How much to offer for REO (bank-owned) new home?

Asked by Cnotley, Albuquerque, NM Thu Feb 18, 2010

Bank owns property (REO). House has never been lived in as in 1.5 years old - apparently the builder went out of business. The list price seems quite a bit higher than the market value, based on my research. Is it uncommon to submit an offer that is more in line with the market value of the home, even if the market value is substantially lower than the list price? I that that it might be wise for me to subtract 20% from the home's market value, taken into consideration further depreciation, and then submit that as my offer, but I wanted to see what other people who are experienced in this area of real estate think.

Thank you in advance for your feedback.


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John Juarez, Agent, Fremont, CA
Thu Feb 18, 2010

“…wise for me to subtract 20% from the home’s market value…” You want to offer less that asking price and you want to subtract another 20% from what you perceive to be market value.

“Thank you for your feedback,” you say.

You are not looking for feedback; you are looking for free advice. Here is my advice. Get yourself a local, knowledgeable Realtor to help you. You need help on pricing and probably other aspects of buying a home. And here is the part you will love…it will most likely be free for you! The buyer will most likely pay the Realtor’s commission. You get professional representation and someone else pays the bill. What a great country!
2 votes
Eric Trujillo, , Albuquerque, NM
Sat Aug 7, 2010
This is a very common question people have, but it is not a formula that works 100% of the time. A better question to ask is what is the house worth? Once you determine what the house could sell for in this market, you can compare that price to the current list price, and make some determinations from there. I have seen plenty of REO sales that have gone WELL over list price because the current market value of the home exceeds the current list price. Similarly, I have seen many REO sales that the list price FAR exceeds the current market value. In either case there will be different approaches to negotiations.

As far as pricing for future depreciation, well... That is a sticky situation. No one can predict what the future will hold. It could appreciate greatly in the next year due to a new company opening or sheer development in the area. There are lots of variables in this equation and the best thing to do is take all into consideration and arrive at a value that YOU feel comfortable with. It is futile to discuss anything more/less. It ALWAYS comes down to the buyers comfort level on a particular property.

There are plenty of choices out there. If this one gets away, there is a always another one just around the bend.

Negotiate HARD! It is a buyer's market and a unique opportunity for wealth building by entering the market during a depressed real estate cycle. The property is ripe for the plucking, have some fun with it!

Good Luck! I hope you find what you are looking for and that the property grows to be an astounding asset to you.
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1 vote
Sandi Pressl…, Agent, Albuquerque, NM
Mon Jul 5, 2010
Many great answers here. You can submit an offer like you want but have an outstanding loan package with it. The more you ask of the Bank the more exceptional your ability to buy it must be. A buyer with 20% down, high credit scores, no debt with high income will have the bank entertaining the offer. 5% down without submitting your paperwork to a bank with an offer of 20% under market value will have it on the back of their desk. Good Luck
1 vote
David Staffo…, Agent, Albuquerque, NM
Thu Feb 18, 2010
About 10% off is about all I am seeing with REO properties too. Regarding using the inspection, don't rely on it, but I was able to negotiate $5,000.00 off with Bank of America after we sent them our 50 page inspection report! It has to be done right and you can not count on it, just aim for it. If it is a screaming deal, there's usually a line of other folks with back-up offers in behind you, even in this market. Lawrence makes a good point about not going this alone. I bet you are already working with an agent and if so, best of luck, if not, a thought: the listing agent works for the best interests of the seller and you can not expect them to have your interests as priority. You might consider a broker who can also offer you some incentives as well as expertise... read more on my website. You might also consider agents who work in the area you are considering. All the advice provided below has been excellent, and in my opinion, the agents that actually provide valuable info in their answers here on Trulia are usually good ones!
1 vote
Mike Hart, Other Pro, Albuquerque, NM
Thu Feb 18, 2010
I can give you a very thorough inspection, but I recommend the inspection for you own information. Trying to renogotiate the price based on results of the inspection may work, but it may not, and it might just make the deal fall to the back up offer.

I avoid offering anything less than 20% below the listing price. It tends to be a waste of time. Lately, they don't seem to be going for any offers I've made less than 10% below lisitng price and many of the REO homes I've made offers on have sold for listing price or above! These are homes in the less than $150K range. I hear that higher prices homes are not getting the same competitive offers from buyers as the lower price range homes are experiencing. Keep making offers anyway. One will take.
1 vote
Chris Smith, Agent, Albuquerque, NM
Thu Feb 18, 2010
Chris - my experience it is a numbers gaming and timing. It will be hard for you to get insight on that purchase price the bank would accept. Unless you can press the listing agent for information, the banks inventory, profit/loss margins, etc are all areas taken into consideration when bank reviews your offer. For example, I have made offers on bank foreclosures with clients and the bank countered at list price with no flexibility in price or terms. I have made offers with clients and the bank has accepted substantially less. Bottomline, review comps put together an offer and send it are not going to offend anyone. Remember to press the listing agent for action. Sometimes you will experience delays, etc. It is a good idea to clarify respond time with listing agent prior to submitting offer. Also, my experience is that you just make an "as is"....if you are trying to negotiate repairs, etc.....usually delays the process. Make the offer as simple as possible would be a good general guideline. Good luck and let me know if I could be of any assistance.
1 vote
David Chiles, Other Pro, Los Angeles, CA
Mon Jul 5, 2010
Thank you for your question Chris. The general rule of thumb is that bank do not consider offers more than 10% less than the asking price of a property because they want to recoup as much of the market value as possible. The more cash you have the more attention an offer will get from the bank. 'Cash is King.'
0 votes
Rose Varona, Agent, Rio Rancho, NM
Fri Feb 19, 2010
I have also seen around 10%. Banks usually have a range they will consider. I definately do recommend an inspection on the property. Banks also do not like to pay for borrower' s closing cost. Make your offer as strong as you can with a knowledgeable real estate broker because there are back up offers just waiting for the opportunity. Banks are not as flexible as they used to be on price. I do agree with the other advise given below.
0 votes
Lawrence Bli…, Agent, Albuquerque, NM
Thu Feb 18, 2010
Hello Chris:

All of these answers are offering you sound advice, but I have to wonder if you are going at this all by yourself (and why?). You can take advantage of professional advice and help by using a Buyer Broker, and it will not cost you anything!

A Broker has access to more information, and more up-to-date information, than you can find on the public web sites. We can compile a comprehensive price analysis very quickly which will give you a fair offer price--or at least a starting point. The bank already has an idea of what the property is worth, and they likely have a "window" within which they will accept an offer outright. If they have held onto it for 1.5 years already they either haven't seen an offer they like, or they are not being realistic about what the market will bring.

One word of caution, since the builder may have gone out of business there may be unpaid contractors who have filed liens against the property. Hopefully, the bank has settled all of that, but it is worth investigating. A Broker can request this information from a title company for you.

Whatever you do, have the property thoroughly inspected by a professional home inspector, even if you have to pay for the inspection. New homes have problems too, and when a builder walks away from a job you do not know what has been left undone, or wasn't done right in the first place.

In your offer you can still ask for items that are commonly paid for by sellers, such as an appraisal, survey, and even inspections. Whether or not the bank agrees to pay for them depends on their bottom line. Just like a private seller, they have a certain level of motivation to get this house off of their books.

The good thing about pruchasing an REO is that you will usually get an answer on your offer within days rather than months as in a short sale situation.

If you are serious about pursuing this house let someone help you (naturally I'll volunteer for the job). You don't want to make a mistake now and regret it for years to come.

Lawrence Blind
Realtor-Coldwell Banker Legacy
(505) 980-3941
0 votes
David Staffo…, Agent, Albuquerque, NM
Thu Feb 18, 2010
You can submit any offer, but there are ways to be taken more seriously and negotiate to the best price they are willing to sell for at this time. You should submit slightly below a market value you (your agent) can adequately substantiate. You should also structure your offer so that there is less unknown and less perceivable risk to the bank. If they are confident it will close in a timely manner, that goes a long way with them. If you also structure to avoid their conservative assumptions when calculating their net, that will also be to your benefit. Telling them you think values are going to drop and need to account for it will not influence them in the least. On the topic, I would not be buying right now to hold short term, but I would be buying right now to hold long term. There are ways to negotiate with banks, but you need to have someone experienced in doing so. You might also make sure the inspector you use is incredibly rigorous because there are ways to use that as leverage for even more concession. Contact me anytime (email, txt, or phone) to discuss strategies in more detail. Best of luck!
0 votes
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