Foreclosure in 53558>Question Details

Danny, Home Buyer in 53558

How much is too low to offer for bank-owned property?

Asked by Danny, 53558 Thu Apr 23, 2009

There is a bank-owned house my wife and I are interested in. It's listed @ $229,900. But the actual cash break even point for the bank is about $189,000. I was considering offering $165-170,000, maybe even lower. It's been bank owned since 4/2008 and listed on the market. And there is some work to it, even though it is a very new build with nobody have ever living there. The driveway is not complete (w/ cracks in the completed section), the landscaping has not been kept - basically needing to excavate and replace with new sod or seeding (1 acre lot), and no deck is in place in the back. Is the price I'm offering reasonable?

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Hi Danny,

If your goal is to flip this property, proceed with caution. These strategies typically only work for the novice investor/speculator in appreciating markets, as appreciation will serve as a hedge against any downside risk or mistakes in calculation.

If you are purchasing to live, it's a different ball of wax all together. This area has been addressed well by the below responses.

I would caution, as much as possible, not to make a decision based entirely on emotion. The real estate market is truly in a glut. And to get out of it based on solid fundamentals, we need purchasers to be realistic.
0 votes Thank Flag Link Tue Apr 28, 2009
Danny, you provided some great information about the property you're looking at. However, you didn't provide the information needed to properly give you an answer. So bear this in mind when I give you as much info as I can, based on what you told me.

The "good" thing about banks is that they are seldom emotional. What I mean is this: If you were buying from an individual, you would run the risk of offending them and cutting off negotiations. The downside is this: if the bank is getting offers from other buyers, then they will simply not respond to one that is too low and you'll be out in the cold. However, since the property has been with them for a year now, it doesn't seem they are flooded with offers, now does it?

There is an art and a science to making an offer and one should never guess at it. Use this as your starting point: get a CMA on livable (move-in ready) homes in the area. This will give you an idea of what the home should be worth once all repairs are done. MAKE SURE the CMA is done properly, as a CMA is (quite frankly) not an official statement (aka: different agents might come up with many drastically different figures, but, if done right, there will be much consistency). From there, deduct the cost of repairs, if done by professionals. If you do this process correctly, you will come up with a MAXIMUM amount you should pay for the property. The listing price has absolutely NOTHING to do with ANYTHING and should never be a consideration for what you offer for a property. Neither should the break even point for the bank. These are both figures that you should keep in mind only to know what they are expecting. Oh, and by the way, the so called "break even" point for the bank is always a misleading figure that will tell you exactly nothing unless you know how it was calculated. The odds are that you will not have access to that sort of information.

In short, attempt to figure out the fair market value for the house and offer no less than 20% below that, all depending on dozens of variables. I would strongly advise the representation of a REALTOR.

OR... if you are not buying this property for your own use; if you are wanting to become an investor, then you will want to become very VERY educated on this process before you put your own money on the line; it's extremely risky. Therefore, if you are trying to break into the world of investment buying and selling (flipping), the advice above will be completely different. In that case you would make offers based on YOUR information as much as the bank's and the property's information. In other words, it gets much more complicated.
0 votes Thank Flag Link Tue Apr 28, 2009
If you are looking for a deal a foreclosure property can be the way to go as you won't insult them. With that being said I think the biggest factor is how badly you want the property. Most banks are able to accept any offer regardless if there is a prior offer on the table if they feel it is a better offer which can be risky when you submit an offer to low because they may take longer to respond and another offer could come in. There are a lot of properties that have been on the market awhile with interested buyer's and a lot of them won't move forward until they realize an offer is in play.

Good luck!
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0 votes Thank Flag Link Tue Apr 28, 2009
Danny, I thought you might find this thread interesting....…

It's a hard question to answer since the answer can be different for every property if looked at individually.

With the details you have mentioned, you seem to have a lot of "estimate" costs of things to be done if your offer is accepted. These all sound like things to be discussed in the offer..inspections,appraisals,repairs, is it as-is, ect..
As to what the reasonable offer is? If you do read the other thread I think you'll see that it can be unexpected more than predicted.... Just an opinion..

0 votes Thank Flag Link Fri Apr 24, 2009
One advantage of making an offer on a foreclose sale is that you have the risk of insulting the seller as you might in a normal resale, so go ahead and make the offer you are comfortable with. Do try, however, not to get too emotionally attached to buying this particular property as there is no telling how the bank might respond.
0 votes Thank Flag Link Fri Apr 24, 2009
Hi Danny,
Many of my buyers ask me the same question. To me, the answer is based on many factors. The bottom line is what the bank is willing to take is very unpredictable.

What is the home worth compared to recent sales in the area? Has the priced been reduced since it has been on the market and is it now a fair price? If you had a home for sale priced at $229,900 and knew it was worth $215,000 all day.... what would your reaction be to a $160,000 offer? Who knows the bank may be interested in just getting it off the books.

How serious are you about buying the home? How far under asking price are the comps bringing? If your trying to base your offer on what they bank is owed, is their "break even" point including other additional costs they have paid and the potential realtor fees they will pay on a sale. The break even could easily be $200,000+

I know the line of thinking is I want to start low just incase they take it. You need to decide where you are willing to end. What if you offer 160k and the bank comes back at 220k, what is your next move. I would say offer what you feel is best and depending on how bad you want the home be prepared to have a plan B. I would say move forward on it and see what you get back, and best of luck. Brent
0 votes Thank Flag Link Fri Apr 24, 2009
Break even point? You mean the mortgage amount that is on the property? If you are not dead set on having this place you can start there and see what the bank says. They might come back at a number in between which you can agree on.

Sean Dawes
Long and Foster Real Estate Inc.
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0 votes Thank Flag Link Thu Apr 23, 2009
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