Made an Offer on an REO - What's Next?

[Harry Metzinger]

Hi BP, excited to say I made my first offer as an educated real estate investor today on a Freddie Mac REO property. I emphasize the "educated" part b/c I made an offer on an investment property 14 months ago...and then realized I had no idea what I was walking into. Thankfully that offer (it was on a short sale) was not accepted in the contract period and I was able to get out. Long story short, after realizing how little I knew about real estate investing, I found my local REIA, and through that found out about BiggerPockets, and now I am MUCH more prepared to enter the world of real estate investing.

I am a real estate agent so I submitted my offer directly to the seller's agent this morning. I did not hear anything from the agent today, not even an acknowledgement that he received my offer. My Proposal to Purchase is good for 15 days (which was recommended in a recent BP Blog post). Therefore, I was not expecting an answer today or even tomorrow. However, for those of you who have made offers on Freddie Mac REO properties, I am curious at what point do you think I should follow up, if at all. Also, if the lender counters my offer, how would you respond? More specifically, I am curious if/how the timeliness of the Freddie Mac's response and the amount of the counteroffer in relation to your offer influences your response to their counteroffer.

Thanks for your advice.

[Joe DiGirolamo]

@Harry Metzinger I'm down in Atlantic County so a substantial portion of my work in now REO. You are getting good answers already on this thread but I thought I'd just add a few things. There is typically a "first look" period, which prohibits investors from purchasing the property for the first 20 days it is on the market. I'm almost certain that is how Freddy works. One asset management company I work with will not look at ANY offers for the first 7 days. Other banks and asset management companies may have a shorter period before they will look at offers or none at all.

As @Richard Fields and @Percy N. mentioned, on good deals you may end up with a highest and best scenario. I typically see this happen immediately after listing. You mentioned the property has been on the market for awhile, how long? It is doubtful you will end up with a highest and best if it has been on the market a while. A price reduction is probably the only thing that will stirs up activity. The highest and best situation I usually see goes something like this:

We list a hot property, there a bunch of activity and we get offers almost immediately. Those get submitted and it triggers a highest and best due to the multiple offer scenario; the bank will try to get the most money possible. When that happens a deadline of several days out is given (Ex. 5pm on Friday). If it is a really great buy we typically get more offers on top of the original ones that triggered the highest and best and they are all submitted by the deadline. The seller will then take a few days to decide which offer to take. As @Percy N. mentioned, there can be some influence provided from the asset manager and/or the listing agent. I won't go into detail how here, this post is already long! lol

I will advise you of two things when making an offer on an REO. 1.) Start with a low offer and give yourself plenty of room. It is common to offer and counter several times! The most I can recall is around 7! If the seller counters in a small increment, move your offer up in a small increment. Some banks/asset management companies actually give their asset managers higher reviews based on how many times they counter! 2.) Even know you are an agent, sometimes the best way to get the property is to tell the listing agent they can represent you as the buyer. If it's that good a deal, make your money on the profit not the commission. REO's are typically not expensive property anyway and the commission will be small maybe even flat rate. All of the bank/asset management company's listing agreements I have seen are variable compensation. The buyers side gets a bigger piece of the commission, so most REO agents will attempt to sell it to their own buyer. If the listing agent represents you as the buyer, they will be familiar with negotiating with that bank/company. If you let them know where you want to end up, they may have an opinion on where to start and how to counter. Having that kind of help may make up for the commission you could would have had representing yourself.

I could just talk about REO's forever......

Hope this helpful and best wishes with your deal!

Happy Investing!

-Joe