing on the offer? I haven t done much with REO’s to this point so i just wanted to check…
Q2:
Also, anyone buy houses cash and then refi their money out? Any experience in that scenario would be appreciated… Im being told by mortgage brokers that refing money out again (even if you bought below MV still wont be able to get you your money out…
Hey Karim, You may find that lenders will accept few if any contingencies. If you’re going to hire people for the rehab, you should have them go with you to take a GOOD HARD LOOK at the property. The contractor will be able to spot the major repairs and give you cost estimate. Be sure he’s reputable and trustworthy. Another alternative is to pay for a home inspector. I’ve dealt with a couple of them and they went through EVERYTHING. They usually spent about 2-3 hrs. and explained everything to me. I learned so much. They give you a detailed report and it costs $300 (in my area). They have no incentive to lie to you because they’re not doing the rehab. They’ve already been paid. You have an honest assessment of the property and an education. Now you can get bids and determinine the rehab costs. Then you can determine what to offer the bank.
As far as getting you cash back with a refi, I think it depends on the equity in the property after the rehab. If you asking for a refi with a 65 - 70% LTV, I don’t see why you couldn’t refi. It doesn’t sound risky to me. Perhaps the lender feels that the value could go down during this “downturn”. I get the feeling that once you buld a solid banking relationship, you’ll have an easier time with financing. Good luck.
I have had the best success with REOs by making offers with no contingencies. Putting down a large downpayment; paying cash; and closing quickly will also improve the odds of success.
Yes, you can buy a house cash and then refi. I’ve done it many times. I never deal with mortgage brokers.
Your best chance for a good price will come from the simplicity of the offer and the speed of the closing. Picture a guy sitting in his office with a stack of files on his desk and a ton of offers for properties. He’s probably getting pressure from his boss to get these properties off the books. Which files is he going to tackle first? The one with…“offer subject to financing and inspection of property.”? Or…“offer is $xxxxx, can close as soon as title clears.”? And I’d bet he’d willing to take a little less if he can dump a file in 10 days rather than 30 days and have the potential of the deal falling through because something written into the purchase agreement.
Mike, do you go directly to bankers? I take it you have a direct banking relationship… Also, do alot of you guys actually pay for an inspection BEFORE you put in an offer? I mean so what happens if you dont get the place, sounds to me like you would spend money with a risk of not getting anything in return…
I never pay for inspections. I do all cash offers, no contingencies, and tell them I will show up to close as soon as they are ready and can give me a clean title. You just have to know what you are looking for. And yes you can cash-out refi if the property qualifies. Never use mortgage brokers, they are not looking out for you and unlike a realtor, they are not a necessary evil.
That’s what I meant by paying for an inspection until you can get to the point where you can do it on your own. If you can’t determine what needs to be done and the costs, you’re gonna get burned. You’re not wasting the money if you’re getting an education. Another alternative is to ask a local inspector if you can “tag along” on inspections and educate you. In return you can either pay him or volunteer your services as a “helper”. The point is to get where you can look at a property and make the decision on your own.
Karim - if I could do cash offers I would. However I don’t have the cash to buy the properties I am looking at right now. And I don’t want to go through HML. In the future, when I have the money saved I would probably approach banks with all cash/no contingencies offers.
For now, I need to present offers contingent on financing.
In terms of the inspection contingency, I am leaning towards not including it. Somehow I feel this can balance the fact that I am presenting offers contingent on financing. The houses I am looking at need significant work. I am being very conservative on my estimates - I got some information online about costs for different work and created a spreadsheet for each room. Now when I go through the house I use a checklist and mark the items I feel need to be done and when I am not sure I mark them anyway. When I get home I use the spreadsheet to calculate the estimate cost of repair.
For example, based on my spreadsheet the house I am analyzing right now needs approximately $40k in rehab. My gut tells me this is higher than what I will actually need. However I won’t know for sure until I go through the rehab myself. My plan is to adjust the spreadsheet as I learn more.
My intent is to rent the house after the rehab. However if my repair cost ends up higher than expected, and as a result I can’t get the cash flow I want renting it, I can always sell the house. If the bank accepts my offer, I will have enough equity built into the deal that I should be able to sell and still make money.
I am in the process of setting up a new spreadsheet targetted just for rehabbing/estimating… any chance you would be willing to share yours with everyone?
Banks(as sellers) are dumb and slow. They will send tons of addendums after you send your contract and it take weeks to get you a signed contract back. I am dealing with one now, we just got the contract back, they initialed every page, but didn’t sign the last page, the most important part.
You would think with all of the homes on their books, they would have a quick and simple way to unload them.
If you are willing to pay the bank’s asking price, they won’t care if you need to use financing. They will want to see a pre-qual letter from your lender when you submit your offer along with proof that you have the funds in hand for the downpayment.
The all cash, no contingency offers, that I make are less than full price offers, often discounted as much as 30% - 40% from asking price (which is already discounted from FMV). To get the seller to notice my offer, I have to pay all cash, have proof of funds, be able to close in 15 days or sooner.
reos alot of them have problems like frozen pipes/burst pipes, how do you not get a home inspection on them ?? or is that a case where you would have too. also most reos have NO utilities on so it wouldnt be easy to find the leak.
I’m closing on a reo monday that had a leak. a very easy fix leak but would have been impossible to know without an inspection.
karim u mentioned something about inspection money. you only get an inspection done if they accept your initial offer. banks do not like contingencies but every contract should have time allowed for a inspection and some saying basically a satisfactory inspection.
You and the bank already know the visual flaws. a home inspection gives you a detailed report and will tell you if theres something very bad you didnt know about. You should get a home inspection done, you learn alot for the home inspector.
PositiveOutlook - Just send me a PM with your email address and I will send you the spreadsheet. Have a nice evening.
This is a very good comment - most of the REOs I went this past weekend did not have utilities on. Do you usually turn on the utilities to do the inspection? I would need to do it on my own dime…
Will the appraiser from the lender need to have the utilities on so he can do the appraisal?
I’ve read posts from others on here that said if they couldn’t test something because of no utilities, they added the replacement cost of that item to their list and deducted the amount from the offer price. So if you can’t test the hot water heater, furnace, a/c, etc. you can see how your offer would drop in a hurry.
J1dias
The bank should be responsible to turn on utilities. they want to sell the property and have agreed on the price. I wouldnt pay to turn them on, they should ALREADY be on. sometimes listings say they wont turn on utilities or something like that. thats not true they will and they will 90% of the time pay for it too.
its all negotiable. You could probably write in the offer that you want a king size snickers bar on the day of closing and the listing agent would probably do it, lol .
banks want clean and easy offers but everything is negotiable remember that.
by clean and easy i mean. they want a cash offer= saves them closing costs/ time. a quick closing date= they want that debt off their hands and another month of property taxes they wont have to pay, if you ask for prorated taxes.
REOs are sold as-is, meaning the bank won’t pay for any repairs anyway. You can always use an inspection to negotiate a lower purchase price and to make sure that there is not some really expensive defect that would sour the deal for you.
I usually waive the inspection. I don’t want any contingencies in my offers. I want the bank to have a clean, quick, and done with it sale. My offer price is low enough to compensate for any repairs or replacements I might need to make.
Dave
let me give you a scenario. listing says home has frozen pipes throughout home. you look at home and theirs no water damage signs anywhere. home is in good shape cosmetically. that statement is vague frozen pipes are no biggie, its summer now they would be thawed. or it could mean that theirs Broken pipes due to freezing and they’re throughout the entire house. Would you still get no inspection ?? maybe im a plumbing novice but chasing broken pipes throughout a home could get very expensive.
What about getting multiple contractors in to look at the house before you make your offer? That way you have multiple quotes on the project and can compare them against each other to see if each of the contractors found the same issues. Seems like a win-win because not only would you know what was wrong with the house, but you would also have a good idea if one of the contractors was trying to take you for a fool.
The difference between a home inspector and a contractor is the home inspector doesn’t have any benefit from the condition of the house. A contractor may " run up the bill" to make it worth his time. He may also “find” things once you sign a contract. A home inspector’s job is report “just the facts” and is neutral. He gets paid no matter what. What’s even better is the good ones educate you. Therefore, you’ll learn to accurately spot problems yourself without having to pay an inspector. The experience will cost some money up front but will pay off down the line.
exactly my point. the $250 is well spent i think for a home inspection. I cant tell how many years a roof has left in it or how long a water heater furnace a/c unit has to left YET. so its educational and insurance for me.
After i can look at a house myself and know these things i will use a home inspection.