How low of an offer would you go on foreclosure?

Question

I know a lot of factors are involved in the amount you offer on a property. But lets talk about foreclosures specifically. How low would you go in your offer? For example let's say there is a foreclosure listed for $80k. House is in good shape and maybe just needs interior painting and little things. The numbers would look good if you could get it at a lower price. Would you offer $65k? Or lower even?

I guess what I'm asking is at what point would you not bother to low ball because it would probably be a waste of your time? Have any of you offer $10k-$15k or even less than what the bank is asking and it was accepted?

There are a few houses I wouldn't mind putting an offer in on but they are about $15k-$18k over what we could afford for a cash offer and prefer not to finance. Should I throw a low ball offer out there anyway? Or would I be wasting my time and our realtors time doing that?

Annette Dodson · Answer

I have a question. How low can a buyer go on a foreclosed home? I am looking for a house and came across a foreclosure. The asking price is $259,000. Is it outrageous to offer $213,000. The house needs a lot of work and is being sold as is. Any advice?

Cory Bray · Answer

Kel,

Almost weekly I see packages of REO's from banks that are looking to dump thier properties. In your situation, it seems you are looking to buy a specific house. In my case, I don't care what the property looks like if i'm buying at 10-20 cents on the dollar. I'll get an offering from a bank or holding company. If thier asking price is 30k / door, I offer 1500. Sometimes they take it, sometimes they don't. More often than not, they take it.

Aly W. · Answer

I'd appreciate some insight on this.

I'm going to look at a HUD foreclosure listed with a broker for $48K, tax assessed value. The property is eligible for 203K FHA financing. Looks like the previous owner refi'd for $90K a few years ago, and was foreclosed in August '08.

House needs at least $25K in repairs. ARV is about $60K. Taxes are $2200, and the listing broker's commission is 5%. It will be a rental property for about $900 a month.

I'm not familiar with HUD or other foreclosures. It's only been listed on the MLS as a foreclosure since 12/08 with no offers. Offering 50% of ARV would be $30,000. At that price, I could pay cash, the price plus the repairs pushes it close to the ARV, and I'd rather not tie up all that cash.

Not sure if that's a remotely practical offer for a foreclosure where the bank is on the hook for probably a whole lot more. And I'd still need cash for the repairs, and the holding costs while it's vacant. Thanks.

Mark N.A · Answer

There's always another deal around the corner.  If this guy bought the place in '82 he can just keep lowering the rent and still make money (unless he borrowed on it).

The real question might be:  Why does he have 11 vacancies?  Your area may be in trouble.

Some owners can't be figured out.  There's a local fella who put an 8-unit apartment on the market last year, but it had 5 units vacant for the last two years.  He won't budge from a price based on full occupancy.  He's also got a duplex that's been vacant for at least two years and bases that price on full occupancy.  Either he bought the places so cheap he doesn't care, or else he makes enough money from his day job not to care.

Not my problem.  There are other deals.

Mark N.A · Answer

Kel - if this guy's a builder he may be hurting business-wise.

Also, around here, most 2/1s only sell to investors who understand cash flow, so his potential market may be limited.

As an investor he'll understand that.

See if you can look up what he paid.  If that figure cash-flows for you, he might take it.  Or less.  It's his problem right now, not yours.  Cash is king.

Kel S · Answer

This would be a buy and hold (rental) that we are looking for. The neighborhood and schools are very good and thus homes in this area of town are higher priced (even foreclosures). I wish we could find a deal like our first investment. I think we must of been in the right place at the right time on that one.

There is actually another home on the same street where we purchased ours that isn't officially for sale but I spoke to the owner as it was a rental in the past and noticed it is currently empty. He said he'd be open to selling it but wants 70k!  Not to mention the back enclosed porch room roof is leaking and the whole house will need a roof soon. I think he's NUTS! It's 2/1 and of course he's an investor and home builder that has a lot of apartment units. But I don't see him getting nearly that much in this economy. I told him that in a real nice way but he says that the county (tax value) says it's worth $76k so that justifies his price. Uhhhg!

Kel S · Answer

Mark,

All I can see on our county records is that he bought it back in 1982. The tax values back then were around $12,000...I think. The sheet online is difficult to read. In any case I imagine he didn't pay that much for it back then and it also says "The estate of...." so I think it was an estate sale.

Last week we saw the maintenance guy out in the yard and my husband started chatting with him and he said if we wanted to walk through the house we could. So we did. He was a talker (: He was saying that his boss (the owner of the place) owns mostly apartments and right now they have about 11 units empty. He said that's hard because they have to continue to heat them all through the winter. When I spoke to the owner on the phone and initially asked him about the house and if it was something he would consider selling he said "Yeah, we'd consider selling it". Then he told me the price. I told him to keep my number if he decided he could accept an offer more in our range and he said "Oh no we would never take that for it. We'll fix the roof and either rent it out again or put it up for sale at our price".

I felt like saying...Good luck with that LOL!

I liked the house unfortunately and that caused my brief frustration that he just wasn't open to negotiating. I guess I have to learn to walk away more easily  :mrgreen:

Mark N.A · Answer

Around here one important factor is how long a property sits.

Another important factor is location -- is this a neighborhood that will attract flippers or homeowners?  Or is it a less desirable neighborhood that may only attract rental investors?

Curt Davis · Answer

Kal,

Are you planning on keeping the home for yourself or are you going to  resell it?  What I do is I figure out what the ARV is, figure out what the rehab amount is and depending on what they are asking I make my offer. I try to shoot for an average of 60% of the ARV.

Michael Rossi · Answer

I don't base my offer on the asking price.  I just run the numbers and make my offer.  How low would I offer?  I got a duplex (REO) that was originally listed at $49K (if my memory is correct), for $11K.  I've posted the details on that deal before.  By the way, you can imagine that the commission on an $11K sale is next to nothing, so I paid my realtor a bonus on top of her commission.   Realtors aren't going to do a lot of these deals if they aren't being compensated properly.

Mike