Offering 20% of the banks listing price

[Rob Ratch]

Hi all,

I'm relocating and looking for a house to live in, not necessarily invest in, although I have some RE investment questions I'll ask in other forums if I don't find the answers with some searching...

I found a REO property I really want as a home. The house is large and by it's surface specs, already underpriced.
However, the structure has never had a CO or U&O, it has significant construction flaws, including what appears to be a garage built over the un-approved septic system. No septic permits, either.

The bank listed the property in the low $300's. The peak value on Zillow was around $550k, comps are in the $300-400's. The bank has owned it almost a year and a half, unsuccessfully auctioned it twice, and lowered the listing price 3 times.

In light of the problems, is it ludicrous to consider offering $50k for the property? I'd pay that in cash through family gifts.
Assuming I find a lender (which I'd do before making an offer), I'd use a conventional mortgage to demo the house and build a new house.
I've found a few builders that are willing to give me very good deals (thank the economy).
I'm not attached to the property and can walk away, but if this could come together, it would be the best home I could find in the area.

As people that deal with banks and REO's, what are your opinions?

[Jon Holdman]

I will tell you that if you're going to bid on REOs for a primary residence, you need to be prepared for a long slog. You need to be prepared to make 10-20 offers to buy one house. I'm not buying right now for several reasons. But when I am, I will review 50 listings a week, try to look at 12-15, actually look at 10-12, and make 3-5 offers. Per week. My offers all have about 7-10 day deadlines, and say "EM to be provided by certified funds within 48 hours of MEC". That way I don't have lots of valid offers outstanding and don't have money tied up. Most offers generate no response at all. A few generate a "give us your highest and best". And every once in a while you get a counter. Plan to make 20 offers to get one accepted contract. Every rejected or ignored offer is one more of those 20 that's done.

Something else to keep in mind is the response. Sometimes agents say "that offer is insulting". Who cares if they're insulted. You're trying to buy a house, not make a friend. There's more houses where than one came from. The worst possible response to an offer, IMHO, is "we accept". That tells you they would have taken less and your offer was too high. Even being ignored is better than an acceptance. You can always make another offer at a higher price. You can't say "wait! I really meant ". Its just a house.