On an REO, what if the amount owed is considerably higher than the market value?

Asked by Keri, Plano, TX Tue Jul 5, 2011

I'm looking at some bank-owned properties in the Frisco and McKinney area in North Texas, and while trying to decide which ones are worth the effort, I keep running across homes that have more in loans than the market value. I know I'm looking in very nice neighborhoods. That's why I started looking at REO's. I just don't know how much a decrease in market value and owners "walking away" plays into the huge discrepancy in dollars. Is it unreasonable to hope for a great deal?

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Steven Babco…, Agent, Denton, TX
Tue Jul 5, 2011
It doesn't matter what is owed to the bank on a REO. They have Realtors perform BPO's (broker's price opinions) to look at the "Market Value" and will base their decision on this. If you are cnonsidering purchasing, you should have a Realtor do the same.
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Don Groff, , Cedar Park, TX
Thu Jul 7, 2011
You definitely want to consult a buyer's agent you trust to help you with this complex situation. The amount owed on an REO property .... or any property for that matter has nothing to do with your pricing. It's not your job to bail out a bank or a seller. It's your buyer's agent job to get you the best possible price.

Homes will sell for a market price in just about all circumstances... the market determines price. Not mortgages or seller's needing to walk away with X amount of dollars. Homes sell in relation to their competition in the market. Sure you can get a good deal but be aware that a good deal is going to be seen by others so if you believe you are getting a good deal you need to move forward at full speed.

Talk to a buyer's agent who can help you navigate the market. Best of luck to you.

Don Groff
REALTOR® | Mortgage Broker
Keller Williams Realty | 360 Lending Group
o.512.669.5599 m.512.633.4157
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Guy Gimenez, Agent, Austin, TX
Wed Jul 6, 2011
As a buyer, you should not care what the previous owner owed on the house...the ONLY thing that matters to you is whether are not you're getting a good value. It is very reasonable to expect a good deal in our current market conditions, but a lot depends on the sales data for the community you're looking at.

STOP worrying about what was in the past and instead only look at what price would be considered a good deal to you.
Web Reference:  http://www.phgbrokers.com
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Dallas Texas, Agent, Dallas, TN
Tue Jul 5, 2011
You need a buyers agent to assist with all of your questions

I have a listing in McKinney short sale $35,000 below tax value on 2.65 acres McKinney ISD
Direct Link:

Lynn911 Dallas Realtor & Consultant, Credit Repair Advisor
The Michael Group - Dallas Business Journal Top Ranked Realtors
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Bruce Lynn, Agent, Coppell, TX
Tue Jul 5, 2011

When the property is an REO there is no amount owed? The previous liens have been wiped out.
All prices are flexible in my experience. We work both the buyer and seller side of REOs, so if I can assist you please let me know.
It sounds to me like you are looking at some kind of foreclosure report and those may not be worth the money as many show you notices of default, not actual REOs. Many of those will never go to foreclosure.
I guess it also depends on what you think is a good deal. The best deals are on the ones that are ugly and need work. So you want to pick the ones with appliances missing, yards overgrown, carpet messed up, etc. Those will have the biggest discounts. The ones that are pristine and ready to go and ones everyone would like, will sell closer to retail value in most cases.
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Michael Emery, , Minneapolis, MN
Tue Jul 5, 2011
If you look in the supplementary documents provided by some banks when they are marketing REO homes there's language that specifically states it doesn't matter what they paid for the home (either too high or too low). The market price is determined by assessing the current market value.
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, ,
Tue Jul 5, 2011
You'll get a lot of answers on this one. You may want to include your purpose of the loan: Primary residence or investment property. If investment property, are you planning on renting it or flipping it?

Remember that on a national average, home values are going down this year about 11%. If someone owes more than the value but you really want the house and don't care about the value, then ask the owner if their loan is assumable. You may be able to pay him/her a small fee to walk away from the house and you take over the payments. This is done in a title office with permission from the lender.

If you do care about the value, go to the courthouse for that county and check out the properties going into auction. You can find properties at 30 cents on the dollar.

Another option is to ask the homeowners how much they want for the house. Distribute a flyer in the neighborhood, "What will it take you to move?" If you get a call and the person is upside down ask him/her if the bank is willing to take a lesser amount and have the seller hold a second mortgage promissary note for the difference. There is no lien on the house. This allows the seller to walk away from a potential default and pay the difference of the shortgage.

Most people won't do the above, they just walk away.

Check out the site: netronline.com for tax assessment values and appraised values based by county. In most cases, you just need the address of the property.
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Grayson Rand…, Agent, Houston, TX
Tue Jul 5, 2011
Hi Keri,
The first thing you should keep in mind that the asking price is negotiable. There are several factors to take into consideration when looking at REO properties. I have extensive experience in dealing with these types of properties. If you would like a list of properties and to discuss tactics I am happy to share my knowledge. Please contact me and I will help.
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