Unfinished REO

Erik Fredmonsky · 2008-08-03T10:46:49-07:00

Hello, I've lurked for a few and have found much needed information on this site. It's been extremely helpful. I've had a recent interest in investing in properties and now that I find myself having my own house listed I have run into a few situations that I believe would be a good investment for me. I'd like to explain my current scenario to you and would welcome and appreciate any feedback for the inexperienced. I recently found an unfinished home that a builder lost. I would like to buy this house to move in. The bank bought the house back for $200K 3.5 months ago. The house is not listed yet but the asset management company referred me to the listing agent. I have seen the house a few times and have recently had two contractors give me estimates on finishing the house (heating, plumbing, paint, carpet, cabinets, fixtures, etc, etc). The total cost to finish is about 60K the way I would like it. I believe the house is worth around $300K. I'm trying to avoid this house being listed. I talked to a friend who deals in preforeclosure and he recommend that I place an offer to the listing agent with my own realtor. I guess the reasoning is to get the first bid in the door so they respond to me first before responding to any future bids when the house is listed. The house is past the redemption period and I'm assuming will shortly have a market value placed on it but it has not already. So my questions are this: A. Should I make a bid before the bank/realtor release a market price? Or is this a waste of time? B. Does it make a difference if I go through the listing agent or get my own agent to deal with him? C. Do you think due to the fact that the house never passed final inspecton and was never finished I could get a better "price" for this house? D. When I decide to make an offer, what should I include? Comparables, pre-qualification from bank, etc? Any help would be appreciated. Thanks in advanc!!!!

Philip Rowe

Investor · Washington, DC · Member since 2008 · 44 posts · 15 votes

18y

Maybe things are different in OH, but here in FL, a bank will not do a conventional mortgage on a house that is not C.O.ed (Certificate of Occupancy). They will still lend money, but you will more than likely have to get a contsruction loan.

Home building is usually a profitable business...you said the bank "bought the property back at $200 K". Dont you mean they foreclosed on the builder and took it back. Did they actually pay for it?

THere are a lot of questions left unanswered when evaluating this deal. But I see some RED FLAGS!!!
How much would the builder have made on the house after carrying costs of the loan, marketing, and realtor fees?
Did the builder buy the land as part of the loan? Thats important info when disecting the deal. If the land was owned free and clear and the house is in the 1500 to 2000 sq ft range than I would negotiate and pay as little as possilbe not $200 K.

From $200 k plus $60 K, you get $260, the house is worth $300, you are only getting it 13% off market value. That is not a good deal, especially since you have to finish the property.

Also, who is the builder? Has he built before? Is the house going to fall down in a few months after you move in? just things to consider.

You don't need to present your offer with comps and if a realtor already has the listing, you don't need to waite for an asking price if you are really going to offer.
Definantly you need your own Realtor who is good at negotiating.
But you will most certainly want to talk to a bank first before making an offer, becuase like i said the property won't qualify for a conventional mortgage.
also, you should get a better "Price" becuase you are going to take on the role of a builder, and builders build to make money not break even.

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Melissa G.

MD · Member since 2008 · 34 posts · 0 votes

18y

I've been in a similar situation, and still have questions, but one thing I have learned and perhaps it may be true in OH as well is that the listing agent must list the house for 5 days before any offers are submitted to the assest management company.

I had tried to get my offer in before it went to an agent with no luck. I was very naive. I thought the bank would be willing to sell the house for their asking price before listing it with an agent -- that way they wouldn't have to pay commission.

I'm interested in hearing what more experienced investors/buyers have to say. The redemption period on my house of interest is up this week.

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Erik Fredmonsky

OP

Homeowner · Cleveland, OH · Member since 2008 · 2 posts · 0 votes

18y

builders build to make money, well put. i guess thats why i was interested in this particular property. i was hoping that the asset mgt company would take into consideration the fact that i will have 2 or 3 estimates on the "finish" work of this home.

on the other hand i'm a little worried that the bank will come back with an off the wall number. lets say $240 for the house. if thats the case i dont have time to go back and forth with the bank. and i guess i'll just have to pass on it.

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Philip Rowe

Investor · Washington, DC · Member since 2008 · 44 posts · 15 votes

18y

not trying to bust your bubble, but I just wanted to throw some thoughts out there that you should think of. Also, I have noticed that the tendency seems to be 5% reduction of asking price every two weeks. Which means, an offer you make today, might get rejected, but the exact same offer in 2 months might get accepted.

I keep a log of the properties my investors make offers on, every thursday I update the list and have found that after a few months sometimes the asking price comes down to the original offer amount.
1 property in particular (originally priced at $249 in November 07)
first investor offer $140 - rejected in december
Listing price dropped to $189 by january
second offer of $140 in February - rejected
property recently was listed at $149 in March before it sold, Not to my investor unfortanetly! But if the bank would have countered at that price before hand the deal would have been done back in december.

The point is - the bank is like any other seller. They like to get as much as possible for the property. So sometimes you have to haggle and negotiate just to get it at what you want, and sometimes you just have to wait. A good realtor can take a property in particular and notify you immediately when the price drops.

I'm not saying your deal is a bad one, but if you are going to be finishing construction there should be a significant profit margin.

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Crystal C

Real Estate Investor · MA · Member since 2008 · 20 posts · 0 votes

18y

I didn't read any of the replys to this post yet...however here are my thoughts.

A. Should I make a bid before the bank/realtor release a market price? Or is this a waste of time? - This isn't a waste of time, it's just an offer, they can take it or leave it. No skin off your back and you can put an offer on the house after it's listed if they don't give you the time of day beforehand.
B. Does it make a difference if I go through the listing agent or get my own agent to deal with him? Go through the listing agent that THEY are using. This will work to your advantage because the listing agent will "PULL" for you. She/he will get double the commission why wouldn't they pull for YOU instead of someone that is using another agent?
C. Do you think due to the fact that the house never passed final inspecton and was never finished I could get a better "price" for this house? -You can make a statement saying "Hey listen the house hasn't passed final inspection and I'm not asking you guys to pay for anything it doesn't pass. I will take it as is" Just something else to work for your advantage. Once it goes on the market. More than likely they will need to fix anything that doesn't pass. Unless they list as is.
D. When I decide to make an offer, what should I include? Comparables, pre-qualification from bank, etc? - Comparables won't do anything for you because this is such a unique situation. BUT YES..have a prequal and tell them you'll sign for it tomorrow!

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Unfinished REO

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