Real Estate Investor · Escondido, CA · Member since 2008 · 68 posts · 5 votes
When dealing with a bank owned property can you exercise an option to purchase type contract and simply assign it to someone else for a specefied fee?
Or is there a different set of rules when it comes to a bank owned property? Are they willing to negotiate like the average person might be willing too? Or are they stuck at a price and that is that?
I'll just use the example of something I found in my area. The approximate market value is $318,000 and it is listed for $198,000. The comparable sales I also found are in that general area too. Just for conversation sake would I be able to get that under contract for say $180,000 or so and then assign it to someone for a fee of $5-10k, or do an outright double closing for $190,000 or so?
I am inching torwards that first real call on a deal. It seems I was getting myself so worked up over it but now that I am actually seriously getting close to that point instead of just toying with the notion I am starting to mellow out.
Once again I am new at this and any help is appreciated. :wink:
Banks will normally not permit options or assigning the contract. In addition, banks often want a clean contract (without a lot of contingencies). They will negotiate but usually do not respect any deadlines you put in an offer. Banks are also notorious for "shopping" your offer for the purpose of getting a better price.
I have bought a lot of REOs and have found banks to generally be a lot harder to work with than individuals.
I do bank owned property 90% of the time now. With a bank owned property, it's certainly different from an individual but there are ways to deal with it. With a bank owned property, you're seller is a corporate institution with corporate rules. It's pretty much a given that they will take a first round of offers, then go back to the first rounders and ask them for their highest and best, then make a decision at that point. It's nothing personal - just the corporate structure they have to follow. And they don't negotiate becasue the people handling the sale really could give a crap about the property. They just have to hit numbers. Think of the cast from "Office Space" as the guys selling the property. Would they negotiate? Nah. They'd throw it on the TPS report and wait for it to go through 5 levels of beaurocracy. The easiest way I've found to combat that is to make at least 6 offers at a time or to find the property that the REO broker improperly listed (I've made about 80k in equity on improper listings). When the offers are made, then just sit back and wait and remember what it's like working in an office.
Another thing I've noticed with bank owned property - they come onto the market in waves. I'm convinced this is because of the process banks take to put a property on the market. I'm guessing they do a que of properties at a time.
My experience is similar to Tim's and Mike's. Don't fall in love with any particular house, because your odds of getting it are very low. I've made about 15 offers in the last six weeks, and had two accepted. If you do the traditional retail buyer price of making an offer on one property, waiting for a response, negotiating, inspecting, etc., you'll be lucky to buy one house a year from banks.
I don't think banks will do anything tricky, like options. They will want a standard contract. They will have a whole batch of forms for you to sign. Mostly dealing with "you're buying this as-is. Its a totally beater. Its full of asbestos, mold and lead paint. It will probably collapse into a pile of rubble 10 minutes after the closing. None of that is our problem, its yours. You cannot assign this contract. If we can't close on the specified date, tough noggies. If you can't close on the specified date, you owe us $150 a day for every day you're late."
At least in my area, its quite competitive. I've been told there are multiple offers, give me your highest and best numerous times. I've seen properties go under contract within a day or two of being listed. My agent sent me about 40 listings Thursday morning. By late Thursday night when I was able to get through them, two were already under contract. The next morning before we went to look at them, another was under contract. When we were trying to look at about 10 of them, we ran into one of those that was under contract because the buyer and his plumber were there.
Banks will sometimes counter your offers. Sometimes they will just flat reject them, too. They will also sometimes negotiate for repair costs, too, despite all their "as is" wording. I've also had a bank reject my offer for $70, then lower the price to $65 and sell it to someone else.
If you're in a cold area, you'll have to pay for dewinterization costs, in addition to your inspection costs.
If you're serious, you need to be making offers. I usually have three or four outstanding at once. At the moment, I have one that looks like it will close, so I only have a couple outstanding.
Banks will normally not permit options or assigning the contract. In addition, banks often want a clean contract (without a lot of contingencies). They will negotiate but usually do not respect any deadlines you put in an offer. Banks are also notorious for "shopping" your offer for the purpose of getting a better price.
I have bought a lot of REOs and have found banks to generally be a lot harder to work with than individuals.
Good Luck,
Mike
i agree 10,000% . after spending 60 days on 3 REOs only to have NONE of them closed, i don't even deal with banks or realtors. there's just no need as there are tons of other motivated sellers out there.
I've made about 15 offers in the last six weeks, and had two accepted.
Wheatie,
This whole post of yours was insightful. Thanks.
I particularly want to inquire about the above quote. How do you handle Earnest Deposits (AKA Good Faith money)? I have had banks want 10% of offer included with the offer. Even if you are only doing $500 or $1,000 per offer, that is still tying up a chunk of change.
Typical earnest money requests are $1000 or $1500. I know the check isn't going to be cashed until we arrive at an accepted offer, and that the odds of them actually accepting the first offer are very low. So, I will usually have two or three, maybe four, offers outstanding at once. Typical cycle time from the offer to the end point is only a week or two. Sometimes I get a response in only a day or two. I have enough cash to cover the outstanding offers, if a miracle were to occur and I was to get multiple acceptances at once. But, as soon as one closes out, I can make another.
Now that I have one that looks like it might actually close (someday), I've backed on making as many at once. As soon as we close and I get the rehab under way, though, I'll start making some more offers. This one will take seven weeks from offer to close, assuming it actually closes this week. And, there were several weeks of looking at properties and making offers to get to that deal. So, I figure its at least two months from now before I would be able to close on another.
One of those two turned out to have more serious problems than I thought, and the bank wasn't willing to drop the price to deal with that, so we canceled the contract. In that case, they did cash the check as soon as we had an accepted contract, and it took a few days after the cancellation to get the money back.