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Lowballing An REO Property

Reblogger
Real Estate Agent with Group one real estate 0530916

This is certainly a very educational post.  It is hard for buyers to understand this because of media and ads they are reading about how "OTHERS" are buying houses for almost nothing...this blog holds even more truth in Texas.  Thanks!

Original content by Israel Barden

Frugal

Let's get one thing straight. In most instances, the days of being able to lowball a bank owned property are over. There, I said it and I mean it. You used to be able to attempt it a few years back when there was a glut of properties and no buyers. Things have changed. Inventory is down by 50% and sales are up by 35%. This means there are much fewer houses to choose from and a much larger number of buyers to compete for what is available.

I can't tell you how many times I have seen buyers lose a property because they refuse to understand this fundamental change in our market.  If you see a house that you think is a great deal, I guarantee there are at least one or two other people who feel the same way. These people are also going to be putting in bids on the home in question. If you put in a low bid, you just took yourself out of the equation. In many cases, the bank will only respond to the offers they feel are the best. Odds are, you will not be given a chance to up your bid. In many instances, your first offer is your best offer. Many listing agents don't even want to get into all the drama of dealing with multiple offers. If a clean, all cash offer comes in, they will just advise the bank to take it as it is a " sure thing ."

In many cases, banks are pricing REO's below value to start a " price war." This strategy is very successful. The bank puts a home on the market substantially below value and watches the offers roll in. They then issue a best and final counter to all parties and take the highest offer. Recently, I had an opportunity to see this first hand. A nice home next to open acreage came on the market at $204,000. My clients loved the house, but I knew it was going to garner a large amount of attention. I advised them not to write an offer unless they were willing to go up to at least $230,000 or so. Since they did not want to spend that much on a vacation home, we didn't write an offer. I saw it closed last week at $255,000. That is just one example of how this system works.

There are a few instances where a lowball strategy can be successful. The most obvious case is where a home is overpriced and sitting on the market. These sellers may be getting tired of waiting and be willing to bend on price. However, you must take into account the fact that the house is overpriced to begin with. Even if you do manage to get a significant price decrease, you are probably only doing a little better than market value. If a home is in really bad shape, and you are handy, you may have a good opportunity to get a deal. Most people are not interested in a home that needs a ton of work and that may present a good chance for you to get a deal.

Keep in mind the fact that these homes are good deals to start with. In most cases, even if you have to go over list price, you are getting a great buy. When you are buying a house for 50% of what was paid for it a few years ago, you have no cause to complain. If you take the time to really put things into perspective, only then can really go about getting a good buy on a bank owned home.

Comments (6)

Chuck Carstensen
RE/MAX Results - Elk River, MN
Minnesota/Wisconsin Real Estate Expert

Wonderful repost.  This is one I think I should share with my readers as well.

Jun 07, 2011 05:28 AM
Lyle and Grace Caddell
Realty Executives All Area - El Cajon, CA
Top Real Estate Profesional

good blog great info 

Jun 07, 2011 05:35 AM
Mike Cooper, Broker VA,WV
Cornerstone Business Group Inc - Winchester, VA
Your Neighborhood Real Estate Sales Pro

Tiffany, you are right on the money.  It's hard to get people to realize that the REO companis also want to get the most out of their properties.  Thanks for bringing this back. 

Jun 07, 2011 05:35 AM
Tiffany Burke
Group one real estate - Corpus Christi, TX

Yes,  I find myself saying this over and over to clients.  It is flustrating to me and I'm sure many of you.  I have to tell them, "when  you are  looking for a deal and  are making an offer on a property that was specifically priced for quick sale at 30% under value... THAT IS "THE" DEAL".  What exactly do you expect is my question, and is this expectation in line with reality?  Do you really expect 25% more knocked off the price? 

Honestly, I feel lucky to get any of these deals to accepted at even full price, and estatic if bank agrees to pay any of the closing cost BECAUSE they are already exceptional deals.  

Made an offer on a REO property this weekend that came on the market a month ago well under market value, then it was dropped $30K...it was NOT a fixer upper, fairly new large home, great location and perfect for my clients.  Client told me he wasn't in a hurry but wanted to get A REALLY good deal.  This happened to be one of those rare properties that was a real steal!  First off he wants to offer 20 thousand less than asking price...We discussed it and I let him know it was UN-reasonable. We did write a full price offer but ask for closing cost.  They came back with counteroffer and agreed to pay a large portion of closing cost, but suggest he use the special fin. in case any lender repairs came up on his VA loan because they did not intend to pay any repairs at all...He refused to change loans and that was fine but as safety net raised price by $1K and then offered the $1K to cover any lender repairs...(all fairly standard things) I thought this to be fair. However; this man went into an extream tantrum...and sent me a not so nice message to the effect that I was not fighting for him,  I was on thier side,  that he was going to call media, that he was discusted with this counter-offer etc. I mean to tell you, I was floored by this reaction. There were at least two other offers on the table, I got him all but about $1500 of his closing cost paid and now we are down to a $1000 difference which in the end would most likely be used the way he would want to use it anyway but if not he was given option to request it back.

I am still  scraching my head on this one because I don't exactly know where I went wrong or what I could have done, said or changed to have had this turn out better.  Have NEVER even once in almost a decade had any client question my loyalty to them...just really a hard pill to swallow. So, yes feeling really sour on this transaction today. 

Jun 07, 2011 07:25 AM
Mike Cooper, Broker VA,WV
Cornerstone Business Group Inc - Winchester, VA
Your Neighborhood Real Estate Sales Pro

Tiffany, don't let it bother you.  If you did your job, and it looks like you did, it's his problem.  For some reason a lot of these low ball buyers can't get it through their heads that the price has been set low to move the property.  There isn't always a lot of flexibiity, but they think there is regardless.  Keep your chin up.

Jun 07, 2011 12:41 PM
Anonymous
JZ

Ok, now let's get a regular old buyer to give their silly opinion, that market out there that you are saying is already a great deal is the market you are comparing to the over-priced market of not very long ago at all...... I see the current market prices as getting back to normal, not great deals.

You are biased, because your paycheck is directly associated with the prices.

Again, it's called a free market (look it up), the prices we are willing to pay create the market, not, the agents selling the properties.... and if the banks don't like our offers, then yes, they can sit on them and continue to lose money on them.

Aug 02, 2011 10:06 PM
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