How to make offer to bank? How low is too low...

Question

My son is a college student who has found an REO near his campus.  It is owned by the bank, a smallish bank located about 40 miles from property.  We have been shown the property twice, once to look, second time with a contractor for estimate and evaluation.  House has mold, needs a roof and some other repairs to the tune of 35k.  ARV is easily 185k, currently assessed at 157k.  The bank said that the lowest cash offer they would entertain is 139k.  Their plan is to fix it themselves and resell.  I am thinking this is pretty inconvenient for them and at 139k plus the repairs, it would be out of our reach.  (Son wants to live there - house hacking and have roommates pay the mortgage).  Son has cash for a down payment.  What would you do?  What kind of offer would be taken seriously?  Or do you not know until you try?  There is no realtor involved at this point.  Bank is on record as having foreclosed at 112k in December.  They are having their quarterly foreclosure meeting today per bank agent, trying to plan for listing it if we don't have an offer for them. I am going to my local REI meeting tonight for suggestions as well, but they have already said things like "offer 85k", and "if they accept your first offer you started too high".   Then there is the matter of financing...but that is a different problem.  Thanks for any suggestions you may have!

Michael Noto · Answer

@Lisa Hoyt While I am in a different market here in CT, I put typically 5-10 offers in on REOs per week on behalf of different clients I have.  All of which are looking for different types of properties in different areas of the state.  The one thing that has remained consistent is that if as property has been on the market for less than 90 days they generally do not even counter an offer that is less than 85% of list price.

As DOM goes above 90 is when you see them either drop price or become more willing to negotiate.  Obviously none of this is a hard and fast rule, this is just based on experience actually making offers on these types of properties. Obviously the financing and contingencies or lack thereof in your offers are important factors when evaluating an offer, but from a raw offer price perspective that is what I see here locally.

Lisa Hoyt · Answer

@Michael Noto  @David Faulkner @Justin TahilramaniThanks for weighing in on this.  I spoke with an adviser last night and when he looked at the possible exit plan, ROI, etc, the number he came up with was a break even at 110k, but he wouldn't personally touch it even at that price because of the as yet unknown potential variables. I notified the bank this morning that we would not be submitting an offer, but would keep the door cracked if the price were more negotiable at a future date.  Son is continuing to look at properties which line up with his needs and we will keep our eyes on the DOM once the clock starts. I am really grateful for the guidance of BP members and shared the website with newcomers to our group last night.  Also grateful for our local group which has such a vested interest in supporting its members.

Lisa Hoyt · Answer

@David Faulkner Thanks for weighing in.  The appliances are missing or not working, Electric appears to be working, but  many code violations so it is unsafe (though easily fixed).  Plumbing has been winterized, an obvious kitchen sink plumbing failure resulted in rotten floorboards in front of sink. I asked for their cash price (@Justin Tahilramani and he said they were discounting their list price by 10% and that's what they came up with).  I did ask about financing through them and they said there would have to be two loans, one for the house purchase and second for the renovations, but once the renovations were complete, they could be combined.)  He also said they were having one of their customers do the work for them, but their schedules hadn't coincided yet - since December? I feel like geography is on our side, and maybe the bank doesn't yet have a true picture of the repairs needed.  Agent did say that it took a "while" for them to regain control of property because there were tenants who wouldn't leave. I think tenants did some damage as well as allowed other stuff to go unreported (hole in roof for example).

Justin Tahilramani · Answer

@David Faulkner - My understanding is that banks can't offer preferential financing just because they are trying to sell one of their own assets. It worth asking the question tho!

@Lisa Hoyt - You should not be embarrassed to make any offer that you feel is reasonable. After all, the bank wasn't shy about asking for 139k. Once you submit an offer - you will get an idea of how desperate the bank is to get the property off their books. Did you ask them how they arrived at 139k?

David Faulkner · Answer

I think you are on the right track. Since I am not familiar with the area and all real estate is local, I can't speak as to what an appropriate discount would be, but yes the local REIA members would be an excellent source. I would say it is all in what you can justify ... I would definitely point out that they would be saving ~6% RE agent commissions by going with your offer, if you are submitting without an agent. I would also share the written renovation bid with the bank, but tell the GC to write it up for this purpose, with wording like "patch/repair" rather than "replace" ... the bank will be more open to discounting for things that need to be repaired over things you would like to replace with new. Could you get a CMA (or create one yourself) to justify ARV (minus repair bid & reasonable profit) and/or as is value. The financing is an important matter to be considered. Is the property inhabitable/financable in its current condition? Does the heater and appliances (stove) work? Electric and plumbing work? Or would it need to be purchased all cash or with HML? Would this small regional bank be willing to finance it to your son under favorable terms to sweeten the deal, especially if the alternative would be HML with 10%+ rate + 2% in points to originate?

How to make offer to bank? How low is too low...

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