Home Buying in 85254>Question Details

Shane, Home Buyer in Scottsdale, AZ

how much of a discount should i be expecting on a REO in the phoenix metro area?

Asked by Shane, Scottsdale, AZ Wed Mar 26, 2008

Help the community by answering this question:


The quick answer: Whatever the market will bear. There is no set rule or guideline. A Bank is looking to minimize their loss/maximize their gain like any other property seller. Market demand will gauge how narrow they can make that loss.

Most banks are using an appraisal and trying to get within 90% of distressed appraised value...at least in the early stages of an REO listing. As time goes by, which means demand is low, they get more aggressive. Property condition, of course, is always a big factor.
2 votes Thank Flag Link Wed Mar 26, 2008

As in any home sale, the “deal” is relative to the market. We are experiencing a buyer frenzy in the under $200k price range. I have clients that are offering more than list price and have been out bid. The sign of a good deal depends on its relevance to the market around the home.

Get good comparisons and calculate if it truly a good investment.
Web Reference: http://www.joearizona.com
1 vote Thank Flag Link Tue Apr 22, 2008
Steve is correct - whatever the market will bear. I recently worked with a buyer who put in an offer on a home and the bank countered back at almost full price because the bank has multiple offers on the home and it is now in a "bidding war".

What you need to do is have your agent or REALTOR look at what the non-bank owned competiion comparable homes have been selling for. Example if a bank owned home is $180,000 and needs $10,000 in repair compared to the same home that is "move in ready" that may have been selling recently for $230,000 you would be getting a $230,000 home for $190,000 or $40,000 less.

Instead of asking "how much of a discount should I be expecting on an REO" you should be asking "If I buy this property for $$$,$$$ how much am I saving compared to other non REO homes".

Just a suggestion.
1 vote Thank Flag Link Wed Mar 26, 2008
We've been working with several banks on their REO inventory for over three years. Our experience suggests that you will not get much of a discount and typically none. In some cases you'll pay more for the property because it is priced agressively, it's location is good, and the house conforms to the general likes of the market. This usually places the home into a bidding situation where the bank will ask for a best and final offer from each party of interest. Your best approach is to find a property that your interested in and work with your agent to determine its market value. Determine any repairs needed and add that into you comp analysis. If the home meets your model beanchmarks jump on it before it's sold.
0 votes Thank Flag Link Wed Oct 6, 2010
This is a difficult question. There is not just one right answer. It really depends on the price range you are looking at and the area of town you would like to buy in.

In the North Scottsdale market, foreclosures are currently listed for about 50% less than what they were listed at just a few years ago. As others have stated, you probably shouldn't expect to get a lot off of the asking price since the bank has already decreased the list price significantly. That doesn't mean that you are not getting a good deal, it just means that in many cases the foreclosures are currently priced very competitively and will have multiple offers within the first couple of days. Sometimes if a foreclosure is listed low enough it will actually sell above list price. Then of course you have the banks that will not budge and will keep the overpriced foreclosures on the market for a very very long time.

Basically, if a foreclosure is priced well it will sell fast and there will be very little room for negotiation.
0 votes Thank Flag Link Wed Oct 6, 2010
""Don't expect any... You are wasting your time....

FORECLOSURE REALITY CHECK…. The only “sellers market” in america is the foreclosure market. Don’t expect any deals from a foreclosure as the bidding process brings 20-30 people to bid on almost every deal. A deal that was already priced at market. For government foreclosed homes, by law, they have to be priced “at market”. "" from Perry Henderson


IF I AM LYING THAN GO TO http://www.altisource.com - OCWEN's portal and see how list prices go down and people bid much less in real time.
0 votes Thank Flag Link Fri Aug 20, 2010
3% in first 30 days of listing, 10% in next 30 days, best offer after that. I have WHOLESALE REO proeprties that we buy at auction for sometimes 50% of REO MLS value if you are interested - check out 7801 W Amelia 47K easily worth 80K
0 votes Thank Flag Link Fri Aug 20, 2010
No easy way to answer this type of question. In most markets, including many in CA and Phoenix the lower priced REO homes ($250,000 and less) are actually selling for MORE than asking due to multiple bids--in fact many REO agents are now using this as a strategy when pricing and REO. You need to find a good agent in your area who can tell you what is happening in you specific area, as well as help you define a strategy for each specific REO that you may be interested in making an offer on.

Best of Luck To You,
0 votes Thank Flag Link Wed Aug 11, 2010
It is equally important as to who is representing you will help determine your discount. How about a real answer based on actual transactions. Hi Shane my name is Stan Gustafson. I am a Buyer's agent who specializes in selling only Bank Owned properties. In every single transaction I have closed the past 3 years I was able to negotiate excellent discounts for my clients, on some properties as high as 22% off the foreclosure price. Every transaction is different and many factors must be considered. The very last transaction I closed last month I was able to negotiate an offer for my client Tom Howard that included both a discount & concession. Seller was asking $339,000 for a home in Chandler. We negotiated an offer and it was accepted at $335,000 plus the Seller agreed to give a $6,000 concession towards my clients closing costs. In a highly competitive Chandler Golf Course Home Market this made my buyer very happy. Then when I learned Tom served during the Viet Nam War, instead of a 20% Down Conventional loan we were able to get him approved for a 100% loan to value VA loan with no closing costs and no PMI. He really loved that. As time progresses it's getting more difficult to get the super deals, so the real key to getting the price you want Shane, is with an agent who is a very aggressive negotiator, someone who knows how to fight for you to get the best possible deal regardless of market conditions. Personally I get far more pleasure in getting a great deal for my client, than any amount of commission could ever give. If you click on my link below to my clients testimonial page and you can see for yourself what they say and learn what happens when you have excellent buyer agent representation.
0 votes Thank Flag Link Wed Aug 11, 2010
Based on the 1st half of the year, about 2% at best. And that number has an "it depends" qualifier attached to it. The 1st quarter had a 98% retention of list to sell price of SFR in the Phoenix Metro area, so the numbers show us that prices on average are leveling off. Most homes listed in the range of conventional or FHA/VA financing fit this description. Homes that fall in the range of a jumbo loan are still seeing a softer sale versus list price. So my answer is: Give me more information! What is the price range you are shopping in for REO's in 85254? That will get you to a better quality answer.

Happy to Help in AZ!
0 votes Thank Flag Link Wed Jul 21, 2010
As an REO Foreclosure listing agent who works directly with asset managers, I often hear this question. The bottom line answer is that REO's are selling at near or over asking price. We are seeing a HUGE increase in buyer's which means NO MORE LOW BALLING! Prices are increasing and days on market are decreasing. Buy now before it's too late!
0 votes Thank Flag Link Wed Oct 21, 2009
I am not sure what "discount" really means in a free market home available to everyone looking....you will buy it for what the market says its worth.

If you buy a home for 100k that means basically nobody offered more than that in that time period. So if you were to turn around and sell 2 months later, you may not even be able to sell it for what you offered....so I just dislike the theory of "its worth 150k but I got it for 100k.....even if it appraises for more than the purchase price that doesnt mean it will sell for that.
0 votes Thank Flag Link Thu Oct 8, 2009
Per my earlier blog message, the REO discount will increase in the outlying areas of the Phoenix metro. The more popular areas will have lower discounts.

Expect greater discounts in Maricopa, Queen Creek and Buckeye.

The key however, is not so much the discount, but the structural versus cosmetic repairs. Also, malicious goodbyes from the last owner need to be evaluated on the REOs that have been on the market for a while. (example concrete in the drains).

Do not be influenced by a big discount. There may be a reason, not readily apparent. Get a house inspection and check the property again on the day of closing.
0 votes Thank Flag Link Thu Oct 8, 2009
Jeff - what are you basing that data off of? In many of the neighborhoods in which I work, those percentages you are quoting simply aren't correct.
0 votes Thank Flag Link Thu Oct 8, 2009
UPDATE on the "discount" you can expect when purchasing a REO home in the Phoenix metro market

"Discount" in this case is defined as the purchase price of a REO (Lender owned real estate) in a neighborhood as a percentage of other 'Non-REO homes selling in the same neighborhood or surrounding neighborhoods.

Currently expect the discount for the buyer in this range:

Best 50%

Average 35%

Worst 25%

This depends on the condition of the property and the movement of the homes in the neighborhood. The farther out from downtown (example Buckeye and Queen Creek,) expect the discount to be greater on average.

A consideration almost as important as the discount is the amount of repairs required to make the home liveable. A low discount without structural repairs may be more desirable than a large discount with major repairs. Cosmetic and non structural repairs is so important. The net move-in cost is the key. If you have additional questions or would like to see Arizona Homes and Land for sale with a high buyer discount and low structural repairs, see: http://www.ArizonaHomesLand.com
0 votes Thank Flag Link Thu Oct 8, 2009
Banks as seller...no emotional attachment...no sweat equity in the property...

Banks look at data. They list their REO's at current market value, typically pretty accurately.

The current market is already at a big discount. A further discount is unlikely.

If you want to step up to the higher-end market, then you're in a buyer's market. 350K and below, you're in a normal market, with a bit of a frenzy happening, since REO inventory is getting eaten up pretty quickly.

However, there's always an exception. I have found through my own investing and rehabbing experience, that there always seems to be an exception. A property that no one wants to touch. A property that needs vision. I can help you find those exceptions.
0 votes Thank Flag Link Sat May 16, 2009
If the home is under $225,000 expect to pay up to 30% ABOVE LIST PRICE in order to win the bid because it is now a SELLER'S MARKET for homes under $225,000. Of course local neighborhood trends are completely different.

It all depends on the price range and the area desired. Email me and I will send you detailed information on our market shift from a BUYER'S MARKET to a SELLER'S MARKET.


Above is a link that shows you that based on the price range you are in what market you are in.

0-4 Months Supply is a SELLER'S MARKET
5-7 Months Supply is a BALANCED MARKET
7+ Months Supply is a BUYER'S MARKET.

As you can see most of the BUYER'S MARKET is GONE!

Feel free to contact me for more valuable reports and insight to the market.
0 votes Thank Flag Link Thu May 14, 2009
If the home's priced competitively, the statistics are it's selling at about 95% of list price.

If you're looking at homes under $100K, odds are you're going to be paying at or above list price as these homes are receiving multiple offers days after going on the market.

There is less than one month's inventory of bank owned homes left on the market right now - high demand, low supply = little to no discounts on much of the bank owned inventory.
0 votes Thank Flag Link Thu May 14, 2009
Greetings Shane:

We market homes with several banks in Maricopa County. The short answer is that it depends. "Typically" the house is already discounted when it hits the market, it then depends on the condition of the home and of course the location. The news casters would have you believe that the banks are giving these homes away just to get them off their books. That's simply not the case. There are some good bargins right now and the interest rates are the best they have been in decades. If you find the house that looks good, it has the location your looking for and your Realtor advises that their CMA says it's price right then pull the trigger quickly because it will not be on the market vary long. Their is a host of people looking for that type of property. Find yourself an agent that understands value and give them your criteria, then just do it.

Jeff Daley
Keller Williams Arizona Realty
Licensed REALTOR(R) State of Arizona
0 votes Thank Flag Link Thu May 14, 2009
The last REO contract I negotiated didn't get such a great discount. There are many reasons for this. Condition of the property is something that needs to be considered. This home included all the appliances and washer/ dryer. It also only needed new carpet with no other obvious repairs. The older the home and the more repairs that are noted will allow for a greater discount. Additionally, if the home is priced already in the 'hot zone', their will be other offers to contend with and not allow for a big discount.

You can visit my website http://www.jameswehner.com for lists of REO properties in the Phoenix metro area.
Web Reference: http://www.jameswehner.com
0 votes Thank Flag Link Mon Apr 21, 2008
Hi Shane,

I would agree with Donald Keys below. You have to look at what comparable properties in the area are going for. If the list price of the REO is $60-70k below recently sold comps I usually advise my clients to submit a on offer at about $15k below the list price. Now you've got $75-85k in instant equity. I'm not supporting the banks here when I say this, but understand, the banks are already taking a big loss on these homes. They only have so much wiggle room to move on them. They're still fantastic deals. If you've ever read "How to Make Money in Stocks" by William O'Neil, publiser of Investor's Business Daily, you would note that he says one of the BIG mistakes most investors make is waiting for that particular stock to go down another 1/8 or 1/4 of point before they buy. In the end they miss a great buying opportunity and end up paying more for the stock when it takes off. Unfortunately we are seeing a lot of that Pennywise Pound foolish mentality out there in the real estate market right now.

Please visit our website at http://www.ArizonaPremiereLiving.com for more information on the Scottsdale/Phoenix real estate market.
0 votes Thank Flag Link Thu Mar 27, 2008
Don't expect any... You are wasting your time....

FORECLOSURE REALITY CHECK…. The only “sellers market” in america is the foreclosure market. Don’t expect any deals from a foreclosure as the bidding process brings 20-30 people to bid on almost every deal. A deal that was already priced at market. For government foreclosed homes, by law, they have to be priced “at market”.

The REO manager has a short list of “cash/close in 2 day buyers”, they always get the first right to bid. Then they have to wait for the “public auction” Which drives up those prices. After a 30-60 day period. Then the REO picks the best bid. Sometimes, only sometimes does a REO manager take a property directly to a buyer he knows peronsally. Why should he, he has a bunch of people bidding and driving up the prices.

My REO manager friend likes to joke about all the “first timers” who continue to drive up the bid when they don’t hear anything from the bank. Every time I see the “how come I haven’t heard from the bank about accepting my foreclosure bid after 30+ days” on trulia, I have to let out a chuckle because he’s so right. For those newbies, this is real. They know that when you don’t hear from them that a large percentage of people drop a second or third offer higher than the previous one. **WARNING, YOU ARE BEING TAKEN ADVANTAGE OF HERE**

You want a deal on a property right, everyone wants that…. So the moral of this story is:
1. the 60 days you have to wait to hear from a REO, you could have made 2 or 3 better deals with a property that has been on the market for a long period of time. A good realtor will drop an 80% offer on a property and get one accepted.
2. You are attempting to make a deal in a house covered in a cloud of bad energy, don’t be surprised when it rubs off. Personally I stay away from these for this reason entirely.
3. One way to get a deal is dropping a hand written note on ANY house in a neighborhood you want to buy that says “my girlfriend and I want to buy a house in this neighborhood and yours looks cute from the outside. Do you know anyone that is looking to sell?” I always get responses, better prices and positive energy into the home.
0 votes Thank Flag Link Wed Mar 26, 2008
Depends on several factors: How long has the property been listed for sale as an REO? How is it currently priced, below market value, at market value or above market value? What is the condition of the property?

The answers to the above questions should help in determining how much below the list price you may get the home for.

I have several techniques that I use to successfully purchase REO properties for 15% - 20% below list price. Check out my website and contact me if you are interested in buyer representation for any bank owned property purchases.
Web Reference: http://www.jameswehner.com
0 votes Thank Flag Link Wed Mar 26, 2008
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