Is an offer 20% below asking price too low for an REO property?

Asked by Jaws3d1983, Los Angeles, CA Fri Feb 6, 2009

I'm looking at an REO condo that has been on the market for thirty days at its current price and much longer before that. The kitchen is a tear-out, there's been unpermitted, potentially troublesome plumbing work done and the HOA just approved an assessment of $23,000 for this unit alone. Because of the condition of the unit and the cost of the HOA monthly dues / assessment, I offered 20% below asking price. The asset manager countered by only knocking 4.6% off the asking price. Apparently the comps in the area didn't support my offer, but I feel the comps are from newer, nicer buildings which do not have sky-high HOA costs. I thought my offer was reasonable. Am I delusional?

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Annette Law…, Agent, Palm Harbor, FL
Sun Aug 31, 2014
When this question was posted, Feb 2009........
low balling was not a bad practice. However, asset managers have different priorities that are not directly related to property value. That become evident and the crash matured.

Today, Aug 2014, a 20% low ball hasn't a snowballs chance in LA...or FL.....or TX.
But those folks coming out of those seminars still try to snag a deal with the help of hard working, energetic, newbies.
1 vote
Nicely put Annette.
Flag Sun Aug 31, 2014
My NC Homes…, Agent, Chapel Hill, NC
Sun Aug 31, 2014
Yes you're wasting your time. In fact buying a foreclosure is almost certainly not in your best interest you're exposing yourself to additional risk and trust me based on my 335 years of experience flipping homes and as a Realtor at best 1% of all foreclosures are actually deals. Most are fair deals at best (why would you want additional risk for a fair deal) some are money pits. I've personally never purchased a foreclosure for myself (and I'm in the business) I have helped at least 100 buyers do this while telling them exactly what I'm telling you and over my career have sold hundreds of them. You should ask yourself why someone like me isn't buying them and the reason is simple, their not worth the price.

You aren't going to get an asset manager (some of the dumbest and most arrogant people on the face of the earth) to take you seriously as you've already discovered. In fact everything you've written about this property tells me you should be running away as fast as you can. Obviously the HOA is a disaster and you're already experiencing the stupidity and arrogance of asset managers. Move on and stop looking at foreclosures unless you enjoy subjecting yourself to aggravation.
0 votes
Mike Dronge, Agent, West Hollywood, CA
Sun Aug 31, 2014
I do agree with Jason here but banks are also very concerned with if you can close. So coming in strong with a big down will help you, and coming in with all cash even more.
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Jason Galardi, Agent, Beverly HIlls, CA
Tue Oct 1, 2013
I tell all of my clients the same thing, "It's not where you start, it's where you finish." You can make any offer you see fit but it is best to counsel with your agent as he or she is the expert but the ultimate decision is yours.

From my understanding, typically REO's go within 5% of the asking, that is the banks threshold.
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Jaws3d1983, Home Buyer, Los Angeles, CA
Mon Feb 9, 2009
Thanks to all who have replied. I understand the logical choice for the asset manager is to evaluate offers based upon the comparative sales or listing prices in the region and I do agree that the property is already listed under fair market value. What I don't understand is why the asset manager seems resistant to lower the asking price further when the property has been on the market 82 days. The HOA assessment on the property probably kills most buyer interest and the lender seems oblivious to the impact such a cost has on a buyer's perception of value. Well, I'm keeping my eyes peeled for future changes to this property's listing. I have a feeling it's either going to drop in price or stagnate further. I don't see it selling anytime soon.
0 votes
Benny Chavez, Agent, BELLFLOWER, CA
Sat Feb 7, 2009
Go by the COMPS = comparable sales in the neighborhood, if the area you are looking is in anything like mine and I guarantee it is..... the price on the REO may already be lower than the fair market value, banks are doing this to attract a lot of attention and showings which turn into = offers that make the final sales price sometimes $5000-$10000 above list. You should seek a buyers agent who has closed sales on REO's in the past 6 months.
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Keith Sorem, Agent, Glendale, CA
Sat Feb 7, 2009
It sounds to me as though as have a good case. The key is to present your offer in terms that an REO asset manager will understand.

When a property enters the REO inventory the asset manager will have an appraisal done in order to come up with a valuation. This work may have be completed without anyone actually looking at the comparable sales. So in order for the asset manager to change their mind they will need new information that they deem to be reliable.

Assuming that this property is listed by a Realtor, generally the Realtor has other REO listings, so the problem is that they may or may not have inspected this property. They also may be using the tactic of allowing the asset manager to over-price the property, then after their are no offers or only low offers will be able to say to the asset manager that the market is saying the property is over-priced.

The other possibility is that by pricing it high the asset manager can show the investor that they tried to get as much money as possible for the property.

You are viewing this as one property. For the investor, the asset manager, and other parties this is just part of a larger pool of properties (perhaps ten or 100 properties) that they are trying to sell. Do not expect to receive the same response from these people as you might from a single owner.
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Bill Eckler, Agent, Venice, FL
Fri Feb 6, 2009

It really makes no difference what we feel. The banks are in the driver's seat and if they feel your numbers don't work for them......NEXT......and move on the the next offer.

One of the benefits to working with a local real estate professional that is somewhat versed in "foreclosures," is they will have a grip on what the local trends are and what the banks are accepting in specific complexes.

Good luck
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Jeffrey White, Agent, Beverly HIlls, CA
Fri Feb 6, 2009
Are you working with an agent? There are many other facets to an offer other than price. Changing a few contingency periods and other details can help make an offer look better. But to answer your question simply, yes 20% shy was obviously too little if price was the reason they rejected it. If they gave you 5% maybe they will meet you at 10? When hardballing on the price you have to give them other attractive details in the offer, otherwise they will just toss it aside. Let me know if you need representation. Remember it is paid for by the seller!
0 votes
Dallas Texas, Agent, Dallas, TN
Fri Feb 6, 2009
You need confer with your buyers agent, bank does have comp''s and pictures of property. Unless a realtor walks property see comp's and etc truly can't make a decision. If you feel more work than value recommend continue your search for another property however keep an eye on this location. GOOD LUCK.
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