Home Buying in Sacramento>Question Details

OC, Home Buyer in Sacramento, CA

Whats a good offer on a REO Homes Priced at $300000- $314000?

Asked by OC, Sacramento, CA Sat Feb 16, 2008

We are looking at houses at Sacramento 95834 area, the prices are at $300000 - $314,000 all are REO bank owned homes and built 2005 2100sqft. My questions is, would the bank take an offer at $240000- $250000? I would put 20% down, both of our credit score are around 760-782. We have $0 debt no car payments and total income about $80000. I would like to use the same bank as a lender as long as they give us good interest rate. We prequalified on another lender and was offered 5% at 30 year fixed upto $400000. We only want to borrow on
our price range that we can afford $240000- $250000.

I understand that the banks are taking a lost but new houses from kb and khovs same size and with new appliances are for $300,000. So why would I as buyer, buy a used house if I can purchase a new house. The market might still fall and I want to have a cushion just incase prices go down...I'll just wait for prices to go down if we cant find the house we want.Any help or info would be appreciated.thnx

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Terry O'Callaghan’s answer
I get asked that question a lot. I think the best answer is to stucture your offer based on what you feel the property is worth to you. Don't worry about offending the seller. If you and your agent have done the proper research you should have a good grasp on current property values when making your offer. If it is not accepted, you move on. There is no way of finding out if an offer will be accepted without putting something in writing and letting the seller decide (not the agents). Put your best foot forward and see what reponse you get. Banks do not want to own Real Estate. Good luck
1 vote Thank Flag Link Mon Feb 18, 2008
If you win a $300,000 house for $250,000 , that is just like winning a $50,000 lottery, The cost of your ticket is maybe five hours of your time to look at houses and then sign an offer for one of them. If the chances are 100 to 1 against you being accepted, then your lottery ticket is worth $500 ( before you know whether you win or not ) So you are compensated with $100 per hour of chance at the lottery when you make a low offer with a small but measurable ( or guessable at 100 to 1 ) chance of winning.

Your real estate agent may not want to play the game though, He will lose 99 times out of 100 for the five hours of time he puts into each offer. When both of you finally win, your prize is $50,000 but his prize is only $$6250 ( The commission on the sale ) dividing that by 500 hours (assuming only 1 in 100 low offers succeed ) so the agent is earning only $13 per hour for his time. And that is not even considering the time he takes to process the sale after you have won the bid. Adding in that time, he is down to only about $10 per hour.

So OC, although the agents don't expect every offer they write to succeed, they need to have better odds than you are offering at a hundred to one.
1 vote Thank Flag Link Sat Feb 16, 2008
Jim Walker, Real Estate Pro in Carmichael, CA
Glad to answer you, OC. i HAVE NEVER screwed a homebuyer, or homeseller represented by me.. Since 2003 when the bubble started bubbling I have advised every client that I met that the bubble rate of housing inflation could not be sustained.

Always telling the truth about the market meant that I did not make as many sales as some of the agents who were more optimistic. From 2004 to 2006 I only represented sellers (and a few sellers who also bought only to replace what they sold) No client of mine is in worse financial shape due to transactions that I processed.

The flip side to that is that the buyers (represented by someone else, not me) did not fare so well - but those are people that I did NOT represent.

As for the loans, I have always explained the truth about pay option arms, stated income loans, and advised against them for 99% of the people. These loans were awful for most of the people who took them, and I told the truth about them. Yet for 1 out of hundred borrowers a pay option arm or stated income loan makes sense.

This is a little like what I was trying to explain to you yesterday; that something that works for 1% of the population usually does not work for the other 99%.

I do not object to your lowball purchase strategy, in fact I recognized that it would reward you quite well if and when it was ultimately successful. I simply wanted to point out that it was not a commonly successful strategy, It would not work for most people. They don't have the patience to sign dozens of losing offers and spend hundreds of hours looking at houses.. You (and your agent ) will have to have great perseverance, be willing to lose out on some houses that you really would have liked.

Because I am honest. I was straightforward with you, about how reasonable and realistic it is to offer $50,000 to $74,000 ( 17% to 25% ) below value, the time you need to invest to achieve your difficult goal.

From your angry reaction to my post, I wonder if you would prefer to hear from people who sugarcoat and sweet talk you and tell you that your plan is a slam dunk?

I sleep well at night, I tell people the truth; sometimes it makes them angry. Sometimes it makes them not want to use me as an agent.
1 vote Thank Flag Link Sun Feb 17, 2008
Jim Walker, Real Estate Pro in Carmichael, CA
OC- We are in this process right now, so I'll let you know. We just put in a bid on an REO in 95834, Home was listed for over $305k. We have impecible credit, already own home that we will rent out, we want to upgrade. Our offer to the bank was 260s + they have to pay for some etcs. I figure the worst they can say is No, or counter. But the market is WEIRD. The prices are weird, they seem to range from 250k for 1800sqft to 320k for 3000sqft. So what is the actual market price? I figure the banks are hemmoraging, and I'll help stop the bleeding. I'll let you know, so that hopefully you can hear some real world - what we bid, what the bank did.
0 votes Thank Flag Link Fri Feb 22, 2008
Having worked with buyers on many REO transactions a good average is price per sqft. You can search my web site with all REO (bank owned properties) in all 3 major counties, Sacramento, Placer, El Dorado
http://www.wboone.golyon.com the links are at the top of of the web page. Once you find an area you are looking in then you can single out all REO listings and see who is the best price per sqft and this will help you determine a good offer.
0 votes Thank Flag Link Thu Feb 21, 2008
would it be a good idea to offer 10% less of the property listing of any REO homes? lets say $300,000 and offer $270,000? But you guys are saying it all depends on the comparables on the area that the banks don't want to own properties but there just not going to sell them for a cheaper price... Thank you for all your replies its been a big help to us.
0 votes Thank Flag Link Thu Feb 21, 2008
Apology accepted. I join you in your anger at the rogue agents and loan officers who did push those bad loan products,
I gave up half my income in 2005 -2007 because I could not in good conscience sell those bad investments to my own clients.

As far as those houses that are listed between $300 to 314K... I will share an observation I have made on Trulia many times. Other readers are tired of me saying it. : List prices are only mildly correlated to actual market value. A list price can be way over market value, it can be under market value or it can be spot on.
The reason this is a "buyers market" Is that buyers determine the final contract sale price. Sellers don't and Realtors don't.

Note I said buyers ( plural ) - If a house is under priced or correctly priced, it will get bids. The under priced house might even get bid back up to full market value. Most over priced houses will either sit, or, someone will lowball it and succeed. If the $314K house really is overpriced, you could make a bid.

The lowball strategy works better, (counter- intuitively from the buyers point of view ) on overpriced houses, than on correctly priced or low priced houses.

Why? because you are not competing with several other buyers as you would be on the house that is already priced at, or below market.

I will share with you.. I have already seen a half dozen instances this year, where a bank has come down by 20% or more on a house. But only when the list price was more than the market value.

I also have to apologize to you. After having done more research, I now think the odds of getting the lowball offer accepted are much better than 1 in a 100. I think it is more like 1 chance in 40 now. /the market has changed so much. You have been rewarded for waiting this long.
0 votes Thank Flag Link Sun Feb 17, 2008
Jim Walker, Real Estate Pro in Carmichael, CA
I apologize to you Jim for my comment. I know a couple of people including family friends and coworkers that are losing their houses due to foreclosures. They borrowed what they could not afford and got influence by their realtor to buy houses they could not afford. You can not deny that realtors have a big influence on people purchasing their homes. Again sorry but thank you for your info about the banks.

I guess my pricing of 2100 sqft 4000-5000sqft lot house for $250,000 for the area is still off. I will just wait and see if the prices still fall. For now I have my 20% ,I do not want to pay for PMI. I will just save for our closing cost. It just doesnt make sense to pay $300,000 2100sqft for a used house when KB Khovs Lanar new houses with appliances and granite and brand new for the same price xcept with HOA. The banks need a better pricing system or all these houses will sit on the market...
0 votes Thank Flag Link Sun Feb 17, 2008
OC, With regards to getting a loan through the bank that owns the foreclosed home: They actually see it as a liability. They typically don't want the loan again. The underwriter runs the loan through a automated risk module that actually takes into account that the property has been foreclosed on and it's riskier for them.

I understand where you coming from, something like a "bundled service" but they don't look at it that way.
0 votes Thank Flag Link Sun Feb 17, 2008
OC, I don't specifically know what is going on in your market, but in Las Vegas it really depends on what the comparable values are. Some banks have been pricing their homes far below current market values just to get rid of them and multiple offers are coming in within days. Result? Full price offers (and even higher) with the bank going with the buyers with the best terms such as cash, quick close or solid financials such as yourself. List prices don't matter - the value of the home matters whether it's a foreclosure or a new home. A competent real estate agent in the area you are looking in should be able to spot a good value regardless of who owns it.
0 votes Thank Flag Link Sun Feb 17, 2008
I see it this way. If I buy it from the bank and get the loan at the bank lets say at $250,000. With my $50,000 down. I will need $200,000 loan @ 5% for 30 years. The Bank would make $186,512 interest plus my $50,000. My total payment for the house $436,512 in 30years. So now another buyer offering $290,000 but with a different lender to pay off that amount, they would rather go for that buyer? I know its cash right away but they would be losing $146,512 assuming we keep if for entire loan. Do the bank want us buyers to lend from their own bank or just get paid off by another lender and get the house off their books?

I just see it as the bank wants more $ and realtors want us buyers to lend more $ to get a higher commisions. How about doing the right thing helping people and getting paid... What percentage of realtors do you think screwed home buyers from subprime loans and telling other people to loan more than they can afford. Foreclosures are first the buyers fault + realtors pushing them to loan and then lenders letting people borrow money they cant afford... Jim how many people have you screwed??? how do you sleep?
0 votes Thank Flag Link Sun Feb 17, 2008
Are you a first time home buyer? if so you have done your homework .......... Your personal finances sound very solid which is a good thing. In regards to what a bank will take on any given property depends on many things. Most people really don't understand the bank lost 6 months of mortgage payments and paid 30,000 plus for foreclosure attorney fees. The banks have 3 BPO (broker price opinion) ordered at 90 days in the pre forclosure process. These BPO are done by agents & brokers from all different companies. Once they have the BPO they know what to expect for a price. The last transaction I just closed in Roseville was a bank owned property. I was the buyers agent in the transaction and got the bank to go down 50,000. Every listing depends on each individual bank and the property itself. Some areas are holding value better than others. New homes are really something to consider as well. The last 5 transactions I close in 2007 Nov-Dec were all new home sales. I got the builders to go down to $150-$138 per square foot. These homes were all upgraded good lots and super deals! New home builders are starting to hold at certain price ranges. Give me a call if you would like to go into more detail thank you
0 votes Thank Flag Link Sat Feb 16, 2008
It depends how long the home has been on the market. The price for a bank owned home is usually priced by a realtor, who does a broker's price opinion, and an appraiser hired by the bank. The resulting price is the result of the analysis of the two opinions. Banks do not want to give the property away. There are plenty of buyers out there, who if the price is right, will buy the home. You can offer whatever you want to offer, but if your offer is too low, the bank won't even respond. Usually if you're within 10% of the price, they will respond. If you think prices are going to go lower, I would just wait and see where the market goes. Like any market though, it is hard to determine the perfect time to buy. If you're buying the home to live in, and will be there at least 5 years, you'll do just fine buying within the next 9-12 months. Good luck!
Web Reference: http://www.RickFeerick.com
0 votes Thank Flag Link Sat Feb 16, 2008
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