What to offer the Bank?

For last two months I have put offers on about 15 properties all of which have been denied by the banks. 75% of the time I can not even get a response from the bank much less a counter offer. I look to rehab homes so I target homes that need work to attain FMV. Usually I take the amount of work that needs to be done and subtract that amount from the list price (typically about 20-25k under list). Am I way off by my first offer? Let me know what you guys think, I would greatly appreciate it.

Rich in Cincy

Two points I think to make:

  1. REOs take patience. A bank is required to attempt to get as much out of the sale of an REO as it can. So, especially when it is newly listed, they are reluctant to take a lowball offer until it can be documented that it will not sell at a higher price. So often you make an offer, then get no response. However, every 2-4 weeks return to the listing and make a new offer. At some point, if there is no movement, normally they will break down and make a counteroffer. If you stay in front of them, that counteroffer likely will be made to you. Then it is a matter of negotiating.

  2. I am concerned about how you are coming to the price you are willing to bid. It shoulad have nothing to do with the list price. The normally accepted formula is 70% of After Repair Value (ARV- the amount the property should be worth after repairs) MINUS rehab costs and other expenses like carrying costs, utilities while rehabbing, purchase and sale costs. In fact, in today’s market many investors are insisting on 65% or lower MINUS rehab costs.

Setting an offer price based off a list price is a recipe for disaster. Sure, some REOs are listed at a discount, but many are listed, especially initially at or near full retail (FMV). You run the risk of finding that you purchased the home for too much, made the repairs, then have invested even more than what the property is worth.

Good luck

Thanks for the advice I really appreciate the input. I just felt like my offers were not even getting to the banks decision makers. Like the realtor was just holding the offer and waiting for better ones to come.

I also appreciate what you said about discounting the repairs off of the list price. I should have been more clear as I typically will not even look at a property unless it is listed for at a min 20% off of the ARV. Especially in today’s market when a seller may have to sit on a property for a year or so to get retail value out of it.

Speaking of carrying cost…Has anyone started adding a carrying cost cushion into their equations before submiting an offer? (I plan on 6 months just as a buffer) what do everyone think?

I have presented countless offers for both myself and my clients and have had no success hearing back from the banks.

Many banks have the attitude that if you send them an offer and it’s not high enough then why respond back, they know that if you want the home you’ll make another offer.

I would suggest finding out who the main realtors are in your area that are carrying alot of forclosures and work on developing a relationship with them.

I have done this very successfully and profitably. The reason it is good to have them on your side is that when the asset managers decide that they need to get a property out of inventory (which is many times near the end of the month) they will call the realtors and tell them to just get them an offer, in many cases a very low offer will do the trick.

This saves both time and effort for you because you aren’t making offers on non motivated sellers, you can then be picking from the best of the best.

I have picked up homes for as low as $12,000 that started out being listed at $55,000 using this method


Thanks for the help. I have started working with one of the realtors in the area but there a couple more I would like to get in contact with. Thanks again.


How would you find out who are the main realtors in your area that are carrying most of the foreclosures?
Thanx :biggrin

Well in Cincinnati it was pretty simple. I went to a real estate companies web site and searched the foreclosures. For most companies their will be one realtor who has his own office who specializes in REO listings. Contact him and get him to start sending you properties that come on the market as well as a list of all the available bank owned properties in your target areas. Once you start looking at the properties you will see the same listing agents time after time. Call them and keep in contact because banks typically use the same realtor.

Conceptually this is an interesting strategy, banks should be more open to offers near the end of their reporting period so they can clear the problem assets from their books. However, month-end numbers matter little to banks, its all about quarter end (March, June, Sept., Dec.). That is when they prepare the final numbers reported to their investors and their regulators.