Profile picture for ninok

Buying REO properties, please advice!

Hello everyone!

I'm currently looking for REO investment property in Sacramento area. My target is multi-family units (fourplexes). I have RE agent who is helping me, but unfortunately no luck so far.. I want to know your professional opinion on how to win a bidding war without increasing bid? My price-range is around 200K.

What I have right now:

- high credit (760-780)

- very strong pre-approved letters from few banks and mortgage broker;

- prove of funds for downpayment. Willing to pay up to 50% down;

- ??? What else should I have to increase my chance to win?

Example. I found fourplex listed for 200K.
- what bid would be appropriate to start with? 180K, 190K...??? or lower if go through conventional loan?
- what if I pay "all cash" - how much can be my bid? 150K, 160K???

Please share with me your strategy.

Appreciate your advice.

Thanks!

  • October 01 2008 - US
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Answers (23)

Profile picture for SanJoseSeller

I only have experience purchasing one REO property. But, here's what I learned in the process:

1) Cash is King! The more cash you have the more interested the bank will be.

2) Banks do not accept an offer lower than their list price. If the list price is too high for the neighborhood, move on to another property instead of wasting your time.

3) The bank is slow in responding to your offer and may try to work out back deals with others to get additional offers. They will likely disclose your offer price to other interested parties.

4) Even though they take their time to make a decision to accept your offer, once they do they want you to close immediately.

Again, I only had experience purchasing a single property and the bank was WaMu, enough said?

  • October 05 2008
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Profile picture for John12377

Cash is king.  But I don't know about the comment that banks will only sell for their asking price.  We bought an REO for 86K that was listed for 109K.  All the lenders really care about are the numbers and how much monet they are going to make.  Of course the "cleaner" the offer the better it will look.  Also you might put together a presentation describing what you intend to do with the property and how it will improve the community.  This may sway the bank rep your way.  But in most cases if there is a higher offer you will lose out.  If all else fails yape a c-note to the back of the presentation.  HA HA

  • October 06 2008
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There are no fast rules as to whether you should bid under the list price.  You need to know the market if it is priced low (as many banks are doing to generate multiple offers) then bid a little higher.  If you feel it is at market, bid list with as clean as offer as you can.  If it is high then bid what you think is market value.  Be informed, know the comps and if it is a good deal at list price don't lowball.  Good Luck!

  • October 06 2008
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Having a great credit score shows you as a strong buyer, and having proof of funds, and pre- approval letters as opposed to pre-qualification letters...And having a substantial down..I don't know how to tell you this but a bidding war ...is a bidding war!..Period! If the property was underpriced...it will sell within 24-72 hours with multiple offers and over the asking price. If it is priced right...it will sell fast and may sell over or close to asking price. If they have it overpriced...there will be lookie loos but no offers...and it will not sell and it will sit. Hence, those are the ones you can go in at a lower price...if they underpriced...throw your highest bid in and hope it wins...I suggest if you want to avoid bidding wars...by all means stay away from the ones that are underpriced...Good Luck!

  • October 06 2008
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All cash full price is the best way to get accepted. You gotta have money to make money in this game. Most REOs are way undervalued already, so if you are looking to "make a killing" and lowball even more AND you need a loan- you won't get the time of day.

You found a fourplex for $200!!!!!! What's this world coming to? I say snap it up, you'll look like Einstein in a couple of years.

  • October 06 2008
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Profile picture for Verbal

To get the absolute best possible deal, you might try a short sale.  They are more complicated because there are often multiple lenders.  One thing in your advantage is that California is a non-recourse state(they can only get the house and not a deficiency from the borrower), so it may be easier to convince a second lender to release their claim.

  • October 08 2008
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I don't understand why a second mortgagor would release their claim in a non-recourse state.  Wouldn't they want to hold on to it tighter in order to recoup their investment?

  • October 12 2008
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I think a quick closing date (within 30 days) makes an offer stronger. Plus as other mention, proof of funds. Between those two things, along with a fair offer, that should help you get the property. Also run your numbers. Don't be afraid to offer asking price (or even slightly higher) if the numbers are right. Some realtors just do not price things correctly. If you are a savvy investor and know what things are worth, that will help you know what to offer in a multiple offer situation. 

  • October 20 2008
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The post above regarding banks not accepting an offer lower than list price is baseless. 

 

I have sold many foreclosures in my career, and most buyers were able to purchase at a discount. I have a client that is closing in the end of October, he is paying cash and was able to get a discount of appx. 15% off of the list price.  The home needs work,  but was priced very aggressive for the neighborhood.  (30K below the competition)

 

My best advice in a multiple offer situation is to put your best offer in with a quick closing.  You will not be successful in every attempt, so if it does not work, be willing to move on.

 

Acting quickly when an REO property hits the market is the best strategy.   

  • October 21 2008
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Profile picture for ninok

Thank you ALL for the replies!

Here is my update: I've lost 3 bidding wars so far. I have a feeling that each winner had an insider in the bank. Also found interesting fact - some of the REO properties are reaching MLS already in "pending " state...


Want to try this strategy next time - ask listing agent be my agent as well. Hope 6% commission will make him more "creative" on how to help me buy property I want.

What do you think? All opinions are welcome!

  • October 21 2008
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Ninok-

 

Your strategy of working with the listing agent for the bank is not a bad one. 

 

In my market (Columbus, OH) there are a few agents that do nothing but list foreclosures.  I am sure there is a similiar agent in your market.

 

It should not make a difference what agent you use technically, as all offers should be submitted legally by the listing agent to their client the bank.  However, you may learn of the listings a little quicker.

 

 

Good luck!

  • October 21 2008
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The Florida market is really ripe for the pickings. Especially in SW FL like Cape Coral, Port Charlotte areas. I'm a Realtor here and an auction marketer. My MLS will search for Bank Owned and Short Sales. Frankly, I think making a fair, yet discounted offer with a quick closing will garner attention. I always ask, if I'm dealing with another agent, how their communication with the Lender or Asset manager is. (Is it strong and frequent?) This tells me allot.

  • October 22 2008
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Be prepared to be rejected by the lenders... stats I've seen indicate roughly 20% of the bids / offers are accepted... you're saving big $$... keep emontion out of it and don't give up.

  • October 22 2008
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I bought an investment property with ALL CASH OFFER 5 months ago.

here what i knew.

If you buy the house from forecloures or short sell. ALL CASH OFFER is meaning less. because the banks have a lot the money and them, actually want do the mortgage bussiness.

If you buy from regular home owner, then the owner will consider your offer more than the others

if you lucky, you will get 5% discount from martket price

  • October 26 2008
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Tell them you're willing to finance through the bank's mortgage department.  I handle a lot of foreclosures on both ends and I've seen cash buyers lose out to those who commiteed to getting financed through the bank that owns the property even when the offers were exactly the same otherwise.

 

Also, you should looks at this as a numbers game.  My investor clients write an average of 50 offers a month which is a huge committment on their part.  We have set margins and target property types but the simple fact is until you start engaging every active listing that suites your model you're never going to know how many offers you need to write to get what you're after.  That golden number is key!!

  • October 27 2008
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Strategy is quite simple. First determine value of home. Then look at real estate market in your area--down, flat or up and bid accordingly. The bank will not care even if you are going all cash--as long as you can close quickly.

  • October 30 2008
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You CAN buy an REO at WELL BELOW asking price! And trust me, it's going to happen a lot more the closer we get to Dec. 31st. Some banks will be increasingly motivated to get properties off their books before year-end. They can get penalized by the government for having non-performing assets in their possession another year!

Since you can't talk directly to the bank and ask..."Um, exactly how motivated are you to sell your property, Mr. Corp?" I suggest you don't waste time trying to figure that one out! The truth is nobody knows how little they'll take. You must continue PRESENTING OFFERS until you find the one that works for you...if you believe it exists. And yes, CASH generally is what works best, but, it's not the only way.

You may, however wish to bid on properties that aren't in such high demand that every tom, dick, & harry is clammoring for them, and avoid a "multiple offer" competitive bid.**Try checking the listings statused as "Back-on-market" as these often are hot motivated prospects. I have picked up some sweet deals this way.
  • November 01 2008
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I think the motto is perserverance.  Keep tryiing.  The good news is I am sure that you will have many other opportunties in the near term.  These properties are obviously in demand. 

 

For a property we recently purchased, we were competing with 5 other offers - ours was the winning bid as we offered $1,500 more than the listing price.  The big picture is that we also got the property approximately $30,000 below market !!!!  So I would not always look at just the listing price but more so what the other properties recently sold for.  For a super deal do not be afraid to offer more than the listing price... Of course, you must know the market inside and out to do that and I would recommend having a strong buyers agent to help in that capacity.

 

The other example I give sometimes is that one may get a property $50K to $100K below the listing price which sounds great but what if that price is still above what the others have sold for ?  Thus... it is an illusion of a deal, but not a good deal at all !

 

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  • November 02 2008
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When you get in a bidding war, no one wins!  The prices almost always inflate and people get caught up in the moment and overbid.

However there are a few things that will make you stand out...

-Pay cash, (it is more attractive to a bank/reo company as loans may fall through)

-Do a quick close- 10-14 days if possible

-Have a larger than normal earnest money deposit-it shows good faith

-AND...don't shoot the messenger...no inspections is always a green light.

(If you are a serious investor or are looking to be one...have an experienced contractor walk the house with you to check for structural issues and quote fees for fix-up.  Termites are always the big one...have an inspection done anyway!  They can treat the damage. {NO repairs they say...but I have asked the day of closing for termite treatment and gotten on more than one occasion.  The bank/reo company looks at it as a "preservation issue" and knows if you back out, the next buyer will find it and ask for repairs also.  It's the good old "A bird in the hand..." philosophy.}  However...that is why you need a professional contractor with you to go under the house and look for damages.

 

-These things make your offer look more attractive, but they still may go with another. 

-It depends on the day and the asset manager you get.

 

Best of luck!

  • November 06 2008
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If you want to win, remove the loan contingency and offer asking price. It is that simple.

Trying to negotiate over 10k is a waste of time. 10k over 30 years is not much money.

REO agents are not interested in negotiating or having a bidding war.

 

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  • November 10 2008
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Profile picture for mina36
Sethi, your link is considered spam. Please stop doing it. Has been flagged for removal.
  • November 11 2008
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Profile picture for ninok

Hello Everyone!
Here is my LAST update - I finally won this long battle after changing strategy and start working directly with the listing agent. My offer was accepted at 233K after few counteroffers with the bank ( listing price was 259K). This is 4-plex in the nice area of Sacramento (Rancho Cordova).

I'm in escrow and need to start plan the rehabbing. In general all units are in decent shape, but I want to rise the rent and I want to create "wow" factor to attract new tenants.

I have hundreds questions for ALL of you and appreciate your inputs.

1. How to make my units more attractive then units from the similar buildings around?
2. What would you do inside to create "wow" factor with low cost updates?
3. All units have wall air condition and furnace, would it make sense to install central heating system and air condition and charge higher rent?

Thank you in advance!

  • November 24 2008
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Profile picture for Jacqueline Walker

Congratulations.....persistence is definitely the right strategy in this market!    In regards to your questions, I recommend you take a look at some of the other units for rent in your area and then decide what you need to do to compete.     Low cost upgrades include ceiling fans and crown molding.   Upgrading things like air conditioning and heating systems is definitely much more expensive and you need to evaluate your competition before making those types of changes.

  • December 09 2008
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