Home Buying in 92115>Question Details

Cheri52, Home Buyer in 85050

Why would a bank counteroffer with a lower price than the original bid on a foreclosed property?

Asked by Cheri52, 85050 Fri May 22, 2009

There were three bids on a foreclosed property. My daughter put in a bid higher than the minimum (with anoffer of 27% down) and a counteroffer was sent to ALL bidders that was LOWER than her bid. Now why would the bank do that? She qualifies for a regular loan. What is going on here? Is this something fishy? Is there some fix in between the bank and one of the bidders?

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15
I'm just a home buyer, not a professional, but I can tell you that what many of these folks are saying is true. I just closed yesterday on a house where I was not the highest bidder, but I was all cash, no contingencies other than physical inspection, and I could close even faster than the bank could.

From offer to close was less than 4 weeks. (And less than a week from the 1st bank's offer acceptance to close - including time for both banks to wrangle over how much the 1st was going to give the 2nd.) On a short sale, that's about as fast as I have heard. The bank was anxious to move on, and my clean, all-cash offer made it possible for them to do so. Their higher loan-based offers could never have done that.
1 vote Thank Flag Link Sat May 23, 2009
Agreed. Biggest factor is a guaranteed close. With the financing restrictions and time constraints, cash buyers can offer the bank a 3 day close of escrow. Many times, banks are okay taking 20k more off the price if they know it will close in order to meet their quota.

Patrick A. Hale, CDPE, RSD
Real Estate Broker & Investor

REO & SHORT SALE EXPERTS WITH A MISSION TO:
"Help Over 360 Distressed Home Owners Avoid Foreclosure"
If You or Someone You Know is in Financial Distress Visit: http://www.SDRealEstate360.com
Web Reference: http://www.reofsd.com
0 votes Thank Flag Link Thu Aug 12, 2010
Here is another possibility: If a property requires $6,000 in repairs (pest, health and safety, code ) it actually makes more sense (net to the bank) to take a cash offer that is $5,000 less, as is, no repairs required instead of an offer ($5,000 more) that needs the repairs to satisfy the financed buyers loan requirements.

Even if the financed buyer says upfront that she is willing to take it as is, her bank may decide otherwise. That risk is lower with the cash buyer.
0 votes Thank Flag Link Thu Aug 12, 2010
Jim Walker, Real Estate Pro in Carmichael, CA
MVP'08
Contact
Most likely they have cash offers that are lower. This is a common case for your situation.

Patrick A. Hale, CDPE, RSD
Real Estate Broker & Investor

REO & SHORT SALE EXPERTS WITH A MISSION TO:
"Help Over 360 Distressed Home Owners Avoid Foreclosure"
If You or Someone You Know is in Financial Distress Visit: http://www.SDRealEstate360.com
Web Reference: http://www.reofsd.com
0 votes Thank Flag Link Thu Aug 12, 2010
Ok, so I'm answering this question a year late, but there are two or three potential points so share from our experience.

1. What was already pointed out in other comments... plus

2. Plain stupid mistakes by the asset manager. We represented a lender and shared with them three offers. They were all in a spreadsheet and the asset manager picked the lowest one. It turns out that the default tab that was open in the spreadsheet was the only one that had gotten looked at - they never even noticed the other offers.

3. Gaming the system by the agent. The real estate agents get scored based on the selling price relative to their BPO (broker price opinion). The further away (higher or lower) than their estimate, the lower they score. We have run into agents telling us to lower our offer by $25K - and this was the only reason.

4.And, sometimes, there will be changes to the property itself - e.g., vandalism.

As mentioned previously, the highest price does not always win. Fast close and cash get preferred treatment.
0 votes Thank Flag Link Wed Jul 28, 2010
Cheri,

A lot of what has been said is sound.

One thing I would have your agent /broker ask is what broker is representing the accepted offer's buyer. If it is the same company as the listing agent, there may be something else going on. The listing broker is required to disclose what broker represents the buyer if asked, even before the deal closes. They must disclose the broker of all offers if asked

Asset managers are a strange breed. It often is difficult to figure out what they are thinking. They do sometimes do things that defy logic. In the case of getting a deal closed, they do look for the greatest revenue with the least amount of pain or risk. That sometimes means accepting a lower offer if it has a much greater chance of closing and closing significantly faster. Asset manager get paid on how fast their properties close as well as how much net revenue is generated. A faster close could in some cases net the asset manager a bigger bonus then a higher net revenue, but closing next month. Even a lower offer that is still over the listing price makes the asset manager look very good.

I have had 2 REO deals recently that we had to go back to the seller and ask for a price reduction. In one the appraisal came in $35,000 below our offer. We did look at comps and the offer may have been a little high, but still realistic. The seller dropped the price to the appraised amount which was still $10k over listing price. We told them the buyer is willing to pay the offered price, if they can get an appraisal to support it. In the 2nd, in an all cash offer, we found out 2 weeks into escrow that there was a major code violation that would cost $10k to cure. The seller dropped the price $10k and it also was still over listing price, this one $30k over.

I personally would wonder why a slightly higher offer ($5000) with a large down payment (27%) would be turned down even over a cash offer (and it has not been said it was a cash offer) is there a problem with the property that might cause a financing problem? I would not be concerned with the appraisal coming in low with only a $5k difference in price. It is less than 2% and you stated that you would have brought in another 3% if needed. If the lower accepted offer is being financed, an explanation is in order.

There certainly may be nothing wrong going on here, but I would want some answers. It may be the agent or broker is double dipping and caused their offer to be accepted rather than a stronger offer. Without a lot more info, it is impossible to tell, I do not want to accuse anyone of doing anything wrong. Most agents and brokers are honest ethical people.

All that being said, a seller can accept ANY offer they want for ANY reason.

If your agent is unwilling to investigate, you might want to think about getting another agent

Jay Gedanken
Broker Associate
PineappleHut Realty
858-605-5839
0 votes Thank Flag Link Sat May 23, 2009
Hi Cheri,

Like Mike, we receive foreclosure listings. The bottom line is the lenders are looking for the offer that will close the easiest that is closest to the offer price. The other trend you see in San Diego is bank owned properties closing much HIGHER than list. Many of the lenders have gotten more sphisticated about list price. They list slightly below market value and use the offers to drive up the price.

The other factor is it is hard for a convetional buyer to compete against cash.

Best of luck to you and tyour daughter,

Mark and Kari Shea
San Diego Real Estate Experts
Foreclosure, Short Sale & Investment Specialists,
Development Opportunities & Traditional Real Estate
0 votes Thank Flag Link Sat May 23, 2009
I agree with Mike. This happens in Short Sales too lately. The lender is looking for the cleanest cash deal, not necessarily the highest offer. Closing timeline also makes a difference as a quick close will cost the lender less in the long run.

Aloha, Gina Duncan
0 votes Thank Flag Link Sat May 23, 2009
Are you suprised the bank wants the property off it's books. May be the bank knows something you don't. What ever the case make sure your due diligence is extensive when buying a forclosure.
0 votes Thank Flag Link Sat May 23, 2009
Banks are backwards right now! This doesn't suprise me a bit right now...
0 votes Thank Flag Link Fri May 22, 2009
Thank you all for your answers. We have never done this type of real estate transaction before. It just seemed counter-intuitive. No one has gotten the property yet. It just struck my gut as weird. I guess I have been investing fraud too long. By the way, with 30% down and no contingencies, isn't that pretty good?
0 votes Thank Flag Link Fri May 22, 2009
Cheri, How many REO transactions have you done this past year? If you're basing it on this one and some other empirical data then you're not getting enough exposure to them. This happens ALL the time and is NOT surprising to me one bit. There's nothing fishy, no fix, but I don't understand the complaining. I suspect your daughter didn't get the property? If she would have gotten it at LESS than what she bid then I suspect you never would have brought this up. Most likely was a cash deal. We had a recent REO in Rohnert Park here in Northern California and recieved 7 CASH offers! NOT a loan in the whole bunch. The asset manager countered them ALL!! 5 were OVER asking price and she STILL countered them! It came down to the shortest escrow, cleanest deal. These investor's would have LOVED to get a lower price!! But this one had more physical conditions which off-set any appraisal issues for the lender but would have prevented a regular buyer with a loan.
We get this type of complaints all the time by folks who overbid but found later the property was sold to another buyer at a substantially lower price. Many buyers make overbids to tie properties up or just get wrapped up in the moment and overbid not realizing the Asset manager was instructed by the agent the house might NOT qualify for the loan/price being presented or that physical issue might prevent it from acquiring a loan.
I feel your pain as we have many a buyer going through the same ordeal your daughter just experienced. Hang in their MOM!! Move on to the next one but have your daughter make sure the property #1 will appraise and #2 will be able to pass a lenders scrutiny for lending guidelines.
Web Reference: http://MikeKelly.com
0 votes Thank Flag Link Fri May 22, 2009
I suspect the lender knew about an appraisal issue.
Web Reference: http://cindihagley.com
0 votes Thank Flag Link Fri May 22, 2009
The Hagley G…, Real Estate Pro in Pleasanton, CA
MVP'08
Contact
Additional information. Bank was asking $269.000. My daughter offered $274,000 as there were two other offers already on the property. Property was sold two years ago for about $450,000 and was foreclosed and owned by the bank. I still don't get it. She was prequalified and can put down 30% if she has to. I have never heard of a counteroffer to ALL bidders with a lower offer. It just doesn't seem like the bank officer is doing his fiduciary duty. What do I know?
0 votes Thank Flag Link Fri May 22, 2009
You don't say how much lower and how much higher your daughter's bid. So all I can do is give you an educated guess. The appraisal issues here in California and across the area may lead the Asset Manager to be wary of offers higher than the appraised value they based their primary listing price. We've seen too many offers recently where the "winning" offer was in some cases 20% OVER list price!! This is driven by buyers becoming VERY frustrated and getting beat out over "cash" deals.
Your daughters bid might have aroused suspicion from the Asset Manager as we get many offers WAY over asking just to "Tie" the property up. This is a strategy employed by many agents when the market was roaring at full speed and we kept loosing properties over and over again to big time overbids! We had a property listed for $577,900 which generated bids over asking with the winning bid at $650,000 which I felt was a ploy and bogus. The Asset manager tried to blow them off by countering with a big deposit but the buyer came up with it. They did come back and ask for a $50,000 price concession two weeks later! So a wary Asset Manager, a seasoned old war-horse of the REO game, might just be hedging his or her bets and not wanting to get into a "overbid gambit" by some star-struck first timer trying to tie up a house!
Web Reference: http://www.MikeKelly.com
0 votes Thank Flag Link Fri May 22, 2009
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