How does FNMA price the homes they sell???

Question

Hi there, I posted this elsewhere, but I see that in this forum people have more experience with REO purchases. I am looking at a FNMA owned home, and may put an offer for it. Problem is, I am not sure what they expect. They are asking $180k , and has been sitting there for 2months, as comparables sell for half that. A little research shows FNMA purchased this home for $20k from the previous owner just three months ago. FNMA offers Homepath financig for this home, and I heard that inflates price somewhat, but I think 2x is ridiculous!
Sooo, my first thought would be to offer something near comparables, say $70-80k. More agressively, I could offer a premium over the $20k they put on this home. No way I am going anywhere close their asking.
My questions:
- why would they ask so much more over comparables and over what they paid for the home? Could it be that the recorded purchase price reflects debt forgiven to the seller? Maybe they paid a contractor to fix up the place after they purchased it?
- how do you think FNMA will react towards the more agressive offer?
If it makes difference, this would be owner-occupied
Thanks

J Scott · Answer

My guess is that the amount owned to FNMA on this property was well above $20K and the high list price is their way to try to recoup as much of their lost investment as possible (that coupled with a BPO that probably came in high if your comps are accurate).

In my experience, it's very, very, very unlikely that FNMA would ever accept less than 50% of the list price on an REO. More likely, they will reduce the price every couple months until they start getting offers. Now, it's quite possible that the price will come down to the $70-80K range if you wait long enough (again, if that's really where the comps are), but there is little chance you'd convince them to sell anywhere near that price while the current list price is $180K.

My suggestion would be to continue to watch the property, and when the price drops to somewhere around $110-120K, then you can start offering in the $70-80K range.

Just my $.02...

Mark Yuschak · Answer

Are you sure your comps truly reflect prices that are less? The reason I ask is because FNMA gets multiple BPOs before listing a property. The agents who did those BPOs must have missed all the closed properties which are good comps if you feel that it's over priced.

It's been my experience that FNMA does a decent job of pricing their properties. Even for properties that have significant damage, they take those factors into account quite well. As a result, most of their inventory sells close to asking price.

Bill Gulley · Answer

Can't add much to what Jason mentioned except that if the BPO missed something big and you can show a large deficency, you might get a break. You could tell them the roof fell in and if they thought no one else would notice, they could simply move along to see if a real sucker makes an offer, but if it was obvious, they will make the adjustments. While pointing out deficiences will usually get other sellers to take notice, these sellers are immune to claims arisding out of such matters, so it has to be known to all to make a difference to them, IMO.

Anson Young · Answer

Ah yes, thats right. No worries, I will put in sig.

Steve Babiak · Answer

Anson,

Your blog link back might get "moderated" (removed) if you post it here. Better to put the link in your signature, and then let people know to look there.

Anson Young · Answer

Depending on how aged the asset is, if you can jump in right at a price reduction you can save a ton of $$.

I was going to blog about FNMA pricing today, I will link back here if anyone is interested. Straight from FNMA's mouth from a mandatory agent FNMA meeting last week in phoenix.

Steve L. · Answer

Hugh - Are you trying to buy this as a primary residence or an investment?

If it's an investment, rather than asking all these questions your time would be much more valuable if you just moved on to other properties.

Trying to finds answers these questions re: FNMA is like asking why the line up at the DMV is always so long.

Properties are available in mass. Many people in this forum are making a lot of money right now. Focus on the easy fruit to pick...

J Scott · Answer

If the house is listed at $180K, it's almost certain that the bank won't negotiate an offer below $120K.

That said, I have would your agent call the listing agent, and let her know that she has a buyer who is interested at around $100K. Hopefully your agent can get some information from the listing agent, such as whether there is a price reduction coming, whether there are comps you don't know about, etc.

Based on the information your agent gets, you can decide how to proceed. Most likely, your best course of action will be to wait for at least one price reduction...

Hugh Thomas · Answer

A follow up since my initial post: I started working with a Realtor, who got for me the comparables and the transaction history for the house in question.

I think the most revealing info is the transaction history: one (now defunct) bank gave the previous owner a FHA HEL $50k over the current asking price. If this loan was defaulted, we get to the scenario guessed by J Scott

The comps, on the other hand, are indeed too low to justify the asking price. Comps are about $100-120k, asking price is over $180k. Not the 2x I initially guessed, but quite a difference. As you can imagine, there is some wiggle in the comps, both ways: not all houses have the same sqft, etc.

Now my question: as part of my d.d. I went and saw the home. And I liked it, it has some "homey" features, does require some fixes (seems that there is humitdity in a corner from the roof), but all and all a nice house that fits my needs. I would like to make an offer, but certainly keep it close to the comparables.

Anyone here with a similar experience, how did you approached it, how did it go?

Thanks

Hugh Thomas · Answer

As said, I will work with a realtor and get comps from MLS. One factor that may influence comps is that this is gentrified area, with home prices that change almost by the block. This particular home sits near the edge, but definetively on the cheaper side.
Again, I thank you for your input. I'll be meeting with my realtor and visiting the home shortly. We'll see where this goes, and will report here whatever happened

How does FNMA price the homes they sell???

How does FNMA price the homes they sell???

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