Bidding for foreclosures

Asked by ktong, Sat Dec 27, 2008

My wife and I have credit scores of 800 & 820, a few properties paid off and plenty of equities. We've been bidding for the foreclosure properties in Rancho Cucamonga but everytime we were out bidded by FHA first time buyers with 3% down vs 20-25% down from us. We tried not to low ball too much and even offered above listing price on the last bid but was still out bidded by another FHA bidder. It seems like the foreclosure lenders do not give a hoot to people with good credits. Can anyone offer us a good strategy?

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Diane Wheatl…, Agent, Upland, CA
Wed Dec 31, 2008
How frustrating that may be for you especially with the phenomenal credit scores and financial position you have accomplished. It is obvious to say that you are a "virtual no risk" type buyer to any seller, lender, banking institution or what have you. Credibility is not an issue in this equation.

As with most sellers, lenders and property owners - money talks. It all comes down to the bottom line and what goes in their pockets at the end of the day. I imagine that you have no contingencies other than the usual inspection timeframes, approval of disclosures, CC&R's (or not), termite report and appraisal. You can waive the financing contingency subject to the appraisal since you are so well qualified as long as your lender agrees. I wouldn't waive the appraisal contingency unless you were certain that your offer was well within the value window needed for final loan approval. Values are so volatile.

Another issue that is important to a seller is the time to close which I imagine is not a problem either. Quicker the better. And of course, do not ask for any repairs to the home unless truly warranted and a deal breaker for you. Just use your inspection as a guideline of what to expect to need to repair or maintain once you take title. If something terribly wrong should show up on at the inspection then you have the right to cancel and redeem your good faith deposit. Your deposit should be 1-2% of your offered price or more depending upon the purchase price to make your offer that much more enticing and showing of strength on your part.

Other than that you just need to be realistic with the amount you are offering on the home and understand that you may not be the only bidding party at the table. The lenders do care about the credibility of the buyer to settle their confidence that the transaction will close, however their main focus is on the bottom line. Increase your offers as you did with the last one and you will surely be in escrow before you know it. Just hang in there. Good luck and happy house hunting!!

Diane Wheatley, Broker
1 vote
Mark G. Mann…, , Upland, CA
Mon Dec 29, 2008
All good Answers.

In todays Market three things are critical:
-You should have an actual loan approval by a lender prior to 'going shopping'. With your credit scores and down payment, that should be no problem. Many lenders now are happy to give you an actual approval before having a specific property in hand. A FHA borrower with loan approval will appear stronger to the seller than someone with your great credit history and scores. Having a loan approval yourself will level that playing field.
-As has been mentioned, keep your contingencies to the minimum, along with the time periods and requests. You want your offer to be as 'clean' as possible
- Most Important is Price! In todays market the price Must be right. It is important to find a realtor that is a Buyers Specialist to represent you (remember their commission is paid by seller). Your agent must not only be proficient at preparing a Market Analysis on a property, but also be Knowledgable of and able to perform an Absorbtion Rate Analysis for the property. Together this will give you the Right Price. This will both prevent you from overpaying for the property, but will also greatly improve your changes of getting your offer accepted. Good Luck.

Mark G. Manning
Century 21 Prestige Properties
Upland, Ca
951 237 3741
909 920 4620
1 vote
Shel-lee Dav…, Agent, Rolling Hills Estates, CA
Sat Dec 27, 2008
This strategy has worked for many of my clients:

1. Know the value of the home your are bidding on. The listing price does not always represent the value. Then bid accordingly.
2. Keep your offer clean. Don't ask for lots of little things from the bank.
3. Keep your contingency removal and closing times short. The banks like to know quickly that the home will actually close.
4. Work with a buyer's agent who knows how to represent you in the best light to the listing agent. You need someone on your team NEGOTIATING for YOU.
5. Identify homes that FHA buyers cannot buy (homes with missing appliances, flooring, etc). This removes them from the competition and often makes your offer the only offer on the property.

Working with a buyer's agent who knows the pre-foreclosure, foreclosure and REO markets like the back of their hand will be beneficial to you. Avoid making offers directly to the listing agent. They are too busy with all the listings the banks are piling on them to really give you the attention you need to land a home. I have been successful at offering less than FMV on homes that have been on the market for a while or need some work, both owner occupied and for investors. It is a matter of know where your client wants to buy and then staying on top of the inventory in that area to identify the deals. Contact me through my profile if you would like to explore this more fully. Your home is out their waiting for you. Dare to Dream.

Shel-lee Davis
Real Estate Consultant
RE/MAX Palos Verdes Realty
1 vote
Joan Patters…, Agent, Rancho Cucamonga, CA
Sat Dec 27, 2008

I would have to agree with Lynn. Many of the banks out there do start their home pricing a bit lower to generate interest and get the home sold as they do not want it to sit on the market too long. They would like to generate more money quicker and they do this by placing the home on the market for a bit under value. This in turn will spur more activity which will typically generate more offers. When buyers know there are other offers on a bank owned property and they want to buy it, they will offer a bit more. The banks already have an appraisal, so they know what the values are and would like to get that and then some if they can.

Offers can vary greatly and how your offer is written can affect which one the bank takes as well. The banks do not want to see a lot of things that a buyer wants such as closing costs, or things out of the ordinary. A clean well written offer and a great deposit, pre-approval letter, FICO scores all should help. The banks typically won't accept offers right away. They compile them for several days to see who has the best offer.

So, what I would suggest is always have your agent write your highest and best offer. If you give the banks what they want, typically you will get the house unless you are low balling, even slightly, if someone writes an offer for full price, then of course, the bank will take their offer over a lower one.

Speak with your agent that is writing offers for you and express what you want to do. If I liked a home and wanted it, I would write an offer for full price with no closing costs and then it would be appealing to the banks. Have your agent keep in touch with the listing agent if other offers come in and see if you are still in the running. If not, submit a new offer for more if you feel you want to pay that for that particular home. If not, walk away and find a new home.

I recently represented a very nice couple on a bank owned property and told them if they really wanted it to make a full priced offer with zero in closing costs and they got the home. Yes, it needed work, but we knew that it was a good value at the price listed and they still need to put over 100,000 into the house as the master bathroom was totally ripped out with only a toilet left! The kitchen needed to be gutted and new flooring, new roof etc needed. But, they loved the home and the design of the inside. So, they knew eventually, they would be able to have it worth more one day. They wanted to low ball it as well, but were glad they listened to me.

I think the most important thing to do is to have your agent keep in touch with the listing agent to see what is going on. It is important to be able to help you decide what to do. I am sorry things have worked out like this for you, but it seems to be the way things are going in this market with interest rates being so low along with home prices. I have had similar occurances happen as well. When things don't work out, it was not meant to be and there is something better in store for you.

Kind regards,

Joan Patterson, B.A., A.S.P., G.R.I., Realtor
Keller Williams Realty
8250 White Oak Avenue, Ste 102
Rancho Cucamonga, CA 91730
1 vote
Bill Eckler, Agent, Venice, FL
Wed Dec 31, 2008

Many of today's buyers attracted to the "foreclosure" portion of the real estate market are not only looking for deals......they are looking for steals!

It is extremely important to "keep it real" by making realistic offers. Offers that are not justifiable. The lenders utilize the skills of professionals that monitor the market relative to pricing. They know what is reasonable by comparison to recently sold homes in your target area.

Our recommendation is when making an offer on this type of property that you do your homework, collecting information on recently sold homes and using these comparisons as a basis for making an offer that can be justified.

Good luck
0 votes
Scott Godzyk, Agent, Manchester, NH
Sat Dec 27, 2008
Sorry tio say Credit does not have anything to do with the bank accepting or not accepting your offer... You must assess each property for what todays value is and then decide how much you it is worth to you therefore how much you will bid. You really need to disregard the asking price. some banks are slisting at reatail and take offers while others want an immedaite sale and have already discounted the asking price 20% . You need to make sure your offer is as clean as possible, do not put in any contingincies, put your best bid in forst, do your inspection before bidding, include a pre approval letter, close in 30 days or less and make sure your deposit is at least 1% of the sales price or $5000 to make your offer stand out. good luck with future bids.
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Diana Margala, Agent, Rancho Cucamonga, CA
Sat Dec 27, 2008
Hi Ktong:

As indicated by the other agents the banks are looking at the offers that will net the most to them and have the likely hood of closing. It can be very frustrating to buyers who are putting more money down with higher scores, but if you put yourself in the place of the seller (the banks) as long as a person qualifies FHA or not it still is money to them and the more they can receive the better that offer will be to them. The key is communication from your agent to the listing agent. If they write a very clean offer for you they can many times communicate to find out what you would have to do in order to actually win the bid on the house.

Good Luck:
Diana 909-945-5763
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Manu Kapoor, Agent, New York, NY
Sat Dec 27, 2008
As long as financing in good standing, it could be 3 or 20%. Same for the lender. According to me, they could consider a no financing deal better than anything else. ie all cash. You hv a better negotiation chance.
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Dallas Texas, Agent, Dallas, TN
Sat Dec 27, 2008
I have been a listing/buyer agent regarding bank foreclosures. Each property stands alone research required on effectively placing bid with your buyers agent. We have been successful with our clients, HOWEVER many buyers homes with equity have bidding wars. Matter of who has top offer and how sale offer contract is prepared and supporting documents receive an executed agreement from bank.

Low ball offers too an extreme are not accepted by banks. Banks would assume hold property than sale for nothing.
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