Making a offer on a REO property

[Mikilyn Hiles]

There is a home that has been abandoned for 4 years....the owner went thru a divorce that stoped the bank from foreclosing on it for the last 3 years....they were finally allowed to take ownership of the property about 3 months ago. It has been listed for 62 days. The org. asking price was 99k, droped to 89k on day 32 and 69.9k today...the property needs about 80-90k worth of work done it to be able to move in (all heating and plumbing cooper riped out, windows broken, graffti inside, and roof leaking just to name a few things)...when its complete it would be worth 150 to 175k. We made a offer of 25k cash on day 16 (was listed 99) and it was rejected and as far as I know we are the only people that have been in the house. We have saved 40k and really cant see paying more than that....so should be offer right away or should we wait since they just droped the price....any advice would be great!! Oh this would be a home that will be our primary residence if that matters and we are in nj.

[Jon Holdman]

If I was considering this as a fix and flip, I think your $25K offer is too high. If your $150K number is correct (when I see "$150-175K" I read "$150K"), and you apply the 70% rule, you can't afford purchase plus rehab to be more than $105K. With $90K in rehab, that leaves $15K for the house.

In my experience, there's zippo chance a bank will take an offer that low on a property with the listing prices you mention. They will slowly drop the price, and when it gets to the right price, it will sell. You can try to just keep making offers every time they drop the price. Keep making your offer just as soon as they drop the price.

Are you sure this isn't just a scrape?

REOs are heart breakers. My advice is to go find 10 other houses you like and make offers on all of them. If you're determined to buy this specific house, pay the asking price.

[Eric M.]

I agree with Jon. Looks like one to pass on. The likelihood of a budget busting rehab surprise on a 90K rehab that has been vacant 4 years is very high.

[J Scott]

Agreed with Jon and Eric, assuming this is an investment property for you and not a property you're planning on living in (hard to tell since this is your first post).

If it's a house that you're interested in living in, then you don't necessarily have to follow the ARV * .7 number (the 70% Rule) that Jon threw out there.

If that's the case, and you really want the house, my suggestion would be to wait two weeks, make your $40K cash offer, let the listing agent know that this is your "highest and best" and see what happens. That low offer is unlikely to be considered immediately after a price drop, but if they don't get any interest within a couple weeks, they may get desperate.

As Jon mentioned, it's a long-shot, but if it's a house you really want to buy/live in, that will probably give you the best shot of getting it.

And, of course, if this is for an investment, I agree that passing is the best option...

[Kristian Peter]

After 90 days, make any offer that you feel comfortable with. We've sold over 2,000 REOs, and 90 - 120 days is the magic time when lenders determine if they are going to liquidate the home via an auction or bulk sale. You're $25k offer might fly today...