REO Pricing

[Rob Forest]

Hello,

I'm new at thins and looking at an REO to buy and hold. I have my eye on a particular property that did not sell at auction and really have no idea what a reasonable listing and accepted offer price will be once it's on the MLS.

The fair market value is about $180k, it got no bids at auction at $140k. It's underwater, and total outstanding debt is $300k.

A few things I'm wondering:

Was the $140k starting bid at auction just a teaser rate and the reserve would have been much higher?

Am I dreaming if I think it didn't sell at auction for $140 so they would accept lower when it's listed?

Thanks!

[Jeff Morelock]

Contrary to what a lot of people think, banks don't set the price of properties based on the past loan. They base their prices on what REO listing agents suggest through a formal process know as a PBO or Brokers Price Opinion. Banks usually get at least two per property from completely different agents. (Agents can do BPOS - they don't have to actually be brokers)

Banks want to get the best possible price in the shortest amount of time, but they are no longer allowing investors to steal houses at 40% or lower off of retail - no matter what the gurus are teaching. 

Banks are also instructing us REO listing agents to give owner occupant buyers first shots - sometimes not even allowing investors to offer on a property for 15 days after its listed to give owner occupants time to line up financing. Banks are also getting into the rehab business through their REO listing agents, who submit repair lists and make sure the repairs get done.

If a property is in a neighborhood where there are a lot of REOs, banks are even sitting on properties so they don't flood any particular area with REOs which will cause prices to drop. 

It is still possible to get a good deal on an REO - especially if your a buy and hold investor, but if you're looking for huge paydays and swinging for the fence, you'll need a time machine to return to 2010 & 2011.

As Brent P suggested, find an agent who specializes in REOs - especially one who lists them becasue they get to keep the whole commission when they sell you one of their REO listings.

Be prepared to wait though, because sometimes it can take a month for a bank to respond to an offer, even if the offer only give them two days.