Few questions about REOs

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Few questions about REOs

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NC · Member since 2008 · 32 posts · 0 votes

Thanks for reading...

1) Are banks more likely to accept a lower offer on an REO property if no financing is needed? In other words, if I can purchase the house outright, in cash, as opposed to someone that will be buying with a loan?

2) Does the listing agent automatically tell the bank everything you tell them? In other words, if I am a first time investor, will the agent relay this info to the bank? If so, how often will this hurt your offer on a property?

3) Say I found a REO property I am interested in, and by checking public records I see that the bank has held onto it for 3+ months, how hungry are they to get it off their books? Would offering 20% lower than their asking price be worth while? Remeber, they have held onto it for 3+ months.

Thanks!!!

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  • Jon Holdman
    Rental Property Investor · Mercer Island, WA · Member since 2008 · 22k+ posts · 14k+ votes
    18y

    Can't tell you on the first question. Banks do require proof of funds on REO offers, typically. And get unhappy if you don't close as agreed.

    A listing agent always works for the seller. Assume you're talking directly with the selling in any dealings with a listing agent and do not say anything you would not want they seller to hear. The listing agent is obligated to get the best possible deal for the seller.

    You should base your price on what its worth to you, based on your exit strategy. It should not be based on the listing price.

    Jon

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  • Tom C
    Real Estate Investor · OH · Member since 2008 · 1k+ posts · 86 votes
    18y

    In my area, if the bank has only been listed as the owner for 3 months, that is a short time period. I have found that our average is 6 to 8 months.

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  • N/A N/A
    OP
    NC · Member since 2008 · 32 posts · 0 votes
    18y

    Thank you all for the replies. Very helpful!

    Just a quick rundown about the REO I currently have my eye on. I have never purchased an REO so excuse me if I sound uneducated. The home is located in Baltimore city, it is a 3bd 1ba 1910's rowhome, in a good area with homes on the same street listed for $325-400k. Other comps are 4 blocks away, ranging from $400-500k.

    By searching public records I found that the property was turned over to the bank on 9/24/07. So almost 3 months now. You guys are saying that is low? Hmmm....

    The house was turned over to the bank at a price of $142,000. Records say that was the "sales" price when it transferred ownership (from the last individual to the bank). I'm assuming that means the bank has $142,000 invested in the home? The house is currently listed on the MLS by an REO agent for $139,900. I walked around the outside of the home, but have not been inside. Outside is not bad. The MLS listing has a very brief description, which states "ready for your finishing touches". I assume that means the walls and floors are still in tact?

    Although I haven't been inside, $120k seems like a fair price. I'd say a $100k repair budget leaves plenty of room for unexpected problems large or small. Possible listing price of $325k (i'm going off of the comp listed a half block down the street).

    Do these numbers make sense to you guys at all?

    Oh and one last thing, rowhouse next door is also listed for sale, it's in average shape from the outside. It's not an REO. Its listed on the MLS for $250k and says it needs a full gut rehab. It is an end unit and is currently broken into 2 units. Seems like it has been vacant for a very long time. Will this home hurt the resale of my home after repairs?

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  • Tom C
    Real Estate Investor · OH · Member since 2008 · 1k+ posts · 86 votes
    18y

    100K in rehab expenses is an awful lot of rehab. You are talking contractors working around the clock and top of the line upgrades. One thing to consider is that everything has gotten cheaper with the down market, including contractors and material. I can't imagine that you should be anywhere near 100K unless you are doing a total gut. You really need to get in the house and nail down those rehab expenses.

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  • N/A N/A
    OP
    NC · Member since 2008 · 32 posts · 0 votes
    18y

    Recent purchases within a 4 block radius:

    I do understand that there is no way to know exactly what kind of rehab each house has, be it high or low quality. But these numbers can still tell some kind of story. Also this neighborhood is notorious for having a bunch of 2 bedroom houses, while mine is a 3 bedroom, which is a plus.

    Comp #1
    $312,000
    Oct 24, 2007

    Comp #2
    $408,000
    Jul 16, 2007

    Comp #3
    $312,000
    Jul 2, 2007

    Comp #4
    $355,00
    Sept 25, 2007

    Comp #5
    $303,000
    Oct 15, 2007

    Comp #6
    $337,500
    Aug 8, 2007

    Comp #7
    $345,000
    Oct 15, 2007

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  • N/A N/A
    OP
    NC · Member since 2008 · 32 posts · 0 votes
    18y

    I forgot to mention, apart of that proposed $100k rehab budget is a 1.5 level roof top deck. The most popular selling point in this neighborhood is a rooftop deck.

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  • Account Closed
    Real Estate Attorney · Charlotte, NC · Member since 2008 · 54 posts · 3 votes
    18y

    I have seen banks break even, make money, or loose several hundred thousand dollars on an REO.

    Remember they are losing at least 5% of the Loan Amount to pay the Trustee for foreclosing the loan... not to mention carrying costs, commissions, taxes, repairs, etc...

    Most of the time the REO price is lower than the court house sale price..

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  • Alexis Dedrickson
    Real Estate Investor · Issaquah, WA · Member since 2008 · 34 posts · 3 votes
    18y

    First of all, I agree with what was said before...the house is only worth what you think it is worth.

    My little rule of thumb is to be all in (meaning after rehab) for 50% of the value. If it's woth 100k, you don't want to spend more then 50k. That means you have to buy it and fix it for that.

    The banks are HUNGRY for sales, so be agressive. I recently closed on a house that I only made 3 offers on. The last offer was my highest and best bid...take it or leave it. They took it. It was only 70% of the asking price. You want to be able to buy and fix for under 65% of the value so that you have room. My rule is 50%, but 65% is acceptable.

    Always get an inspection before purchasing a property so that you know what needs to be done. Buying blind is like going into a project without a budget. You have to be careful with your money.

    Don't be afraid to be agressive, don't get too attached to a home if you can't get a good enough deal, and always remember to make your money going into the deal.

    Good luck!

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  • Lauro Ruiz
    Real Estate Consultant · Tustin, CA · Member since 2008 · 12 posts · 0 votes
    18y

    This is great information, Keep in mind Room Additions on Properties in Neighborhoods that are improving in this manner are gold mines!

    Originally posted by "lvnurs9":
    First of all, I agree with what was said before...the house is only worth what you think it is worth.

    My little rule of thumb is to be all in (meaning after rehab) for 50% of the value. If it's woth 100k, you don't want to spend more then 50k. That means you have to buy it and fix it for that.

    The banks are HUNGRY for sales, so be agressive. I recently closed on a house that I only made 3 offers on. The last offer was my highest and best bid...take it or leave it. They took it. It was only 70% of the asking price. You want to be able to buy and fix for under 65% of the value so that you have room. My rule is 50%, but 65% is acceptable.

    Always get an inspection before purchasing a property so that you know what needs to be done. Buying blind is like going into a project without a budget. You have to be careful with your money.

    Don't be afraid to be agressive, don't get too attached to a home if you can't get a good enough deal, and always remember to make your money going into the deal.

    Good luck!

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  • Andy Phan
    Real Estate Investor · Olympia, WA · Member since 2008 · 3 posts · 0 votes
    18y

    Question for REO experts:

    Is is possible to make an offer on a REO property with subject to inspection even though the listing says that it is sold AS IS? Or do you need to have the inspection done before submitting the offer?

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  • Tom C
    Real Estate Investor · OH · Member since 2008 · 1k+ posts · 86 votes
    18y

    Yes, you can do that.. Most people do.

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