Negotiating with the bank

[Scott S.]

I an a new member from the Hampton Roads area of Virginia and could some feedback on a deal I am trying to finish. I am a buy and hold investor of three townhouse properties over the past 20 years, one of which was a rehab. In the last few years I sold two of the properties and I am looking to pick another for a hold.

I found a 2br/1.5ba townhouse REO property owned by one of the big national banks. It was listed for $61,000 and had been on the market for four months with only one lowball offer. I wrote a contract for $50,000 and the bank countered at $60,700. Weeks later I checked and no other offers had come in so I asked the listing agent to resubmit my $50,000 offer. She advised the bank was dropping the price to $52,000 and letting an auction company sell it at an auction. I told her $50k wasn't far from $52k and told her I would buy it for the $52k. They said no, it's going to auction.

I showed up at the auction and I was the high bid at $34,000. The auctioneer looked like he wanted me to keep bidding, but the only other bidder said he was out, so it was over. He said the banks reserve was $49,000, so my bid was not accepted.

I would be willing to split the difference and go to $42,000, but I get the feeling the bank will not budge. The property is not as bad as it might sound and I know I can make it very nice and make money on it. I liked it at $50,000, but I feel like the market has spoken too. Hold out, or go back to their reserve price?

[Mark Ferguson]

Usually the big banks will stick to their reserves. If they don't get it they will put it back on the market or send it to auction again. 49k is less than you wanted to pay so why not accept it? Auction sales don't usually show true market value because they aren't advertised well and if its cash only terms it knocks out a lot of buyers.