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!
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.