Offered all cash on REO but 40,000 less than asking.

Asked by Peaceful, 93003 Tue May 18, 2010

Offer today was lower than asking price. House needs several immediate repairs, complete remodel of two bathrooms, fence, ceiling popcorn replaced, paint, carpet, kitchen appliances Is 40,000 too low ball on a asking price? Thank you for any guidance. Our realtor was going to discuss the offer with REO realtor and get back with us. No word, yet.

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19
John Juarez, Agent, Fremont, CA
Tue May 18, 2010
You ask if $40K under asking makes sense and I ask why does your question make sense? I know that may sound harsh but we haven’t seen the house. We don’t know if it is $40K below a $100K price or $40K below a $500K price. Those of us who are not in the 93003 area don’t know the area and its current market. In my market, $40K under asking in the average REO priced at $500K or lower will elicit scorn.

You say the house needs repairs (or upgrades) but we have no way of knowing if the list price reflects its current condition. REO houses are often listed somewhat below the market price of a similar “normal” sale in order to elicit fast, multiple offers. Just because it is not up to your standards does not automatically mean that it is worth less that the list price. What do the comps show?

What advice did your agent give to you?

If this is your first attempt to buy an REO house, you are in for an interesting experience.
2 votes
Harold Sharpe, Agent, LAKE HAVASU CITY, AZ
Thu May 27, 2010
Hi Peaceful,
I can guess what happened.
you didn't hear anything because they did not accept it.
FYI saying 40,000 under asking is not a great clue.
is that 5% 10% 20% under value?
was it new on the market?
had it been up for sale long?

Harold Sharpe - Broker
So Cal Homes Realty
(951) 821-8211
harold@socalhomesrealestate.com
http://www.socalhomesrealestate.com
California Department of Real Estate License # 01312992
1 vote
The Medford…, Agent, Fremont, CA
Thu May 20, 2010
Peaceful:

As someone who has represented dozens and dozens of buyers in REO transactions, and as someone who has also personally purchased REOs, I think I may be qualified to respond to this one.

I predict that the REO listing agent will not provide any assistance or recommendations in helping determine price. They will simply state that you should submit your highest and best and then wait to see what happens. IF they respond to your agent at all. Don’t count on a response.

If you are offering $40,000.00 under asking, you can expect a few things to happen:

(1) They may totally ignore your offer and not respond.
(2) They may counter back very close to asking price.
(3) If another offer comes in while you are dickering, all bets are off and you will have lost any advantage. They will no longer negotiate, they will simply send out a multiple counter and ask for your highest and best.

I want to highlight some comments from below:

@Barry: “Typically, the condition of the property is already factored into the list price …”

Correct. They’ve already done a few BPOs and will have looked at dozens of graphic pictures detailing property conditions BEFORE setting the price.

*****

@Janis: “Also, if REO price is much lower than comparables to begin with, then you could be facing competition on your offer.”

Don’t know your market, but that is certainly the case here in this market.

*****

@Steve “Rather than relying on the opinions of this forum regarding an unidentified property, you should be using the "gold standard" of determining pricing trends -- a Comparative Market Analysis (CMA).”

TOTALLY agree. It’s the only way to effectively determine price. Not the opinions of this forum.

*****

@John: “What advice did your agent give to you?”

TU. You need to be talking to the boots on the ground in your area.

*****

Here are some posts that may be helpful:

Top 10 Things I HATE About REOs: AND 3 Startling Consequences
http://bit.ly/1PWj4V

How To Buy An REO – Top 17 Questions Answered
http://bit.ly/YGweG

What Do REO Lowball Offers Have In Common With Tyrannosaurus Rex?
http://bit.ly/7ag8Z5

The Death of Negotiation: Top 5 Consequences
http://bit.ly/6TPoQO

Wanna Buy An REO? You MUST Watch This ...
http://bit.ly/7M5It7
.
1 vote
Steven Ornel…, Agent, Fremont, CA
Wed May 19, 2010
Hi Peaceful,

I'm not familiar with the Ventura area market and basic details regarding the home are not provided, so specifically commenting on your transaction is difficult.

I believe there is a tendency for Buyers to equate "REO" status with a discount. In Real Estate, subscribing to generalities and the "herd mentality" is quite dangerous. I think you would agree that buying a home is an important financial transaction.

Rather than relying on the opinions of this forum regarding an unidentified property, you should be using the "gold standard" of determining pricing trends -- a Comparative Market Analysis (CMA). A CMA always provides the best representation of market price/activity/trend direction - for the SPECIFIC property details you search on. Your Agent should have reviewed a CMA with you to arrive at final offer price (taking into consideration the condition of the property).

If this has not been done, you might now consider taking a step backwards before moving forward on this property. If you find that your offer is out-of-line with the market realities have your Agent submit an offer addendum.

Best, Steve
1 vote
Dan Chase, Home Buyer, Texas City, TX
Tue May 18, 2010
It was in need of immediate repairs.

Or did you not like the style of things?

Old outdated bathroom and kitchen just means your style and the style of the home seller are different.
Popcorn ceilings sound tasty. Again, style not substance.
Do the kitchen appliances work? If so no need to replace.

Flooring is a plus. You can put in just what you want and take off the cost from the purchase price. Now that is the best way to do it.

Did it need the roof replaced? Did it have a broken foundation? Did it have rotted sills? Did it have structural issues? If so those are legitimate repairs. Those do require a lot of money to fix.

If that kind of fix is needed you should take off the cost of repairs needed and a bit extra compared to what the house would be worth when fixed up. Not knowing any details at all of real problems you may have offered to low, you may have offered very high.
1 vote
Eric J Soder…, , Pleasanton, CA
Tue May 18, 2010
It's important to give the listing agent some ammo. Make it easier for him/her to sell the deal to the bank. Take photos of everything that needs repair and have a contractor give you an estimate on the repairs. Submit all of that with your offer. If the bathrooms are in acceptable condition and you just want to remodel them that might not fly. There are always things that need to be fixed. Look for them and log them. You have to sell the deal if you are going to lowball. Especially when inventory is so low. Good luck.
1 vote
Janis Calkins, , Ventura, CA
Tue May 18, 2010
Your agent should run a Market Analysis for you and provide you with guidance as to where your offer should be. Just because a remodel is needed often does not warrant a lower offered price. What is important is the listing price and how that compares to other similar properties which have recently sold. Then an analysis for cost to cure can be made and analyzed within the context of the CMA.
Also, if REO price is much lower than comparables to begin with, then you could be facing competition on your offer. Sometimes the list price is not well established and can be way low or too high.
The bank will choose the highest offer with the most cash down. Also, I am sure you are aware that the bank will do no repairs. REO realtors often just end up being the go between for the bank listing. They will also look for the highest offer with the most cash down and send it into the bank. The strongest offer will get the property.
A good realtor is one that knows the market and can analyze and guide you as to your offering.

Janis Calkins
Ventura Property Shoppe
http://www.Venturahomesforsale.org
1 vote
Bill Dandrid…, Agent, Durham, NC
Tue May 18, 2010
Without knowing the original listing price, I believe that $40,000 below list price on a REO property is not out of the question. Initially, just because you think that the bathrooms need a remodel, if they serve as they are intended as situated, they do not NEED a renovation to make them functional. Likewise for the paint, carpet, and appliances; if they are working as intended, the home inspector and the seller will think that they are worthy of the list price.
I tell my clients that a "low ball" offer is generally 10% below list price, but that is only if the listing agent has a reasonable CMA that justifies the list price.
Web Reference:  http://durhamcityhomes.com
1 vote
Steve, Both Buyer And Seller, Arizona
Wed Sep 1, 2010
You might consider withdrawing your offer and letting the listing agent know that you are still interested if the seller/lender ever gets their act together. I too have been frustrated at the losing game some of the in-denial owners/lenders are playing.

Case-in-point: A contractor friend and I toured a torn-up luxury home in January. It was priced at $1.2m. We offered $500k and explained in detail why the offer was that low. The listing agent laughed us out of his office. In June, we noticed that some work was being done at the property. Curious, I looked up the sale price. It sold for $375k through a different broker!

We lost, the listing broker lost, the seller lost.

Take your money to a seller/lender who knows how to help you both win!
0 votes
Blake Mashbu…, Agent, Ventura, CA
Thu Jun 10, 2010
Peaceful, I cannot anwer this question without knowing the price of the home you're offering oin, nor how it is priced in comparison to other homes in the same area.
0 votes
Janis Calkins, , Ventura, CA
Mon May 24, 2010
Peaceful,
Wondering why you have not heard anything yet. You must be dealing with a short sale situation as opposed to an REO? If it was an REO bank would respond within about 48 hours. If this is a short sale, you should have the agent representing you find out what has been accomplished in moving toward approval of a short sale situation. Also, what does the loan situation look like? More than one loan? Is there a HELOC loan behind the home. If so, you can wait a very long time for any type of answer from the bank.
I would certainly be continuing to look at other properties in the meantime if this is a short sale situation.
Keep you eyes open for other properties that are listed at good prices. Not all foreclosure and REO properties turn out to be the best deals in the current market.
0 votes
Ken Wallis, Agent, Ventura, CA
Mon May 24, 2010
any word on your offer yet?
0 votes
Heidi Golff, Agent, Ventura, CA
Fri May 21, 2010
We are rooting for you ~~~
0 votes
Peaceful, Home Buyer, 93003
Fri May 21, 2010
I will update soon. Waiting to see what happens. Should hear back next week regarding offer. I will give full details once the dust settles. Interesting input from each of you. Will keep you update on progress.


Peaceful.
0 votes
Heidi Golff, Agent, Ventura, CA
Fri May 21, 2010
Don't keep us in suspense....what happened???
0 votes
Matt Heisler, Agent, Westborough, MA
Thu May 20, 2010
There is some terrific advice in this thread. I wish I had more to add. Great Job!
0 votes
Barry Shapiro, Agent, Camarillo, CA
Thu May 20, 2010
Peaceful,
Typically, the condition of the property is already factored into the list price (otherwise, Buyer's would tend to shy away from writing an offer entirely). Any offer below 5% of list price will likely be countered. Expect a "highest-and-best" reply back from the REO listing agent. In the meantime, sharpen your pencil and decide what's the highest price you'd like to pay -- and be sure to indicate you can close by the end of this month. In the event the property has been sitting for over a month or two, you have substantial leverage with all cash and a home that will not qualify for FHA financing.
0 votes
Ted Mackel, Agent, Simi Valley, CA
Wed May 19, 2010
Peaceful,

I posted a video answer on my Youtube Channel. Too much to type. I outline the pitfalls of taking this type of line item reduction approach in determining an offer price for open market distressed properties.

http://www.youtube.com/watch?v=mdU5bQ-cB4o

I recorded late last night and have been finishing up work on a few Short sale escrows I have going before my trip to San Francisco tomorrow to speak to Realtors on Video marketing. Please accept my apologies for the delay.
Web Reference:  http://www.HomeBuysBlog.com
0 votes
Heidi Golff, Agent, Ventura, CA
Tue May 18, 2010
Hello Peaceful,

It is inappropriate for a realtor to answer a question when you state here that you made this offer today through another realtor. You have representation. The listing agent probably has several offers to sift through; it could take some time. I will be interested in seeing how this plays out, however, as I have my own opinion of how offerering $40,000 under list in the 93003 area code will end. I wish you the best of luck. Please let us know what happened. The buying community will probably have something to learn from you.
0 votes
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