Savvy home buyers want to hit the jackpot and buy that Prescott AZ REO foreclosed home, many of which are priced under the market. When banks price REOs under the comparable sales, multiple offers are often the response. This means you could be up against stiff competition for that bank-owned home.
It's not unusual for some Prescott AZ REO homes to receive 5 to 10 offers. Sometimes the bank will throw out all but two offers and then ask the selected buyers to resubmit what is called "Highest and Best" offer. Some banks simply accept the best offer. If you're wondering how you can make your offer shine above all the rest and be the winning offer, here are a few tips to help you select the right price and terms:
1) Get the Property History
Ask your buyer's agent to find out the bank's purchase price on the Trustee's Deed. Generally, it is noted on the document itself, which you can get from the tax rolls or a title company. Compare that price to the price the bank is asking.
Look at the amount of loans that were once secured to the property. Somewhere between the original mortgage balance(s) and the foreclosure sale price is the amount the bank will accept.
2) Determine Comparable Sales
In many cases, the list price has little bearing on the value of the home. The market value carries the most weight. If you are up against competing offers, other buyers will offer more than list price.
Look at the last three months of comparable sales, a mini CMA, for that neighborhood to determine how much this REO is worth. Try to use only those homes that most closely match the REO regarding square footage, number of bedrooms, baths, amenities and condition.
Look at the pending sales.
3) Analyze Listing Agent's REO Solds
Most REO agents work for one or two banks. Many Prescott REO listing agents are exclusive listing agents for REOs, and they do not list any other type of property. Since REO agents deal in volume, they typically apply the same pricing principles to all their REO listings.
Ask your buyer's agent to look up the listing agent in MLS.
Run a search using that listing agent's name to find the last three to six months of that agent's listings.
Pull the history of those listings to determine the list-price to sales-price ratio. If most of those listings are selling for, say, 5% over list price, then you may need to offer 6% over list price, and vice versa.
4) Ask About Number of Offers
If there are no offers on the REO home, you can probably offer less than list price and get your offer accepted. However, if there are more than two offers, you will most likely need to offer above the asking price.
If there are 20 offers, bear in mind that some of those offers might be all cash. Banks like all cash offers. If you are obtaining financing, then you may need to increase the price on your offer to be considered.
5) Submit Preapproval Letter
It goes without saying that you do not want a prequal letter. You want a preapproval letter. Get preapproved from your lender in advance.
Sometimes preapproved by the lender who owns the property is required. Do not expect to use this lender for your loan, but submit the prepproval letter from this lender, along with the letter from your own lender. Banks don't trust others lender preapprovals but trust their own departments.
6) Don't Ask for Repairs
Sometimes banks will pay for repairs, but typically will not agree to do so at the offer stage. If there are problems found during a home inspection, renegotiate after your offer has been accepted.
7) Shorten the Inspection Period
If another buyer asks for a 20 day inspection period, and you ask for 10, you will be deemed the more serious buyer.
8) Offer to Split Fees
Some banks will not pay transfer fees, for example. If the buyer offers to split those fees, the bank will feel more amenable to accepting the offer. Same thing for escrow fees.
Many banks negotiate discount fees for title insurance. If the bank will pay for the owner's policy, the ALTA policy might cost a bit more. But it's still a good idea to let the bank choose title if you want your offer accepted.
9) Accept the perks if availble. Many banks have programs such as HomePath and HomeSteps which allow the bank to pay up to 3.5% of the buyer's closing costs. I have noticed in the Prescott REO market that when these perks are offered, there does not seem to be any downside to using them.
Dave Conners specializes in Prescott REO properties.
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