If you have been making offers on bank owned properties lately you have probably heard the term "highest and best offer". As in " this is a multiple offer situation please submit your highest and best offer by noon tomorrow". A lot of buyers automatically assume the the highest offer is the best offer, but that isn't always the case.
Many buyers can't believe they got out bid even though they offered more than the asking price. My foreclosure listings routinely get multiple cash offers above asking. A typical offer for a foreclosed property will be for cash somewhere near the asking price, a 3% to 10% earnest money deposit, and 5 to 15 day inspection period. Competition for these properties has gotten tough lately. I am going to offer a tip that will make your offer much more competitive and more likely to get accepted.
The "best" in highest and best has to do with terms and contingencies attached to the offer. Eliminating these contingencies will make your offer stronger and stand out even though it isn't necessarily the highest. Asset managers, the persons put in charge of disposing of these properties, don't have a lot of patience. They want the properties sold quickly. An offer that is 10% higher than asking, but is subject to financing, and a 15 day inspection may actually be looked at as a weaker offer. Accepting this offer has risks because they don't know what will happen at the inspection and whether the buyer can get the financing needed. The property is off the market for an extended period of time and could end up back on the market a month later when things go wrong.
So here is the tip. Make your offer as-is without inspection contingencies. This may sound nuts to a lot of you but it will work. There is plenty of cash out there chasing these foreclosures. It's really not that special. In the eyes of an asset manger an offer without inspection contingencies, and especially financing contingencies, is much more likely to close. Its worth giving up a higher offer with potential pitfalls. If you are an experienced investor you should know what to look for when it comes to repairs issues, or you have someone at your disposal to check out a property before the offer is submitted. You risk the expense of the inspector but in the long run you will close more deals and at a better price. To me there are properties where hiring a professional isn't necessary. Condos for instance. How much can possibly be wrong in the interior of a unit that isn't plainly obvious. An AC unit? A hot water heater? And if that $50,000 condo can rent for $1000, there is certainly some room for error anyway.
To be clear I am not saying fore go the inspections entirely. A 50 year old home on the water with a seawall and dock should surely be seen by pros. Use your common sense. Some of you are comfortable doing your own inspections and thats great. Otherwise just hire the inspector before the offer is presented and be sure the offer clearly states there is no inspection contingency. The lack of an inspection contingency also shows you aren't a flipper. A long inspection period is a tool used by flippers to get control of a property and quickly find a buyer to flip it to for a profit. If they don't find a buyer during the inspection period they simply use the contingency to get out of the contract. This is also known as a "weasel clause". The strongest offers have quick closing dates, no contingencies and high, at least 10%, earnest money deposits. If you really can't inspect a property prior to submitting an offer make the inspection period as short as possible, say 1 to 3 days.
If you are an agent working with buyers I know you are frustrated with the low percentage of accepted deals on foreclosures. You can't really recommend to your buyer to skip the inspection. That could just get you in hot water. If you can get your buyers to accept the small risk of employing the inspector without a solid deal in hand you will more likely be the BEST offer and not necessarily the HIGHEST. I have seen this work as both a listing agent for REO properties, and a strategy I have shared to help my investor buyers get more closed deals at a better price.
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