Joe, Home Buyer in Dallas, TX

REO Purchase - How much negotiation?

Asked by Joe, Dallas, TX Wed Aug 15, 2007

My wife and I found a house that we like and want to make an offer. Its an REO home in north Dallas. This is our first house purchase and not sure where to start negotiating.

Our realtor suggests that we should offer really close to the list price(-$900) but have bank pay all of the closing costs. Although, I do not have real estate experience, I think we need to start lower. I feel that if we start at the list price then the only negotiation we have is the closing cost. Any advice?

This is a foreclosed house and is REO. It has been on the market for 32 days and list price has already been reduced by $10K from initial listing. The closing costs will be around $5K and we are going to have it inspected especially since it is a "as-is" purchase.

Current listing: $167,900
3bed/2.5bath/2 car garage

Our realtor is not the "listing" agent. The bank has their own agent.

Are banks open to negotiation? If so, what should be my opening bid?

Help the community by answering this question:


I am a seasoned investor and in this market I'd start at 50% of the asking price. Yes .... 50%. With the credit crunch banks cannot afford to keep the 3 x multiple reserve amount on the REO. They need to keep the cash in the lending pipeline. For example I just made an offer of $400K on an $800K property. The bank's reserve (cash set aside for this property) is $2.4M. The bank came back with a $500K counter offer. The deal closed at $475K. The 10% suggested by others on this site is a method used by Realtors to lock in the sale. Start incredibly low and work up to a great deal for you and the bank!
6 votes Thank Flag Link Mon Oct 8, 2007
I agree with Jim that offering outside of a 10% reduction in price is likely to fail as a general negotiation rule. There have been studies on this and I am not sure why above 10% is so magic, but it just seems to be that many many more deals close when the parties start at that distance.

I agree that other prices in the area are important as well, but real estate is a market and markets change. Wall Street people would argue that the cards have no memory. The best thing to be sure of is that the property is worth the price TO YOU.

Don Reser
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5 votes Thank Flag Link Thu Aug 16, 2007
If you take Bruce or David's advice to offer 10% below the value, you will most likely be turned down. The risk to you is that someone else will offer closer to or even over the value., and you won't get the house you like.

If you take your agetns adivce and offer $167K you will save only $900 (less than 1%) but you will have a much stronger chance of getting the house you like.

Despite all the Bank repo hoopla, REo's do not routinely go for much less than they are worth (once you consider the dead lawn, the stained carpet, the torn linoleum. ) So a $900 discount is not neccessarily bad on top of $10,000 price reduction. By all means look at the CMA and ask to have it explained to you why the house is worth the offered price.
3 votes Thank Flag Link Thu Aug 16, 2007
Jim Walker, Real Estate Pro in Carmichael, CA
Dear Joe,
Your own agent is probably closest to the situation and knows best. Typically with my REO situations I call to find out if there are multiple bids. I then ask them if they have experience with this company. If they do, how long does it take to get an answer from the company? If it is a situation where there are no bids and they answer typically within 24 hours I will try a much lower offer.

If there are multiple bids, or a situation where multiple bids might occur I would bid slightly under what the asking price is. Typically they aren't going to want to hear that you need closing costs paid. They usually like strong buyers and I have found that they will accept a lower offer with higher earnest money at times.

Again, your own agent probably knows best, but consider paying your own closing cost if possible.

Chris Tesch
RE/MAX Bryan-College Station
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3 votes Thank Flag Link Wed Aug 15, 2007
In our area the banks will negotiate but it really does depend on what their inventory looks like at the time. I also know that we do not have as much negotiations with FannyMae. They do not accept the first bid less then asking price but adjust their price every 30 days until it sells. Your Realtor should give you good local advice but having the bank pay all closing costs could save you more money in the long run. Closing costs (depending on financing) could be above $5,000.00. Trust your realtor and take their advice.
3 votes Thank Flag Link Wed Aug 15, 2007
What are the comps for the area? Banks are typically open to some negotiation, however you also need to consider your competition. It is not unusual in this market to get mutiple offers on REO homes. Especially if they have just reduced the price $10,000 I would think that would make the home fairly competitively priced. One thing I like to remind buyers is that it is sometimes tough to do inspeciton on these properties. Is the water/electric/and gas on? If not will they allow you to turn them on? Can you write that in the contract? Also who will pay to have them turned on? If you can turn them on then there are big ? as to if the systems work at all or how well. I would therefore discount the purchase from CMA due to the bank moving risk to you for non-working systems. Inspector can ck other items like foundation and roof and termites. Some of the banks I work with won't pay closing costs. Therefore you should check their bidding procedures before determining this avenue. If you're not tied to the house I'd bid about 10% under CMA and keep negotiating. Typically the 1st response from the bank is not their lowest point. The more earnest money and of course preapproval you can provide will work in your favor.
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2 votes Thank Flag Link Wed Aug 15, 2007
Bruce Lynn, Real Estate Pro in Coppell, TX
A Realtors duties are to look out for the clients best interests. I just sold an REO for much less than list. You can always go up in price, you can never go down, once an offer is accepted.
2 votes Thank Flag Link Wed Aug 15, 2007
Ignore your Reator's advice in this instance. Too many times both agents end-up working for the seller as evidenced by the answers provided here.

I am a longtime investor and own 8 REO properties.

A good agent will help you convince the bank the property is over-priced. Don't fall for the "they have multiple bids" garbage. If others want to pay more that doesn't mean it is a good deal for you. Most buyers even today need to finance so if the house doesn't appraise at the sales price they won't be able to close and it will go back on the market after a couple weeks.

A good buyer's agent knows how to convince the bank their ask is too high and needs to come down. Be careful of crooked brokers who take these listings for maybe $200 and put their agent's name on the sign. That broker gets a percent of his or her agent's commission as a buyer's agent so anyone working with that brokerage as their buyer's agent will know your bid price. Often i get te bank to come down and a buyer's agent comes ina fewdollars over mine and takes it.

Remember, if you can't say no it is not a negotiation. Fire any real estate agent who works like a car salesman - get you emotionally hooked on the property so you will pay anythimg you can.

Good luch!
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1 vote Thank Flag Link Thu Apr 21, 2011
Some banks are open to negotiation. But the price should not go too low to be rejected.
0 votes Thank Flag Link Thu Apr 21, 2011
Banks do not have time negotiate contracts RARE EXCEPTION to the rule.

Sounds as though your buyers agent completed required work determine how submit a winning bid on your behalf. Low Ball an offer may not be your best interest.

Bank does not receive $167,900 at closing

Most don't understand bank as the following costs:
a) Realtor fees
b) Legal fees foreclosure on property
c) Paid taxes for at least 12 months or more
d) Insurance
e) Assest management company clean up
f) Lawn maintenance

Name a few costs most buyers not aware

In some instances we recommend buyer OVER list price, other circumstance home is not worth asking price.

If you like home submit your offer, however keep in mind your agent appears representing you favorable position.

National Featured Realtor and Consultant, Mortgage Loan Officer, Credit Repair Lecturer
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0 votes Thank Flag Link Fri Aug 7, 2009
Listen to your Realtor. My experience representing buyers on REO properties is that if you come in too low, the bank won't even respond or counter your offer. The odd thing about REO's in this market is the banks would rather sit with the property until they get an offer at or close to the listing price, then negotiate with you if you are too far apart. You would think it would be the opposite, but not the case. Also, you run the risk of getting into a multiple offer situation on bank foreclosures because you are competing with investors, first time buyers and cash buyers. If you find an REO make an offer immediately at or close to the asking price, with a short closing period. You can always ask the bank/seller to pay your closing costs if there are no multiple offers. Have your Realtor show you the comparable sales in the neighborhood that way you will know if the list price is the right price. Keep in mind that REO and short sale properties generally are listed less than other properties and sell for less beause many are not in the best of condition and need rehabbing or repairs.
0 votes Thank Flag Link Thu Aug 6, 2009
Hi Joe.

I would say it all depends on how bad you want that speciffic house. Whe I buy an investment property, I usually bid on 5 different ones to get 1. The house I live in is worth $300K, I had to put $70K in rehab, but I bought it for only $110, which was about $50K less than what it was in the market for...
0 votes Thank Flag Link Tue Dec 4, 2007
Before putting any earnest money down on an REO or short sale.

Make sure you have a clean title
Make sure you have a good appraisal.

98% of the headaches come when the agents/lenders not taking these two steps seriously. I'm a licensed mortgage broker for all of Texas http://( and if I were you I wouldn't even put a $1 down for earnest money until I had these two items nailed down. And don’t let anyone tell you they can’t order title without a contract.

Because in a non-REO situation, you put your earnest money down, write contract, THEN ORDER TITLE, APPZL, But with REOs you should order Title, APPZL, then write contract with earnest money after you know the property has a clean title and acceptable appraisal.

Call me if you have questions 512-577-2958
0 votes Thank Flag Link Mon Dec 3, 2007

My buyers just completed negotiating an offer on a REO home. It was listed for 91,900 had been at 132,000 for 220 days and reduced slowly to 91,900.We offered 85,000 with the bank paying all closing cost. We also put in a walk clause for inspections with a limit of 2500.00. In doing that my buyer if they want to and the inspection comes out to more than 2500.00 in repairs You can always put an offer in as long as if you decide not to purchase the property you are protected to get out of the contract. There are some great buys on the market.
0 votes Thank Flag Link Sat Oct 27, 2007
Hi Joe, I'm sure your agent has recieved feedback from the other agent as far as bottom line. You can wait and see what happens and possibly lose the home to another buyer, or you can give it a chance and offer what you think the home is worth. Keep in mind to take into consideration what your agent is recommending as if your offer gets rejected, your definately going to wonder why you hire a professional and don't take his/her advice. I say give it a try but don't embarass your agent and yourself by doing it.
0 votes Thank Flag Link Fri Oct 26, 2007
here's a good formula
take the arv (after repaired value) x .70
then subtract your fix up cost. and that should be your price this way you have 30% of the value to negotiate with....ex on $100,000
$100,000.00 ARV
x .70 Built in Equity
=$ 70,000.00
- $10,000.00 Minus repairs needed to sell at top price
start at $60k now you can use your built in equity to negotiate with if you need to go up but make sure you know already what your absolutely willing to pay if it's only $80k then make sure you determine that before hand and make sure you stop there if you don't get the house at the price you want move on there are plenty of houses in the market right now they actually want you to buy this property to get it off there books also dont listen to your realtor if you offer close to the asking price that means a bigger commision for him/her. Hope this helps
0 votes Thank Flag Link Fri Oct 26, 2007
The bank will be tough to negotiate with unless you can substantiate your offer. They will stick to their valuation because of their BPO or brokers price opinion. To get that price down further, be prepared to submit evidence as to why your numbers are more accurate for the value. Be very patient & keep looking for other houses in the mean time the banks move slowly. Remember & the banks need you more than you need them.
0 votes Thank Flag Link Tue Oct 9, 2007
Hi Joe. Has your agent prepared a CMA for this property to determine whether it's priced right? If so, how close is the asking price to the fair market value? I heard that some parts of the Dallas market are still appreciating and other parts have very high foreclosure rates. So, I guess the answer to your question depends on where in Dallas you are buying as your negotiation margin will depend How many REOs are there in that area? That will also tell you what the general trend is.
In my experience, banks are not keen on paying closing costs. It just seems to go against their principals, but maybe the Dallas market has different customs. In CA, the customs on who pays for the closing costs vary from county to county. Your agent knows best. Good luck.
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0 votes Thank Flag Link Mon Oct 8, 2007
Ute Ferdig -…, Real Estate Pro in New Castle, DE
I am not familiar with the local market in the Dallas metro area, but my suggestion would be make an offer a couple percent below the most recent comparable sale of a like-kind property, and ask the bank to cover closing costs.

My experience representing buyers with Bank-owned property is that banks will definitely negotiate. Banks are in the business of lending money, not owning homes. There are non-monetary concessions you can make as well to make your offer more attractive despite a lower offer; opt for a shorter escrow period (if the norm in your area 30 days, offer 21 days if your lender and agent can meet those timelines), early contingency removal (in CA this normally happens in 17 days - try 12 days), etc.

One word of caution - the banks make no representations with regard to the condition of the property. Even though you are planning to have a professional home inspection, you may wish to have other major items looked at by specialists to make sure you know what you are getting into. Home inspectors are generalists. You will have no recourse later if the A/C unit blows, but does not blow cold air. You will have no recourse if the bathtub drains slowly not because of a clogged pipe, but perhaps because the sewer line has collapsed. Blah Blah Blah.
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0 votes Thank Flag Link Wed Aug 15, 2007
Erin Stumpf…, Real Estate Pro in Sacramento, CA
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