How negotiable are most REOs?

Question

Obviously this will vary a lot.  Can someone just give me a sample number of asking price and final sales price of an REO?

J Scott · Answer

Unless the bank is very small (i.e., fewer than three branches) there's essentially no chance of a typical small investor getting access to deals directly through the asset manager.

Banks recognize that they will get the highest price for their properties when the properties are listed publicly, which is why you need to work through the listing agent.

In terms of your question, it really depends -- I've purchased REOs for 20% above list price and I've purchased them for 40% below list price, and everywhere in between.

How long has it been on the market?  What is the condition?  How many price drops has it experienced?  How close is the price to what the bank was owed by the previous owner?  Etc...

Steve L. · Answer

It really depends on the competition in the market, the Seller and other factors.  Six months ago in my farm area everything sold super quickly.  I would say that 98% of listing that actually went pending where within 5% of list price.

Now things have slowed down a bit in my market, we are starting to see banks move off list.  There is no magic answer... but if you go straight to the listing agent they should at least give you some details...

Jimmy C. · Answer

So if I am going direct to the listing agent, and offering at least 80% of list price I should have a decent amount of success right?

My POF is about to tighten up is why I am asking.

This area must be different than others, in that I am finding REO's listed at 50-60% of ARV frequently.  So I am hoping that they will still take 80% of their low list prices.

J Scott · Answer

We generally do major remodels (down to the studs), but on occasion we'll do a flip that's literally paint-and-carpet and still make a decent profit.

In fact, one of the first projects we ever did, we bought a house, put in under $6500 just to brace a basement wall, and sold it a week later.  The work took one day, and we made over $20K in profit with a total hold time of 18 days (it's House #4 on my blog...all the details are there).

We've had a few like that, though I agree they are few and far between.  More common for a small flip would be a $10K investment for a $15-20K profit in 60-80 days.

Jason Tropf · Answer

From my own personal experience, I was not able to buy directly from Lenders unless I was buying in Bulk.  If you're going to be buying one property at a time and you want to purchase REO's, the only way to do it is from the REO listing agent or applying to become the REO listing agent yourself.

If you're finding REO's that are really priced aggressively, even in this very saturated buyers market, that listing will receive multiple offers and you'll be hard pressed to even get the listing agent to answer his phone or return your messages, in that case, shoot the offer above the asking price if it's really priced right, you better assume you're one of 20 people that noticed who already auto shot a cash, no contingency offer.  The ripe listings are pending within 5 days and frequently received 6 or more offers while on the market.  At least, that is my experience.

The reason, I believe, that you're going to find it hard to find gems with this tactic is that listing agents have to be careful, the lender is their employer, their job is to recover as much as possible for the seller and the agent knows that the lender will always get a second opinion of value.   If the lender feels they're losing money with that listing agent he will not be used again and the only way a listing agent makes a living is by sheer volume of listings.  He can't afford to lose a lender after what it really takes to be considered a listing agent by a large lending institution, it's not easy.

The prices of REO's are aggressive and are intended to move fast but they're 'right' for a landlord not right for a wholesaler or some quick flip where you think 20k was left on the table for the taking.  After costs, it's usually not worth doing, unless it's a good rental area and it cash flows, then you're a landlord and that game is also about sheer volume of units.

As for shooting out low ball offers every day to all the REO's in town, I've done that as well, it didn't work for me. REO's are 'good' deals not 'Steals'.  If the deal is really that good, be careful, there's usually a good reason that you don't want to bother with.  I had a case where the entire back of the house was mid remodel with no permits, it would take an engineer ripping open the walls to find out whether or not you would have to start over.  A big risk, priced right if you don't need to completely rebuild the back of the house but no one knew, it sat for a very long time.

REO's are good deals because for the most part, they're abandoned and you're going to have to put a little work into it.  You can get some profitable scenarios for sure but from my point of view it's a landlords game and it's a high volume game.  If you're into managing over 20 single family homes for a living then you're moving in the right direction but even in that case, you should be looking for apartment buildings.  Under 20 units, it's a tiring low income, high demand grind, especially if they're spread all over the county or several counties.

If anyone out there has real first hand experience flipping a single REO themselves, without performing significant repair, and making a descent profit spread, please post, I would love to hear the details.

Kevin H. · Answer

did I miss something?when did this turn into a volume investment strategy? And this pick and flip strategy is one that one I use  quite succesfully. I go after it "hard" In my area there are still a ton of reo's So I look at DOM and other factors like how many times has it fallen out? why? etc. Ive got one thats funding today it'll be a quick clean and flip and then on to the next one :mrgreen:

Steve L. · Answer

I don't know any volume investors in my area that have successful taken this approach (fire offers out with their own agent and pray).

I know some listing agents that can successfully "ram an offer" down an asset managers throat.  The time has to be right.

The key to the game is to find the listings that are priced well (or close to well) and chase those hard.

Steve Babiak · Answer

An example I purchased:
Original listing price $95K;
Agreed price $79.5K;
Under contract within a couple of days of going on MLS (this was a "pocket listing").

Joel Owens · Answer

I agree with J Scott. Realtyman I don't see that happening at all in my state.

National banks will always use a listing broker to give maximum exposure.Now if the bank is selling the note,or a short sale,or a bulk sale of reo's or an auction then that might be the case.

Local and regional banks might not have their properties listed.I contact these banks directly and yes they will deal with you.

I have found on the commercial real estate end many of these banks are selling way overpriced assets. I will see a 18,000sq ft retail strip center brand new off the corner with just the shell. They are asking 2,800,000 to which I say they are insane.

In a situation like that you have to finish out the space for the tenants,lease concessions for being off the corner and not anchor weighted to drive traffic.Once you run the numbers they  are way overpriced.

They tell me my numbers make sense but they just can't take that kind of hit right now.So banks go through a process before they are ready to be realistic.

The commercial side is very different from the residential side in that the loss amounts are usually much greater to the bank.

Big national banks with asset managers have hundreds of files to work and use a listing broker.Typically they take 10% of list price with markdowns every 21 to 45 days depending on the bank.

I used to track which banks got real aggressive with list price.Bank of New York Melon would always dump really cheap and other banks would overprice and take a really long time to get realistic.

So by collecting this data you know what you are up against when the property hits the market.

Kevin H. · Answer

normaly you will have to will have to offer 80% -of asking price of the LISTING price to get the bank to look at you. Depending on the D.O.M.  of course. The Listing agent has NO bearing in the transaction IMO He/She puts in the MLS and collects the commision ...........Thats it.( Trust me on this one the TC does all the work) Find a good agent that will do the leg work and knows the area you want to invest in and start firing offers to the lenders.

How negotiable are most REOs?

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